Tariffs and sales tax are often viewed as separate beasts—one imposed at the border, the other at the point of sale. But when you’re a business importing goods into the U.S., these two can become strange bedfellows, conspiring to impact your tax obligations and operational costs in ways that aren’t always obvious.
Let’s break down how tariffs influence U.S. sales tax—and what that means for your business.
First, What Are Tariffs?
Tariffs are government-imposed duties on imported goods. They’re designed to make foreign products more expensive, ideally giving domestic goods a competitive edge. But here’s the kicker: tariffs increase the landed cost of goods, which can have a ripple effect on how states assess sales and use tax.
Sales Tax 101 Meets Import Duties
Sales and use tax is generally applied to the final sale price of goods sold to consumers. But when it comes to imported goods, the “sales price” might include more than just the base product cost.
Here’s where it gets sticky:
Many states consider tariffs to be part of the taxable base when calculating use tax on imported goods. That means:
Higher tariffs can lead to higher sales and use tax liabilities.
This is especially true for businesses that move goods across state lines or use them internally. You’re not just paying more at the border—you may be taxed again based on that higher cost when those goods are used, stored, or sold.
The State-by-State Shuffle
Because sales and use tax laws are governed at the state level, the impact of tariffs on taxability varies.
Some states explicitly include duties, tariffs, freight, and handling in the taxable base. Others may exclude them—at least in certain scenarios. And then there are states that operate in the gray zone.
For example:
- New York and California often include transportation, handling, and duty costs in the taxable amount.
- Texas may exclude some charges depending on how the transaction is structured and documented.
This lack of consistency makes state-by-state tax planning critical—especially for businesses importing goods into multiple jurisdictions.
Tariffs and Sales Tax: A Compound Cost
The combined effect of tariffs and sales tax can quietly inflate the total cost of goods sold. For example:
- You import $100,000 in goods.
- A 15% tariff adds $15,000.
- If your state includes that tariff in the taxable base, and your use tax rate is 6%, you’re now paying 6% on $115,000, not just the original $100,000.
That’s an extra $900 in tax, just from the tariff’s inclusion. Now scale that across multiple shipments per month and suddenly tariffs and sales tax aren’t just an accounting line item—they’re a strategic concern.
What Should Businesses Do?
To navigate the murky waters of tariffs and sales tax, businesses should:
- Review how tariffs are treated in each state where you import or use goods.
- Evaluate your tax engine or ERP setup to ensure landed cost components (tariffs, freight, insurance) are mapped correctly for tax calculation.
- Consult both trade and tax advisors to bridge the gap between customs strategy and indirect tax compliance.
- Stay proactive with customs classifications to avoid misapplied tariffs or overpaid duties that lead to inflated sales tax liabilities.
Final Thoughts: Know the Hidden Costs
In a globalized market, tariffs and sales tax are two sides of the same coin for importers. You can’t afford to treat them as isolated issues.
Businesses that ignore the link between tariffs and tax risk:
- Overpaying tax unnecessarily,
- Facing audit exposure, or
- Missing opportunities to optimize sourcing and pricing strategies.
By understanding how these costs stack up, you’re better equipped to control them—and to turn compliance into a competitive advantage.
