If a seller passes on the cost of a federal tariff to a buyer in Illinois, is that tariff amount subject to sales or use tax?

Plain-English summary

The Illinois Department of Revenue answered a question from a beverage manufacturer and distributor about how federal tariffs on imported inputs affect Illinois sales and use tax. The company buys metals, batteries, and pallets from out-of-state and foreign suppliers, and some of those invoices separately list a tariff charge.

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 its customer, the tariff becomes part of the selling price. It must be included in the seller's gross receipts for Retailers' Occupation Tax purposes, and it cannot be deducted — even if it's separately stated as its own line item on the invoice. The tariff is simply treated as a cost of doing business, taxed the same way as the underlying property (same rate, or exempt if the property is exempt).
• If the purchaser (the end-user) is the importer of record and pays the tariff itself, the tariff is not part of the selling price, so it is not included when figuring the purchaser's Use Tax liability.

The letter reiterates the general Illinois rule that no deductions are allowed from gross receipts for cost of property sold, materials, labor, freight, overhead, commissions, interest, or "any other expenses whatsoever" — tariffs fall into that same bucket when the seller (not the buyer) is the one who paid them.

What this means for you

Importers and manufacturers who resell goods

If you import materials and pay the tariff yourself, then resell the finished product (or the material) to an Illinois customer, the tariff you paid is a cost baked into your gross receipts — you cannot back it out, even if you itemize it as "tariff" on the invoice. Tax applies to the tariff amount just like it applies to the rest of the selling price.

Buyers who directly import goods

If you (the purchaser) are the importer of record and pay the tariff directly to the federal government rather than reimbursing your supplier for it, that tariff amount is not part of your purchase price for Illinois Use Tax purposes.

Businesses passing tariff costs through on invoices

Separately stating a tariff line item on an invoice does not exempt it from tax. The critical question is not how the charge is labeled or itemized, but who was legally on the hook to the federal government for the tariff in the first place.

Accountants and tax professionals

Because the tariff is taxed "in accordance with the tax treatment ... of the tangible personal property to which it corresponds," a tariff tied to exempt property (like certain manufacturing inputs that already qualify for an exemption) would follow that same exempt treatment — the ruling doesn't change the taxability of the underlying property, only confirms the tariff rides along with it.

Common questions

Q: We pay a tariff on imported materials and pass that cost to our customer as a separate line item. Is it taxable?
A: Yes. If you (the seller) were the importer of record who paid the tariff, it's part of your selling price and must be included in gross receipts subject to Retailers' Occupation Tax, whether or not you break it out as a separate charge.

Q: What if our customer is the one who imports the goods and pays the tariff directly?
A: Then the tariff is not part of the selling price for that customer's Use Tax liability, because the customer — not the seller — was the importer of record responsible for paying it.

Q: Does it matter whether the underlying purchase itself is taxable in Illinois?
A: Yes. The tariff is taxed the same way as the property it relates to — same tax rate or exemption status. The ruling doesn't independently tax or exempt the tariff; it follows the property.

Q: Can we avoid tax on the tariff by listing it as a separate, stand-alone invoice item?
A: No. The letter specifically states this holds true "even if separately stated on the bill to the customer billed as a stand-alone item on a separate invoice."

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter, not a Private Letter Ruling. It only points the taxpayer to the relevant regulations and is not a statement of Department policy, so it isn't binding on the Department the way a PLR would be.

Citations and references

• 35 ILCS 120/2 (Retailers' Occupation Tax Act — imposes tax on retail sales of tangible personal property)
• 35 ILCS 105/3 (Use Tax Act — imposes tax on the privilege of using property purchased at retail)
• 86 Ill. Adm. Code 130.410 (no deductions from gross receipts for costs of doing business, including "any other expenses whatsoever")
• 86 Ill. Adm. Code 130.401 (defines gross receipts / selling price)
• 86 Ill. Adm. Code 130.445 (tariffs are not deductible from gross receipts; governs Use Tax treatment when the purchaser is the importer)
• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax is measured by the seller's gross receipts)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: Illinois Sales Tax Letter Rulings, 2025
• Original PDF: ST 25-0033-GIL PDF

Original ruling text

ST 25-0033-GIL 06/17/2025 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. (This is a GIL).
June 17, 2025
NAME
COMPANY
EMAIL
Dear NAME:
This letter is in response to your email dated April 29, 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’m inquiring further information on the attached letter regarding tariffs.
We handle the tax reporting for a manufacturer and distributor of nonalcoholic beverages within your state. We’re inquiring as to how the attached
specifically applies to our business. I’ll give a few brief scenarios below to help
give a sense of the types of transactions our company would engage in; our
company will be Business A in each scenario.
Scenario 1: Business A purchases metals from Business B located in Canada;
the purchase has a tariff charge separately stated on the invoice. The metals
are used in the production of non-alcoholic beverages sold to Business C a
retailer within the state. What would be the taxability of the tariff on this
purchase?

COMPANY/NAME
Page 2
June 17, 2025
Scenario 2: Business A purchases metals from Business B located in OH; the
purchase has a tariff charge separately stated on the invoice. The metals are
used in the production of non-alcoholic beverages sold to Business C a
retailer within the state. What would be the taxability of the tariff on this
purchase?
Scenario 3: Business A purchases batteries from Business B located in MO;
the invoice from Business B includes a separately stated tariff fee. This
purchase is used in our warehouse for walkie-talkies. The purchase of the
batteries is subject to sales tax in IL. What would be the taxability of the tariff
on this purchase?
Scenario 4: Business A purchases non-returnable pallets from Business B
located in NY; the invoice from Business B includes a separately stated tariff
fee. This purchase is used in our warehouse for storage of manufactured
goods as well as ingredients. The purchase of non-returnable pallets is not
subject to sales tax in the state of IL. What would be the taxability of the tariff
on this purchase?
DEPARTMENT’S RESPONSE:
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

COMPANY/NAME
Page 3
June 17, 2025
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
billed as a stand-alone item on a separate invoice. See 86 Ill. 130.401; 86 Ill. Adm. Code
130.445.
The Retailers’ Occupation Tax is measured by the seller’s gross receipts from the
retail sale of tangible personal property made in the course of its business. See 86 Ill. Adm.
Code 130.101. A tariff as part of the seller’s gross receipts, is taxed in accordance with the
tax treatment, including applicable tax rate or exemption status, of the tangible personal
property to which it corresponds.
If the purchaser as the end-user is the consignee (importer), the tariff is not part of
the selling price for purposes of computing the purchaser’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