When your organization or your clients think about tariffs, the first thing that comes to mind is federal trade policy and international politics — not state taxes. But here’s the surprise: tariffs can quietly drive up state tax bills in various ways for which many businesses never plan.

When the costs of tariffs are passed through to consumers, they inflate gross sales on invoices, which directly affects economic nexus determinations and liabilities for sales and use taxes, gross receipts taxes and personal property taxes.

Tariffs Can Trigger New Tax Filing Obligations

Tariffs generally become part of a company’s cost of goods sold. When prices rise to cover those costs, gross sales rise accordingly. Many states have “bright line” economic nexus sales thresholds with respect to both state income and sales/use tax. As a result, tariff-driven price increases can create new filing and registration obligations for all types of taxes, including:

• Sales taxes
• Net income taxes
• Gross receipts taxes

Tariffs Increase the Sales Tax and Gross Receipts Tax Bases

From a tax policy standpoint, advocates can make a compelling case that a separately stated charge on an invoice for tariffs should not be subject to sales tax. However, many states (e.g., New York) include tariffs in the taxable sales base, even if separately stated. The result is that the applicable state and local sales tax rate applies to the tariff amount.

As a simple illustration, consider a vendor that sells goods for $1,000 and adds the 10% tariff to their invoice, increasing the total to $1,100. Assuming a 9% sales tax rate applies, the sales tax liability increases from $90 to $99 due to the $100 tariff (i.e., $100 tariff × 9% sales tax rate).

Similarly, in states that impose gross receipts taxes, such as Ohio and Washington, the taxable base may also include the tariff. The gross receipts tax impact, however, is generally less significant than the sales tax impact because gross receipts tax rates are generally in the 1% to 2% range.   

Tariffs Increase Consumption Costs and Related Property Taxes

Many local jurisdictions impose some form of personal property tax on the value of a business’ in-state property. When imported goods become more expensive because of tariffs, the value on which those taxes are assessed also rises. A related, non-tax issue is that insurance costs will also increase for the same reasons: the insurer anticipates higher repair or replacement costs for damaged property. 

Proactively Assess Tariff Effects to Safeguard State Tax Compliance

Tariffs aim to influence global trade — not state tax systems. But because state taxes attach to economic activity, they inevitably follow where tariffs lead. As costs rise due to tariffs, state taxes rise with them. The result is that businesses may face higher state taxes even if their sales volume has not changed. In addition to tracking geopolitical impacts of tariffs, businesses must also check the related state tax impacts because that may be where the biggest changes show up.

Businesses can proactively engage tax professionals to monitor state nexus-creating activity and perform a comprehensive assessment of how tariffs impact their sales/use tax, gross receipts tax and personal property tax bases. The introduction of tariffs has increased the risk of noncompliance with state taxes.