How will tariffs impact the way your business pays state sales tax? As the impacts of the tariffs on imported products and materials continue to become clear, state governments have started releasing guidelines on how these tariffs will influence sales tax, starting with Illinois and New Jersey. More states are expected to release guidance for retailers and other businesses impacted by the tariffs.
Illinois Sales Tax Treatment of Tariffs
In Illinois, the first step to determining whether state sales and use tax is applicable to the tariff amount is to identify the person required to pay tariffs. The importer of tangible personal property is considered the consignee and is responsible, legally, for paying a tariff. If you, the seller, are also the importer and plan to pass the tariff amounts to customers, that means it’s part of the selling price. In that case, you must include it in your gross receipts and charge sales/use tax according to the taxability of the product being sold. On the other hand, if the customer is the importer, the tariff isn’t the selling price for the purpose of computing sales/use tax liability.
Be aware that tariffs aren’t deductible when calculating the sales/use tax liability of retailers. They’re considered the cost of doing business, so even if they’re separately stated on the invoice, tariffs aren’t deductible.
New Jersey Sales Tax Treatment of Tariffs
Tariffs incurred in New Jersey can result in higher product costs that are passed down to distributors, wholesalers and, ultimately, the retail sellers responsible for collecting state sales/use tax from consumers. While sellers can increase their products’ sales price to maintain profit margins, the increased cost and/or fee is subject to sales tax since it’s part of the taxable sales price. This is still applicable even if it’s billed as a separately stated fee.
As additional states release guidance, this blog may be updated to include them.
Anders State and Local Tax advisors monitor policies and legislation impacting your business’s tax planning strategies. To learn more about how our knowledgeable services can help your company, and the associated costs, contact an Anders advisor below.
