Filed under: International Tax, Manufacturing & Consumer Products, Navigating Tariffs Series, Tariffs, Tax Compliance & Planning

July 28, 2025

Traditionally a seldom-used policy instrument, tariffs have dominated the news cycle and injected uncertainty into global trade. As businesses face intensifying trade disputes, new tariffs, and retaliatory actions, one thing has become clear—understanding tariffs and their impact on your business is no longer optional.

To help you stay prepared, our team at Clark Nuber has launched a dedicated article series offering insights and practical tools to help navigate ongoing trade tensions with agility and foresight.

  • Click here for an introduction to tariffs.
  • Click here to learn about tariffs and navigating global uncertainty.
  • Click here for strategies for navigating and mitigating tariffs amid legal uncertainty.

Coming soon in the series:

  • How Tariffs Impact Transfer Pricing

 

As U.S. trade policies evolve and new tariffs are implemented, businesses must navigate a complex landscape of tax implications. Tariffs not only affect supply chain and pricing strategies, but they also have significant consequences for tax compliance and planning. Below is a summary of key considerations.

Sales and Use Tax Implications

  • Increased Taxable Basis: Tariffs raise the cost of imported goods, which increases the base for calculating sales and use taxes.
  • Consumer Impact: Businesses often pass the tariff cost to consumers through higher prices, resulting in higher sales tax collections.
  • Use Tax Complexity: A use tax may apply when goods are imported for internal use. Whether tariffs are included in the tax base depends on who is legally responsible for the tariff payment.
  • Nexus and Compliance: Tariffs may influence inventory strategies, potentially creating nexus in additional states. Businesses must monitor and comply with varying state tax rules.

Income Tax

  • Cost of Goods Sold (COGS) Impact: Tariffs increase the cost of imported goods, thus directly increasing COGS. It can reduce taxable income if costs are not fully passed on to customers.
  • Tax Deductions and Credits: Higher costs may create opportunities for tax deductions and credits to offset the financial burden of tariffs.
  • Transfer Pricing and Foreign Tax Credits: Tariffs might necessitate adjustments to intercompany pricing. Businesses may also be eligible for foreign tax credits to avoid double taxation.

Inventory Accounting Strategies

  • Last in, First Out (LIFO) Methodology: Using LIFO can help defer income by matching higher costs to current revenues, offering potential tax savings.
  • Compliance and Complexity: LIFO books and records can be complicated to maintain. They also require alignment between financial and tax accounting, which might affect loan covenants and financial disclosure.
  • Strategic Evaluation: Businesses should assess whether adopting or adjusting LIFO aligns with their financial and operational goals.

Tariffs introduce a multifaceted set of tax challenges and opportunities. Proactive planning and cross-functional coordination between tax, finance, and supply chain teams are essential to mitigate risks and optimize outcomes. To best prepare for tax implications involving tariffs, your company should:

  • Review current sales and use tax nexus in light of tariff-driven inventory changes.
  • Evaluate the impact of tariffs on your COGS and profitability.
  • Consider whether LIFO or other inventory strategies could provide tax advantages.
  • Review transfer pricing policies.

For more advice and information on how your company can best operate with tariffs in mind, connect with the Clark Nuber advisory team.

 

© Clark Nuber P.S., 2025. All rights reserved. 

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.