Are tariff costs and tariff surcharges included in South Carolina's sales or use tax base?

Plain-English summary

South Carolina Revenue Ruling #20-4 says the sales or use tax treatment of a tariff depends on who is legally responsible for paying it as importer.

When the seller or another party pays the federal tariff and recovers some or all of that cost from the purchaser, the recovered amount is part of taxable gross proceeds of sales or sales price. Calling it a separate “tariff surcharge” does not remove it from the tax base. It is treated like the seller's other costs and expenses included in the total consideration for the goods.

When the purchaser is itself the importer and is personally liable for the tariff, the purchase from the foreign seller and the tariff payment to the federal government are separate transactions. The tariff is not tangible personal property and is not part of the selling transaction, so South Carolina sales or use tax is calculated only on the price paid to the seller.

The ruling's seller-paid example has a $60,000 product price plus a $2,000 tariff surcharge. Tax applies to $62,000. Its buyer-paid example has a $100,000 product purchase and a $25,000 tariff paid directly by the purchaser-importer to the federal government. Use tax applies to $100,000, not $125,000.

What this means for you

Retailers and importers

If your business is the importer and passes tariff cost to the customer, include that amount in the South Carolina tax base. The answer is the same whether the invoice separately lists the surcharge or folds it into one product price.

Businesses buying directly from abroad

Determine whether your business is the importer personally liable for duties. If it buys the property from the foreign seller and separately pays its own federal tariff, calculate South Carolina use tax on the seller's sales price without adding the tariff.

Accounting and procurement teams

Keep the customs entry, importer-of-record documentation, sales contract, and invoice together. The economic label “tariff surcharge” is less important than legal responsibility for the tariff and the flow of the two transactions.

Common questions

Q: Does separately stating a seller's tariff surcharge make it nontaxable?
A: No. A seller-paid tariff recovered from the purchaser is included whether separately stated or embedded in the product price.

Q: Why is a purchaser-paid tariff excluded?
A: The purchaser's payment to the federal government is separate from the purchase of the goods and is not payment to the retailer for tangible personal property.

Q: What if the underlying goods are exempt?
A: The ruling says the tariff recovery follows the retail sale. If that sale is otherwise exempt, such as a qualifying sale for resale or to the federal government, the surcharge does not independently create tax.

Citations and references

• S.C. Code Ann. §§ 12-36-90 and 12-36-130 — gross proceeds and sales price
• S.C. Code Ann. §§ 12-36-910 and 12-36-1310 — sales and use taxes
• S.C. Code Ann. § 12-36-60 — tangible personal property
• 19 C.F.R. §§ 101.1 and 141.1(b)(1) — importer, duties, and importer liability cited by the ruling
• S.C. Regulation 117-334 — sales-tax versus use-tax sourcing noted by the ruling

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR20-4.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC REVENUE RULING #20-4

SUBJECT:

Tariffs and Tariff Surcharges
(Sales and Use Taxes)

EFFECTIVE DATE: Applies to all periods open under the statute.
REFERENCES:

S.C. Code Ann. Section 12-36-90 (2014)
S.C. Code Ann. Section 12-36-130 (2014)
S.C. Code Ann. Section 12-36-910 (2014)
S.C. Code Ann. Section 12-36-1310 (2014)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public and
Department personnel. It is an advisory opinion issued to apply principles
of tax law to a set of facts or general category of taxpayers. It is the
Department’s position until superseded or modified by a change in statute,
regulation, court decision, or another Department advisory opinion.

QUESTIONS

1. Is a charge, or an increase in the sales price, by a retailer of tangible personal property for the
   cost of a tariff imposed by the federal government includable in “gross proceeds of sales” or
   “sales price” and subject to the sales and use tax?
2. Is the cost of a tariff imposed directly on the purchaser subject to sales or use tax when the
   property is purchased for the purchaser’s own use?
   FACTS
   Some retailers are increasing the sales price of tangible personal property sold to consumers or
   are adding a separate fee to a customer’s invoice in order to recover some or all of the cost of
   paying a tariff directly to the federal government or to a supplier who passed some or all of the
   cost of the tariff on to the retailer.
   1

In other cases, individuals or businesses that are purchasing tangible personal property for their
own use from businesses in a foreign country must pay a tariff on the property directly to the
federal government as the importer of the property.
Questions have arisen as to the applicability of sales and use taxes to the cost of tariffs.
LAW AND ANALYSIS
Code Section 12-36-910(A) imposes a sales tax upon every person engaged or continuing within
this State in the business of selling tangible personal property1 at retail. Code Section 12-361310(A) imposes a use tax on the storage, use, or other consumption in this State of tangible
personal property purchased at retail for storage, use, or other consumption in this State,
regardless of whether the retailer is or is not engaged in business in this State.
The sales tax is imposed on the “gross proceeds of sales” as defined in Code Section 12-36-90.
The use tax is imposed on the “sales price” as defined in Code Section 12-36-130. They are
essentially both defined as the total proceeds or “value proceeding or accruing from the sale,
lease, or rental of tangible personal property,” without deductions for expenses. Expenses that
are not deducted include: the cost of goods sold; the cost of materials, labor, or service; interest;
losses; transportation; or manufacturers or importers excise taxes imposed by the United States.
However, “gross proceeds of sale” and “sales price” do not include the amount of any tax
imposed by the United States with respect to retail sales, except for manufacturers or importers
excise taxes.
Tariffs (or duties) are taxes imposed by the federal government on the importation of goods and
are collected by U.S. Customs and Border Protection. The Code of Federal Regulations defines
“duties” and “importers” as follows:
Duties. “Duties” means Customs duties and any internal revenue taxes which attach
upon importation.

Importer. “Importer” means the person primarily liable for the payment of any duties
on the merchandise, or an authorized agent acting on his behalf. 2
The Code of Federal Regulations also provides that tariffs are imposed upon imported
goods, and that the importer is personally liable to the United States for tariffs. 3
Based on the above, the United States government imposes tariffs (duties) on certain imported
goods. It is not imposed “with respect to retail sales.” A tariff is a transaction between the
importer and the federal government. The importer is personally liable for the tariff. 4 The

1

The term “tangible personal property” for sales and use tax purposes is defined in Code Section 12-36-60 and
includes items such as communications and laundry services not typically thought of as tangible personal property.
2
19 CFR §101.1.
3
19 CFR §141.1(b)(1).
4

19 CFR §141.1(b)(1).

2

determination of whether the tariff amount is includable in “gross proceeds of sales” or “sales
price” and therefore subject to sales and use tax, 5 depends on who is responsible for the payment
of the tariff based on the facts of the transaction – the purchaser or someone other than the
purchaser. 6
When someone other than the purchaser, often the seller, is the importer and responsible for the
cost of the tariff, and the cost of some or all of the tariff is passed on to the purchaser, the amount
which is passed on to the purchaser is included in the “gross proceeds of sales” or “sales price”
of the sales or use tax.
When the purchaser is the importer and personally liable for the tariff, the purchase of the
product from the seller and the payment of the tariff by the purchaser directly to the federal
government are two separate and distinct transactions. Because tariffs are not “tangible personal
property” as defined in Code Section 12-36-60, they are not subject to sales and use tax when
they are not included in the transaction involving the taxable sale of tangible personal property.
CONCLUSIONS

1. As provided in Code Sections 12-36-90 and 12-36-130, the sales and use taxes are imposed
   on the total proceeds of a sale; it is the sum total of all consideration received by a retailer in
   conjunction with the retail sale of tangible personal property, without any deductions, unless
   specifically provided. 7
   Accordingly, a charge, or an increase in the sales price, by a retailer of tangible personal
   property for the cost, or any part of the cost, of a tariff imposed by the federal government is
   includable in “gross proceeds of sales” or “sales price” and subject to the sales and use tax,
   unless the retail sale of the tangible personal property is otherwise exempt from the sales and
   use tax (e.g., a sale to the federal government or a sale for resale).
   Example: Retailer Increases Retail Sales Price Due to Tariff
   South Carolina retailer A purchases product X from a foreign entity for $50,000. The product
   is subject to a 10% tariff ($5,000) upon importation into the United States. Retailer A, the
   importer, pays the $5,000 tariff cost to the federal government when the product is imported.

5

The transaction could be subject to either sales tax or use tax, depending on whether a representative of
the seller is physically present in South Carolina and participates in the transaction. See SC Regulation
117-334.
6
The importer may be the: (1) consignee, (2) importer of record, (3) actual owner of the
merchandise, or (4) transferee of the merchandise. See 19 CFR §101.1.
7
Code Section 12-36-90, defining “gross proceeds of sales,” and Code Section 12-36-130, defining “sales
price,” provide certain exclusions from the measure of sales and use taxes.

3

Retailer A then sells product X at retail. The customer’s invoice states:
Item
Imported Product X
Tariff Surcharge
Total Sales Price

Amount
$60,000
$ 2,000
$62,000

The “gross proceeds of sales” for the retail transaction, upon which the sales tax is
calculated, is $62,000. Retailer A remits South Carolina sales tax based on $62,000. No
deduction is allowed for the portion of the cost ($2,000) of the tariff paid by retailer A to the
federal government and passed on to the purchaser.
The answer is the same if the product is sold for $62,000 and the tariff amount is not listed as
a separate line item on the customer’s invoice.

2. When a product is purchased from a foreign entity by the person who will use or consume
   the product, the determination of whether the cost of a tariff is includable in the measure or
   basis of the sales or use tax depends on whether the payment of the tariff was the
   responsibility of the purchaser or someone else (i.e., whether the purchaser is the
   “importer”).
   Tariff is the Responsibility of the Purchaser: Where the purchaser is the importer and,
   therefore, personally liable for the tariff, the cost of the tariff is not includable in the “gross
   proceeds of sales” or “sales price” of the sales or use tax because the purchase of the item
   and the payment of the tariff by the purchaser to the federal government are two separate and
   distinct transactions. 8 The purchaser’s sales or use tax is based only on gross proceeds of
   sales or sales price of the transaction with the seller. It does not include the cost of the tariff
   owed and paid by the purchaser to the federal government.
   Tariff is the Responsibility of Someone other than the Purchaser: Where, for example, the
   seller is the importer and a portion or all of the cost of the tariff is recovered from the
   purchaser, the charge is includable in “gross proceeds of sales” or “sales price” and subject to
   the sales and use tax, unless the retail sale of the tangible personal property is otherwise
   exempt from the sales and use tax.
   Example: Tariff Imposed on the User of the Property and the Sale is Not Exempt from Sales
   and Use Taxes
   South Carolina retailer B purchases product Z from a foreign entity for $100,000 for use in
   its administrative offices (i.e., the product is not purchased for resale). The product is subject
   to a 25% tariff ($25,000) upon importation into the United States. Retailer B, the importer,
   pays the $25,000 tariff cost to the federal government when the product is imported.

8

The tariff in this example is a transaction between the purchaser (importer) and the federal government.

4

The retail purchase of the tangible personal property and the payment of the tariff by retailer
B directly to the federal government are two distinct transactions (i.e., the tariff is paid on the
importation of the product; it is not part of the retail transaction). As such, the measure of the
South Carolina use tax to be paid by retailer B to the Department is $100,000 (the sales price
of the product). Because the $25,000 tariff is not a part of the retail purchase of product Z, it
is not included in the “sales price” of the transaction and is not subject to the use tax. Retailer
B remits the South Carolina use tax to the Department.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
October 10
, 2020
Columbia, South Carolina

5