On April 7, 2025, the Illinois Department of Revenue (IDOR) issued General Information Letter ST 25-0022-GIL, clarifying that federal import tariffs are not deductible when calculating a seller’s Retailers’ Occupation Tax (ROT), Illinois’s sales tax. This guidance, grounded in 86 Ill. Adm. Code 130.445, confirms that tariffs paid by retailers are included in taxable gross receipts.
This article breaks down how this rule applies to real-world transactions and what business owners need to know to stay compliant. Whether you’re a wholesaler, distributor, or direct-to-consumer retailer, understanding how Illinois treats import-related charges is key to avoiding costly tax errors and audit risk.
When Are Import Tariffs Taxable in Illinois?
In most cases, the retailer is the one importing the goods and paying the tariff. When that’s the case, the tariff must be included in the total amount subject to sales tax. This treatment depends on who the importer of record is under federal customs law. When the retailer is the legal importer, the import cost is considered part of the value the customer receives—and is thus taxed accordingly
Tariffs Are Taxable When the Retailer Is the Importer
Under Illinois sales tax law, the total amount a customer pays for a product, referred to as gross receipts, includes all costs passed through by the seller, including tariffs. These charges, even when separately stated on an invoice, are not deductible from the tax base.
Illinois Administrative Code Sections 130.410 and 130.445 clearly state that import duties are treated like any other cost of doing business
Example:
A Chicago-based retailer imports electronics from Asia and pays a 20% import duty. It invoices the customer $800 for the product and lists a $160 “tariff surcharge.” The full $960 is subject to ROT. Even though the tariff is broken out on the invoice, it’s taxable because it represents a cost the retailer incurred and passed on.
This ensures fair and consistent tax application. Retailers should treat tariffs the same way they treat other includable charges like shipping or installation when calculating tax. Business owners may find it helpful to train staff on how to interpret supplier invoices and ensure tariff expenses are consistently treated for reporting purposes.
In many cases, systems like ERP or accounting software may need to be configured to properly track and apply sales tax to tariff-inclusive sales, particularly where charges are broken out or change month-to-month due to shifting global trade rates
Tariffs Are Not Taxable When the Customer Is the Importer
In contrast, when the customer takes responsibility for importation and pays the tariff directly to U.S. Customs, that cost is not part of the sale. In this scenario, the retailer does not handle the tariff and does not include it in the customers’ invoice.
Because the tariff was not part of the retailer’s charge to the customer, it’s not included in gross receipts and does not factor into Illinois sales tax (ROT). Likewise, for Use Tax purposes, the state only considers the amount paid to the seller, not additional government fees paid separately by the buyer.
Example:
An Illinois technology firm purchases specialized machinery from Germany and arranges its own importation. It pays the vendor $10,000 and remits $2,000 in tariffs directly to U.S. Customs. Illinois Use Tax is due only on the $10,000 purchase price. Because the $2,000 wasn’t charged by the seller, it’s excluded from the taxable base.
This setup, where the buyer controls the logistics and customs process, is more typical in complex B2B purchases. Contracts should clearly establish the customer as the importer, and import documentation should support that arrangement.
Key Steps for Business Owners Handling Imports
Retailers who import goods into Illinois should take the following actions to stay compliant:
- Determine who the importer of record is in each transaction. This determines how tariffs are treated for tax purposes.
- Include all import-related charges in taxable gross receipts when the business is the importer.
- Don’t exclude separately stated tariff charges from the taxable amount. If you’re passing the cost to the customer, it’s part of the sale.
- Maintain clear documentation to show who imported the goods and how the transaction was structured.
- Review your invoicing and sales tax processes regularly to ensure they reflect the current rules.
Consult your internal accounting team or trusted advisor to confirm that your invoicing structure supports accurate sales tax calculation. Small errors can accumulate quickly and trigger assessments or penalties during audit.
Additionally, periodic training for your sales or procurement teams can help ensure that non-tax staff are aware of how trade terms (like “delivered duty paid” or “FOB destination”) may impact your tax reporting responsibilities.
Regulatory References
These are the key resources governing the tax treatment of import tariffs in Illinois:
- 86 Ill. Adm. Code 130.445 – Rules on federal tax deductions
- 86 Ill. Adm. Code 130.410 – Definition of gross receipts and treatment of business costs
- ST 25-0022-GIL (04/07/2025) – IDOR’s formal guidance on the topic
Retailers and tax professionals should refer to these rules when evaluating how tariffs affect sales and use tax exposure in Illinois. As tariff regimes evolve and more products are sourced internationally, revisiting this analysis periodically is a best practice.
Final Takeaway
If your business imports goods into Illinois and you’re the importer of record, any tariffs you pay are part of your taxable receipts. This applies even if you itemize those tariffs separately on your invoice. They’re considered a cost of bringing the goods to market.
If the customer imports the goods and pays tariffs directly to U.S. Customs, those charges are excluded from ROT and only the vendor price is subject to Use Tax. It’s a key distinction, and one worth documenting clearly.
In today’s compliance environment, with greater scrutiny of global supply chains, it’s crucial to understand who holds tariff responsibility in each transaction. If you need help evaluating your process or have any other state and local tax questions, the DHJJ State and Local Tax Team is here to assist. Contact us at DHJJ.com/contact to get started.
