In 1782, as he watched a fledgling nation struggle to pay down its war debts, Alexander Hamilton championed tariffs, writing that: 

No mode can be so convenient as a source of revenue to the United States. It is agreed that imposts on trade, when not immoderate, or improperly laid, is one of the most eligible species of taxation. They fall in a great measure upon articles not of absolute necessity, and being partly transferred to the price of the commodity, are so far imperceptibly paid by the consumer.[1]

Less than a decade later, the first Congress would enact the Tariff Act of 1789, placing a five percent tax on imports. Nearly 250 years later, with tariffs on certain goods nearing triple digits percentagewise, it is unlikely that Hamilton would find that the tariffs of the United States today are moderate, imposed mostly on unnecessary goods, or are imperceptible to the consumer. Hamilton may also balk at the tax policies of many states, which now seek to impose sales tax on the very tariffs now visibly borne by consumers.[2]

A study of recent guidance evidences that many states apply sales tax to tariffs—regardless of how high the tariff amount may be. Illinois, New Jersey, South Carolina, and the Streamlined Sales Tax Governing Board (“SSTGB”)[3] have all indicated that where the seller is the importer responsible for the tariff, and the seller passes said tariff on to their customer, the tariff is part of the selling price subject to sales tax—whether or not the tariff is separately stated on the customer’s invoice.[4]

Illinois, South Carolina, and the SSTGB have also directed that where the importer is the end-user (i.e., the consumer) personally liable for paying the tariff to the customs authority, use tax does not apply to the tariff paid directly by the end-user. Though it appears that New Jersey would also not impose its use tax on a consumer directly paying tariffs to a customs authority, New Jersey’s guidance stops short of addressing how the State’s use tax applies.

The Takeaway: Importers bringing goods into the United States need to stay up to date not only on the ever-changing tariff policies of the federal government, but also on the state tax treatment of tariffs. Fortunately, many states seem to be taking a consistent position on the taxability of tariffs. Unfortunately, that position seems to be that tariffs are subject to sales tax if passed on to a customer.

However, just because a state takes the position that tariffs are subject to sales tax does not make it so. Whether a cost such as a tariff is part of the “sales price” subject to a state’s sales tax will depend on the law in that particular state. In addition, readers should recall that after the Supreme Court’s decision in Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce, interpretations of law by state taxing authorities may no longer be given the high level of deference that they once were.

Footnotes