What CPAs and Taxpayers Need to Know
As new tariffs from the Trump administration take effect—particularly on imports like electronics, industrial goods, and apparel—many businesses and advisors are asking a key question:
How do tariffs affect sales and use tax obligations for companies operating in multiple states?
While tariffs themselves are federal taxes, they ripple into state and local tax systems, especially when it comes to sales and use taxes. This article breaks down how that works, and offers real-world financial examples to show the impact.
The Chain Reaction: From Tariffs to Sales/Use Tax
- Tariffs Raise the Cost of Goods
Tariffs increase the landed cost of imported products. When businesses pass these increases to customers, the retail price goes up. - Higher Prices Mean Higher Sales Tax
Sales tax is calculated based on the final selling price of a product. If prices rise due to tariffs, the sales tax liability also increases. - Use Tax Also Goes Up
Use tax applies when businesses purchase goods for use and sales tax was not charged at the time of purchase. This typically happens when a purchase is made from an out of state vendor. Like sales tax, it’s based on the purchase price—which now includes tariffs. - Multi-State Complexity Grows
Each state has different tax rates and rules. The added cost and complexity require careful tracking, automation, and expert guidance—particularly in a post-Wayfair world where physical presence is no longer the only requirement to establish tax obligations.
Tariffs Drive Up Sales Tax Example
Let’s say a multi-state electronics retailer imports headphones from China.
- Pre-Tariff Cost: $100
- Retail Price: $150
- Sales Tax Rate (California): 7.25%
- Sales Tax Collected: $10.88
Now, a 25% tariff increases the wholesale cost to $125. To preserve margins, the company raises the retail price to $175.
- New Sales Tax: 7.25% of $175 = $12.69
$1.81 more in tax per unit
Multiplied across thousands of transactions, this becomes a significant increase in both consumer burden and business reporting.
Higher Use Tax on Equipment Example
A Texas construction firm buys imported machinery from an out-of-state supplier.
- Pre-Tariff Cost: $50,000 → Use Tax (6.25%) = $3,125
- Post-Tariff (25%): $62,500 → Use Tax = $3,906
$781 increase in use tax on one asset
For capex-intensive companies, this can materially affect budgeting and cash flow.
Multi-State Retailer Adjusts for Tariffs
An apparel brand imports shirts from India (now tariffed at 15%) and sells across CA, NY, FL, and TX.
- Old Retail Price: $25 → New Price: $30
- Here’s how tax liability changes per shirt: :
| State | Sales Tax Rate | Old Tax | New Tax | Increase |
|---|---|---|---|---|
|
California |
7.25% |
$1.81 |
$2.18 |
$0.37 |
|
New York |
8.875% |
$2.22 |
$2.66 |
$0.44 |
|
Florida |
6.00% |
$1.50 |
$1.80 |
$0.30 |
|
Texas |
6.25% |
$1.56 |
$1.88 |
$0.32 |
Multiply this across thousands of online orders and dozens of states, and you see how quickly things scale.
Managing the Fallout
CPAs and tax advisors have a crucial role in helping businesses adapt to these challenges
- Strategic Pricing: Help clients set pricing that considers both tariffs and sales tax implications.
- Tax System Updates: Ensure tax engines reflect real-time product costs and jurisdictional rules.
- Cash Flow Planning: Model impacts of higher tax liabilities on budgets and purchasing cycles.
- Nexus Monitoring: Rising prices can push businesses over economic nexus thresholds in new states, triggering filing obligations.
For taxpayers and CPAs alike, the effect of tariffs doesn’t stop at the border—it trickles into every transaction. As product prices climb, so do sales and use tax obligations. For multi-state businesses, this means increased complexity and the need for proactive financial and tax planning.
