Have You Properly Accounted for Tariffs in Inventory — Even After the Supreme Court’s Latest Ruling?

Updated 2/20/2026 to account for the Supreme Court’s Feb. 20, 2026, decision on tariffs.

As privately-held companies move through year‑end close, auditors continue to focus closely on whether tariff costs have been properly accounted for under U.S. generally accepted accounting principles (GAAP). While the U.S. Supreme Court recently struck down certain tariffs imposed under emergency authorities, the ruling does not automatically change how previously-paid tariffs should be reflected in inventory balances.

With rapid shifts in tariff rules, rates, and legal interpretations over the past two years, many organizations’ accounting processes have struggled to keep pace with the evolving landscape.

Tariffs Remain an Inventory Cost Under GAAP

Under U.S. GAAP, tariffs paid to import goods are part of the cost necessary to bring inventory to its intended location and condition for sale. As a result, tariffs are inventory costs, not period expenses, and they should not be treated as administrative or abnormal charges—even in light of the Supreme Court’s recent decision.

Importantly, companies should not reverse inventory cost automatically as a result of the ruling. Inventory must remain recorded at historical cost, and tariffs paid were legally due at the time of import. The Court’s decision does not retroactively invalidate the accounting treatment that was appropriate when the inventory was acquired.

Additionally, short implementation timelines and tariff‑related legal disputes have often caused tariff invoices to be received after goods are delivered, increasing cutoff and completeness risks that should be evaluated carefully during close.

How Potential Refunds Should Be Considered

If a company now expects to recover previously paid tariffs because of the ruling, that expected refund should not be treated as an inventory cost reduction.

Instead:

• Any potential recovery should be evaluated as a contingent gain.
• A receivable should be recorded only when realization becomes probable.

In practice, many companies will wait until:

• A formal Customs refund mechanism is announced, or
• A specific refund claim is accepted.

Until that point, no balance sheet adjustment is appropriate beyond disclosure.

Why Inventory Turns Matter

Companies must understand their inventory flow to decide which portion of tariff costs remains in ending inventory and which should be expensed through cost of goods sold. A practical starting point for year‑end is to review inventory turnover:

• High-Inventory Turns: Tariffs paid late in the year may still be embedded in ending inventory and must be capitalized.
• Low-Inventory Turns: A larger share of the year’s tariff costs will be sitting in inventory at year‑end and should be reflected in the capitalized balance.

Key Questions to Ask Before Closing the Books

• Do we have a complete listing of all tariff costs incurred during the year?
• Does our costing system capture tariffs at the item level, through purchase price variance or through overhead application?
• Do ending inventory balances include all capitalizable tariff charges?
• Did changes in tariff rates or legal uncertainty create timing or cutoff issues requiring adjustment?
• Have we appropriately disclosed potential refund exposure without prematurely recognizing income?

Looking Ahead

Even after the Supreme Court’s latest ruling, the fundamental GAAP principles governing inventory costing remain unchanged. Companies should continue to focus on accurate capture, capitalization, and disclosure of tariff costs, while monitoring developments related to refund processes and legal implementation.

Careful analysis, paired with clear disclosure, will help avoid audit surprises and ensure financial statements remain compliant as the trade and regulatory environment continues to evolve.

If you need guidance in navigating tariffs in your business, connect with a Clark Nuber practitioner. We have a team dedicated to helping businesses in the Manufacturing and Consumer Products sector, and they are committed to keeping you up to date on best practices moving forward.

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