If a company pays a federal tariff on imported materials and passes that cost on to a customer, does Illinois sales or use tax apply to the tariff amount?

Plain-English summary

The Illinois Department of Revenue addressed whether sales tax applies to tariffs when a business buys materials from a vendor and tariffs are charged on the imported goods. The taxpayer specifically asked whether tax applies to the whole invoice amount when tariffs are separately stated, and whether tariffs baked into the price can be backed out before computing tax.

The Department's answer turns on who is legally responsible for paying the tariff — that is, who is the "consignee" or importer of record under federal law.

• If the seller is the importer of record and passes the tariff cost on to the customer, the tariff is part of the selling price. It must be included in gross receipts and is subject to Retailers' Occupation Tax (Illinois's version of sales tax), even if the tariff is separately stated on the bill. In that scenario, the tariff is just another cost of doing business to the importer-seller, like freight or labor, and Illinois law does not allow deductions from gross receipts for costs of doing business.
• If the customer (the end user) is the importer of record, the tariff is not part of the selling price for purposes of the customer's own Use Tax liability.

So the tax outcome does not depend on how the invoice is formatted (lump sum vs. separately stated) — it depends on who is legally on the hook for the tariff under federal importation law.

What this means for you

Businesses buying imported materials

Ask your vendor (or determine for yourself) who is the importer of record — the consignee responsible for paying the tariff under federal law. If your vendor is the importer and simply passes the tariff cost through to you as part of the price, expect Illinois sales tax to apply to that full amount, including the tariff, regardless of whether the tariff line is broken out separately on the invoice.

Businesses that are themselves the importer of record

If you are the consignee/importer bringing the goods into the country yourself, and you then owe Illinois Use Tax on your own purchase, the tariff you paid is not included in the taxable selling price for computing your Use Tax liability.

Accountants and tax professionals

Do not assume that separately stating a tariff on an invoice removes it from the tax base — Illinois's general rule (86 Ill. Adm. Code 130.410) is that no deductions are allowed from gross receipts for costs of doing business "whatsoever," and tariffs fall into that category when the seller is the importer. The key factual question to nail down for any client is which party is the legal importer of record, since that single fact flips the answer between "taxable to the seller's gross receipts" and "excluded from the buyer's Use Tax base."

Importers and retailers structuring pricing

Because the outcome depends on importer-of-record status rather than invoice formatting, this is not something you can plan around simply by listing the tariff as a separate line item. The underlying legal responsibility for the tariff under federal law is what controls.

Common questions

Q: If a vendor separately states the tariff amount on my invoice, can I avoid paying sales tax on that portion?
A: No, not if the vendor is the importer of record. The Department confirmed that tariffs are not deductible from gross receipts even when separately stated on the bill to the customer.

Q: Does it matter whether the tariff is included in the price or broken out as a line item?
A: No. What matters is who is legally responsible for paying the tariff (the consignee/importer of record), not how the invoice is formatted.

Q: I'm the end customer and I imported the goods myself (I'm the consignee) — do I owe Use Tax on the tariff?
A: No. If the customer, as the end-user, is the consignee/importer, the tariff is not part of the selling price for purposes of computing that customer's Use Tax liability.

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter, which only directs taxpayers to relevant regulations and is not a statement of Department policy or binding on the Department. A binding answer for a specific taxpayer would require a Private Letter Ruling request under 2 Ill. Adm. Code 1200.110.

Q: What's the difference between the Retailers' Occupation Tax and Use Tax mentioned here?
A: The Retailers' Occupation Tax is imposed on sellers doing business in Illinois; the Use Tax complements it and is imposed on the privilege of using tangible personal property purchased at retail. Together, these are what's commonly called "sales tax" in Illinois.

Citations and references

Statutes and rules:

• 35 ILCS 120/2 (Retailers' Occupation Tax Act — imposition of tax on retail sellers)
• 35 ILCS 105/3 (Use Tax Act — imposition of tax on the privilege of using purchased property)
• 86 Ill. Adm. Code 130.410 (no deductions from gross receipts for costs of doing business)
• 86 Ill. Adm. Code 130.401 (selling price / gross receipts)
• 86 Ill. Adm. Code 130.445 (treatment of federal importation taxes/tariffs)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2025.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2025/st25-0022-gil.pdf

Original ruling text

ST 25-0022-GIL 04/07/2025 GROSS RECEIPTS
Federal importation taxes are not deductible, in computing Retailers’ Occupation Tax
liability, from the gross receipts of persons who sell such tangible personal property
at retail. See 86 Ill. Adm. Code 130.445.
April 7, 2025
NAME
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your email dated February 10, 2025, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued by the Department in response to specific taxpayer inquiries
concerning the application of a tax statute or rule to a particular fact situation. A PLR is
binding on the Department, but only as to the taxpayer who is the subject of the request for
ruling and only to the extent the facts recited in the PLR are correct and complete. Persons
seeking PLRs must comply with the procedures for PLRs found in the Department’s
regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department
policy and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may
access our website at https://tax.illinois.gov/ to review regulations, letter rulings and other
types of information relevant to your inquiry.
In your email you have stated and made inquiry as follows:
I am seeking some guidance on the taxability of tariffs. Specifically, if a
company is purchasing materials from a vendor and the tariffs are separately
stated on the invoice, would sales tax apply to the entire amount?
Additionally, if the tariffs are included in the price of the materials, would we
be able to back out the amount of tariffs and only pay sales tax on the base
price?
Your expertise on this matter would be greatly appreciated. Thank you for your
time and assistance.
DEPARTMENT’S RESPONSE:

COMPANY/NAME
Page 2
April 7, 2025
The Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this State
in the business of selling tangible personal property at retail to purchasers for use or
consumption. 35 ILCS 120/2. The Use Tax which complements the Retailers’ Occupation
Tax is imposed on the privilege of using, in this State, any kind of tangible personal property
that is purchased anywhere at retail from a retailer. 35 ILCS 105/3. These taxes comprise
what is commonly known as “sales tax” in Illinois.
In computing Retailers’ Occupation Tax liability, no deductions shall be made by a
taxpayer from gross receipts or selling prices on account of the cost of property sold, the
cost of materials used, labor or service costs, idle time charges, incoming freight or
transportation costs, overhead costs, processing charges, clerk hire or salesmen’s
commissions, interest paid by the seller, or any other expenses whatsoever. See 86 Ill. Adm.
Code 130.410.
Tariffs are imposed by the United States government on certain products imported
from foreign countries. The identity of the person legally responsible for paying the tariff
under federal law is the critical factor in determining whether sales or use tax applies to the
amount of the tariff. The consignee is the importer of record of the imported tangible
personal property and is the person legally responsible for payment of the tariff. Federal
importation taxes (“tariffs”) are not deductible, in computing Retailers’ Occupation Tax
liability, from the gross receipts of persons who sell such tangible personal property at retail.
See 86 Ill. Adm. Code 130.445. Therefore, if the seller is the consignee (importer) and passes
the amount of the tariff on to the customer, it is a part of the selling price, and the amount of
the tariff must be included in the gross receipts. In such case, tariffs are costs of doing
business to the importer and are not deductible in computing Retailers’ Occupation Tax
liability on the subsequent retail sale, even if separately stated on the bill to the customer.
See 86 Ill. 130.401; 86 Ill. Adm. Code 130.445.
However, if the customer as the end-user is the consignee (importer), the tariff is not
part of the selling price for purposes of computing the customer’s Use Tax liability. See 86
Ill. Adm. Code 130.445.
I hope this information is helpful. If you require additional information, please visit
our website at https://tax.illinois.gov/ or contact the Department’s Taxpayer Information
Division at 800-732-8866.
Very truly yours,
Thomas Grudichak
Associate Counsel
TG:slc