States Are Taxing Tariffs: Is Your Business at Risk?

Tariffs are no longer only a federal trade or import consideration — they can also be a sales tax concern. Businesses that import goods or resell imported products could be under collecting or under remitting sales tax, potentially creating sales tax audit exposure and compliance risk.

States like New Jersey, California, Illinois, Washington and Wisconsin have issued guidance confirming import tariffs passed on to customers may be subject to sales tax, even if those charges are separately stated on customer invoices. Whether tariffs are taxable often depends on specific factors, such as who is listed as the importer of record and if the tariff was paid directly to U.S. Customs.

Key Business Considerations:

• Review contracts and invoices: Businesses that import goods and pass tariffs on to customers should examine how those charges are listed on the invoice and assess whether they should be included in the taxable sales price.
• Determine importer of record status: The party designated as the importer of record can impact whether tariff charges are taxable.
• Understand state and local tax laws: Sales and use tax rules can vary by state and locality, including treatment of tariffs, exemptions and reporting requirements.
• Update tax systems: Confirm that a business’ sales tax software and billing processes correctly apply sales or use tax to tariff-related charges where required.

Navigating sales tax is complex but essential to compliance. If you’re unsure how these rules apply to your operations, contact us. Our team is here to help you understand your sales tax responsibilities and evaluate sales tax risk.

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