Tariffs: Not just a federal problem
Tariffs: Not just a federal problem - Vertical

Tariffs: Not just a federal problem

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As the US Supreme Court reviews the scope of the president’s power to impose tariffs via executive order, businesses and their tax advisors are already grappling with the growing impact of tariffs on their businesses and tax filings. While much of the focus on the impact of tariffs is on the federal side, businesses and their advisors should be careful to consider the state and local tax implications as well.

Several states have issued guidance on how their sales taxes apply to tariffs. California, Illinois, New Jersey, South Carolina, and Washington State have determined that where the seller is the importer subject to the tariff, and the importer passes the tariff on to its customer, then the tariff is part of the selling price subject to sales tax.1 The tariff is included in the sales price, even if it appears as a separate line item on the customer’s invoice.

Likewise, the Streamlined Sales Tax Governing Board (SSTGB)—which has 23 full-member states2—issued guidance in July 2025 providing that tariffs that are part of the importer’s sales price are subject to sales tax, even if the tariff is separately stated.

Certain states have also released guidance regarding how they apply use tax to tariffs. California, Illinois, South Carolina, and the SSTGB have indicated that where an importer-purchaser that does not plan to resell the item purchased pays tariffs directly to the customs authority, such tariff amounts are not subject to use tax.3 However, Washington State has taken a different position, requiring that tariff amounts paid by a purchaser directly to a customs authority be included in the use tax base.4

Of course, tariffs may not only impact sales and use taxes. The application of a tariff may also create nexus for a business for many tax types, including sales, gross receipts, and income taxes.

For example, in Washington State, a business likely has nexus for business and occupation (B&O) and sales tax purposes if the business has more than $100,000 in gross receipts attributed to the state. If a 100% tariff is imposed on an item that costs $55,000 pre-tariff, that item now costs $110,000 post-tariff. If that item is imported and sold to a Washington-based customer, even if that is the only sale into the state by the importer for that year, it is likely that the importer has triggered nexus for Washington B&O and sales tax purposes. As a result, the business may owe B&O tax—a tax that cannot be passed through to customers—and may be obligated to collect sales tax on the full $110,000, assuming the cost of the tariff is passed on to the customer, which is a safe assumption given the heft of the tariff.

Steps to take now

Though the legality and the specifics of certain tariffs, including the rates and what goods they apply to, may be unclear at this time, there are still steps that businesses and their advisors should be taking to manage the state and local impact of tariffs.

Step 1:  Determine (based on current tariff rates) the impact on the price of goods being imported.

Step 2: Determine if the additional tariff-related costs are being passed through to the customer.

Step 3: Determine the business’s sales by state, inclusive of the additional tariff costs to the extent they are passed on to the customer.

Step 4: For jurisdictions where the business is already filing, ensure that sales tax is properly being imposed on tariff amounts as required by each jurisdiction’s laws.

Step 5: Determine whether the business has triggered nexus in any new jurisdictions based on its tariff-inflated sales.

Step 6: If nexus has been triggered in a new jurisdiction, the business should determine what new filing requirements it may have and, for sales tax purposes, whether what it is selling is subject to tax.

What the future may hold is anyone’s guess. However, as tax pros, you will want to ensure that you and your clients are prepared for any potential tax treatment of tariffs. Knowing as much as you can about the tariffs and current guidance is critical.


1See 18 Cal. Code Regs. § 1617; Ill. Dep’t Rev., ST 25-0022-GIL, Gross Receipts (2025); N.J. Div. Tax’n Sales Tax Treatment of Tariff Mark Ups (2025); S.C. Dep’t of Rev., SC Revenue Ruling #20-4, Tariffs and Tariff Surcharges (Sales and Use Taxes) (2020); RCW 82.04.070.

2See Tariffs – Sales Tax Treatment, SSTGB. Full member states are fully in compliance with the Streamlined Sales and Use Tax Agreement and its policies—including the tariff policy released by the SSTGB in July 2025.

3See 18 Cal. Code Regs. § 1617; Ill. Dep’t Rev., ST 25-0022-GIL, Gross Receipts (2025); S.C. Dept of Rev., SC Revenue Ruling #20-4, Tariffs and Tariff Surcharges (Sales and Use Taxes) (2020); Tariffs – Sales Tax Treatment, SSTGB.

4See Wash. Admin. Code § 458-20-178(4).

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