This article was originally published on Aprio.com and is republished here with permission.
U.S. tariff policy has dominated headlines over the last several months creating a climate of uncertainty as these policies are far from settled. Reciprocal tariffs, country-specific tariffs, and revised rates on certain types of products have all contributed to ongoing legal challenges and a fluid regulatory environment.
Amid this unpredictability, one generally accepted principle remains: tariffs increase costs to importers and retailers.
So, what happens from a sales and use tax perspective when a business pays tariffs to U.S. Customs and Border Protection (CBP) and then chooses to pass on the cost of those tariffs to its customers?
Sales Tax: Are Tariffs Part of the Taxable Sales Price?
A common method for businesses to recoup their costs of doing business is to include additional fees on their invoices to customers. For instance, over the last several years, there has been an increase in the number of retailers that charge customers a separate fee for using a credit card.
Recent guidance from the Streamlined Sales Tax (SST) Governing Board clarifies that when a business is the importer of record and paid tariffs to the CBP, passing those costs to customers as a “tariff fee” makes that fee part of the taxable sales price. This means that even if the fee is separately stated on the invoice, it is subject to sales tax just like the product itself.
On June 17, 2025, Illinois (which is not an SST member state) issued a General Information Letter addressing the sales and use tax treatment of tariffs. Similar to the SST guidance, the letter concludes that tariffs are not deductible when determining the gross receipts of retailers selling tangible personal property. Therefore, “if the seller is the consignee (importer) and passes the amount of the tariff on to the customer, it is a part of the selling price, and the amount of the tariff must be included in the gross receipts” subject to sales tax, even if separately stated.
Use Tax: When Do Tariffs Enter the Tax Base?
As described above, when a retailer passes along the costs of a tariff to its customers, that amount is generally included in the sales tax base and subject to sales tax in the same manner as the product being sold.
The rules change when considering use tax, which applies when purchasers must self-remit tax typically because the seller is not required to collect tax in that jurisdiction. Should the purchaser include the tariff amount in the tax base subject to use tax? Ultimately, this will depend on the context of the transaction.
Suppose a seller includes a tariff fee on an invoice but does not collect sales tax from the purchaser because the seller does not have sales tax nexus. Following the guidance above, the purchaser calculates the use tax it must self-remit and should include the tariff fee, since the tariff fee is part of the tax base and is subject to tax. In other words, had the seller been required to collect sales tax from the purchaser in that jurisdiction, it would have collected sales tax on the tariff fee.
Alternatively, if a purchaser directly imports an item and pays the tariff to CBP, the fee is generally excluded from the use tax base. Both the SST and Illinois provide clear guidance that purchasers acting as importers of record do not have to include the tariff fee in the tax base subject to use tax.
Final Thoughts: Managing Tariff Sales and Use Tax Challenges
It is critical for both sellers and purchasers to understand the sales and use tax consequences of tariffs. Maintaining clear documentation of tariff payments, their treatment on invoices, and who the importer of record is, can help to ensure compliance and avoid costly mistakes.
As U.S. tariff policy continues to evolve, staying informed on sales and use tax treatment is essential for businesses. By keeping detailed records and paying close attention to state tax guidance, importers, retailers, and purchasers can confidently address the complexities of passing tariff costs in a shifting regulatory landscape.
Don’t let tariff uncertainty slow you down.
CereTax keeps your sales and use tax compliant—no matter how policy shifts.
