February 18, 2020
In January 2018, the U.S. and China became embroiled in a trade war that altered our nation’s economy and upset growth in many industries. President Trump first imposed import taxes on solar panels and washing machines but soon expanded his tariffs to steel and aluminum, including their derivatives. These tariffs skyrocketed input costs for U.S. manufacturers, and most had no choice but to pass those costs down to the consumer. The end-users of affected products should expect a higher ticket price for as long as the tariffs are in effect. Not only will their purchase price reflect the costs of the import taxes, but many states – including Georgia – impose sales taxes on those tariffs, increasing costs even further.
Sales tax laws are unique to each jurisdiction. Although a handful of states do not impose sales tax, most charge taxes at the state level and again at the local level. In Georgia, the state sales tax rate is only 4%, but when local counties and cities add in their levies, the sales tax rate can creep as high as 9%.
The Georgia Department of Revenue states that, in general, Georgia imposes a tax on the sales price of tangible personal property, certain services, and charges by the seller that are necessary to complete the sale of taxable property. But what about import taxes?
According to Georgia Tax Code Section 48-8-2(34)(A), sales price includes “the cost of materials used, labor, or service cost, interest, losses, all costs of transportation to the seller, all taxes imposed on the seller, and any other expense of the seller” (emphasis added). This means that import taxes that are passed down to the end-user should be included in the sales tax base.
Most U.S. businesses have a difficult time absorbing the costs of the metals tariffs and therefore must pass that cost down to the consumer or retailer. They do this by either raising prices or separately stating a “tariff” or “import tax” on the invoice. Whether they list the tariff separately is irrelevant; the expenses of the seller must be added into the sales tax base, and the end-user must pay sales taxes on those import fees.
The metals import taxes are permanent additions to our international treaties and can only be removed by Presidential action. To avoid paying these fees, some businesses are shopping domestically, and others are purchasing from countries unaffected by U.S. tariffs. In May 2019, President Trump exempted Canada and Mexico from metals tariffs making North America a more viable sourcing option.
Some U.S. businesses are going a step further by applying for tariff exclusions. For an exclusion to get approved, the applicant must prove that the product is not available in the United States or in countries unaffected by tariffs, or that the tariff causes the business economic harm. The application process is rigorous and takes time that many businesses do not have, so most accept the cost and adjust practices to compensate.
Atlanta and other businesses across the U.S. are seeing price increases for steel- and metal-fabricated products, and if they pass those costs onto the consumer, they have the added requirement of adjusting their sales tax collection policies. If you have any questions about how to charge sales tax on import fees or need assistance with a tax-related issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.