The current US administration has added tariffs to a variety of goods sold by US retailers but imported from foreign sellers. In other cases, foreign retailers subject to tariffs, may sell their products directly to US consumers. A small number of retailers have indicated that they may consider absorbing the cost of tariffs. Others have stated that the costs of tariffs will be passed through to consumers via price increases. In some cases, these price increases could be reflected as an additional itemized charge on a customer’s invoice. The New Jersey Division of Taxation recently published its position on the itemization of tariff charges. As stated by the Division, “when a seller passes along the cost of a tariff to the consumer/purchaser, the charges are subject to Sales Tax as part of the taxable sales price, even if the tariff is separately stated to the purchaser."
Key takeaway
Retailers selling goods to US consumers that are subject to tariffs, should understand that the itemization of tariffs on customer invoices is unlikely to exclude the tariff charge from the sales or use tax base. Accordingly, a failure to charge sales or use tax on the tariff component of a sale, could result in tax liability to the seller, plus applicable penalties and interest. Tax practitioners should continue to monitor this issue as we expect more states to provide additional guidance in the future.
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