Tariffs vs. Sales Tax: What US Importers Need to Know

Do you know that tariffs and sales tax are different?

Many importers and e-commerce sellers assume these two charges are interchangeable. However, they apply at different stages of the supply chain and carry very different compliance risks.

Understanding how tariffs and sales tax work is critical if you import products into the US or sell across other countries. This guide will walk you through both so you can protect your profits, stay compliant, and scale confidently.

What Is a Tariff? Understanding US Import Duties

A tariff is a tax imposed by a government on goods imported from other countries, per Investopedia. It’s designed to raise the cost of imported products, making them less competitive than locally produced goods. In the US, tariffs are collected by the US Customs and Border Protection (CBP) when goods enter the country.

Tariff applies when:

• You import physical goods into the United States from a foreign country.
• The goods are subject to a specific Harmonized Tariff Schedule (HTS) code.
• The country of origin and product type fall under a trade rule or restriction (e.g., Section 301 tariffs on China, anti-dumping duties, etc.).

How to Calculate a Tariff?

Tariffs are taxes imposed at the federal level on goods imported into the United States. However, unlike sales tax, which is usually a flat percentage based on location, tariffs are calculated using product-specific rules outlined in the Harmonized Tariff Schedule (HTS). These rules vary based on the product type, the country of origin, and the product’s classification code.

Calculating a tariff is more complex than a sales tax because it involves classifying the product, identifying the correct HTS code, and applying the associated duty rate, which might be a flat percentage or a specific rate per unit or weight. Additional duties may apply depending on trade policies.

If you have the correct HTS code and duty rate, the basic calculation follows this formula:

Tariff = Customs Value × Duty Rate

For example, you’re importing 500 units of rose water facial toner from South Korea. The customs (invoice) value of the shipment is $5,000, and the HTS code (3304.99.5000) has a duty rate of 6.5%.

Then the tariff amount is: $5,000 × 0.065 = $325

So, the total landed cost of the shipment becomes $5,325, excluding shipping and other fees.

What Is Sales Tax? When and Where It Applies

Sales tax is a state-imposed consumption tax collected on the sale of goods and certain services. It is typically added at the point of sale and paid for by the consumer, but the seller is responsible for collecting and remitting it to the appropriate tax authority.

Sales tax applies when:

• A retail transaction takes place involving tangible personal property or taxable services.
• The sale occurs in a state or jurisdiction that imposes a sales tax.
• The seller has a nexus, a legal connection to the state through physical presence, economic activity, or marketplace facilitator rules.

There are two types of nexus:

• Physical nexus: You have a warehouse, office, inventory, or employees in the state.
• Economic nexus: You exceed a sales threshold (often $100,000 in revenue or 200 transactions per year) even without physical presence.

How to Calculate Sales Tax?

Sales tax is administered at the state level, and each state sets its rules, rates, and exemptions. However, it doesn’t stop there. Many states also allow local governments (like counties, cities, and special districts) to impose local sales taxes on top of the statewide sales tax rate.

If you know the sales tax rate, the calculation is pretty straightforward. You just have to multiply the taxable amount by the combined sales tax rate.

For example, you are selling a laptop in California with a 7.25% sales tax rate, and the taxable amount is $1,000. Then, the sales tax amount is $72.5. So, the total amount the customer has to pay is $1,072.5.

Check out How to Calculate Sales Tax: A Quick Guide.

Are Tariffs Taxable? Understanding Tax-on-Tax Scenarios

Yes, in many US states, tariffs can be taxable when sales tax is calculated. This creates a “tax-on-tax” scenario, where sales tax is calculated on the total landed cost, including the cost of goods, shipping, handling, insurance, and import duties (tariffs).

When a product is imported into the US, the tariff is added to the cost of goods as part of the landed cost. If you’re selling that product in a state that taxes based on the full price, including tariffs, you may end up collecting sales tax on the tariff itself.

For example, you import skincare serums at a customs value of $1,000. The applicable tariff is 6.5%, which is $65. You resell the product in California with a 7.25% sales tax rate.

The California Department of Tax and Fee Administration has clarified that if an importer is charged tariffs and then passes those costs on to the customer, those tariffs must be included in the total sale price and are subject to sales tax.

Total taxable amount = $1,000 (product) + $65 (tariff) = $1,065

Sales tax = $1,065 × 7.25% = $77.21

So, the customer ends up paying $77.21 in sales tax, which includes tax on the $65 tariff.

Compliance Checklist: Tariff and Sales Tax Responsibilities for Importers

Navigating US import and sales tax regulations requires staying on top of two distinct compliance tracks: tariffs at the federal level and sales tax at the state level. This side-by-side checklist breaks down your responsibilities for each so you can stay compliant, avoid costly mistakes, and streamline your operations.

Compliance Task	Tariff Compliance	Sales Tax Compliance
Classify products using HTS codes	✅ Required for every imported product	❌ Not applicable
Calculate duties based on customs value	✅ Use customs value × duty rate	❌ Not applicable
Pay duties to US Customs (CBP)	✅ Pay at the time goods enter the US	❌ Not applicable
Include tariff costs in landed cost	✅ Impacts pricing and profit margin	⚠️ May affect taxable base in some states
Maintain customs documentation	✅ Keep HTS, CBP forms, and duty receipts	❌ Not applicable
Track economic or physical nexus by state	❌ Not applicable	✅ Monitor thresholds per state rules
Register for sales tax permits in applicable states	❌ Not applicable	✅ Required in states where you have nexus
Collect correct state + local tax rates at checkout	❌ Not applicable	✅ Based on customer location (destination-based)
Configure product taxability by category	❌ Not applicable	✅ Varies by state and product type
File and remit sales tax returns on schedule	❌ Not applicable	✅ Monthly, quarterly, or annually
Maintain exemption/resale certificates (if applicable)	❌ Not applicable	✅ Needed for exempt wholesale sales
Retain sales tax records for audits	❌ Not applicable	✅ 3–7 years recommended

How to Reduce Cost and Risk with Automation

Managing tariffs and sales tax manually can be time-consuming, error-prone, and costly. This is especially true as your business scales or expands across state lines and international borders. Automation tools offer a more innovative and reliable way to handle both, helping you cut compliance costs, avoid penalties, and operate confidently.

1. Reduce Errors and Overpayments

Manual tariff classification or product classification for sales tax and manual tax rate application can lead to the following:

• Misclassified products, resulting in overpaid duties or underreported taxes.
• Wrong sales tax rates may cause under-collection (triggering audits) or overcharging (angering customers).

Automated solutions help by:

• Matching your products to the correct HTS codes (for tariff) and sales tax categories using built-in logic and global databases.
• Calculating accurate tariff and sales tax rates based on jurisdiction and product type.
• Applying updates in real-time as regulations or thresholds change.

2. Save Time with End-to-End Filing and Reporting

Instead of spending hours every month:

• Tracking tax rule changes across 45+ US states,
• Filing with multiple departments of revenue,
• Or managing customs paperwork manually,

Automation software handles:

• Sales tax registration, collection, and filing.
• Tariff calculation, customs documentation, and reporting (e.g., via customs brokers or import compliance platforms).
• Scheduled reporting and alerts so you never miss a filing deadline or nexus trigger.

3. Stay Ahead of Compliance Risks

Automation tools help you avoid compliance risks by doing most of the job for you. It will:

• Track economic nexus thresholds automatically.
• Identify when your business enters a new jurisdiction for tax or customs purposes.
• Generate an audit trail of all transactions, tax filings, and tariff payments, so you’re always prepared for scrutiny.

For instance, Kintsugi, a sales tax automation tool, offers insights into where your business is exposed, allowing you to fix issues before tax authorities catch them. Kintsugi can also help you with a voluntary disclosure agreement (VDA) to resolve past tax liabilities due to oversight.

If you need help with sales tax compliance, Kintsugi Tax is the answer. Try Kintsugi today by signing up or booking a demo to see how Kintsugi AI makes sales tax a nonissue.