Surcharges including tariffs

Businesses may add surcharge(s) to invoices to cover expenses such as tariffs, fuel costs, or credit card processing fees. Surcharge(s) added to cover business costs are generally subject to tax.

What is a tariff?

A tariff is a tax on products made in other countries, paid by the business that brings those products into the United States. It is also known as a customs duty, duty rate, or import fee.

The tax is calculated as a percentage of the product's total purchase price, which the United States Customs and Border Protection determines. 

What is the total gross amount when surcharge(s), including tariffs, are added to the invoice?

Surcharge(s), including tariffs, are included in the selling price and are taxed. These surcharges can't be deducted from the selling price, even if they're listed separately on the invoice.

How are surcharge(s), including tariffs, taxable?

Surcharge(s), including tariffs, are taxable under the same tax classification used to report the payment of the good or service purchased. This means that when the sale is considered a retail sale, the business must also collect retail sales tax on the total selling price, including the surcharge or tariff fee. 

Examples

The examples below are for general guidance only. The tax results of other situations must be determined separately after a review of all the facts and circumstances. 

Example 1

Sarah owns a clothing store and imports sweaters from Canada and is charged a tariff. The imported sweaters sell for $60 each, and Sarah adds a $5 tariff surcharge to the bill when customers purchase them. Sarah must report the entire $65 of gross income under retailing B&O tax and retail sales tax.

Example 2

A restaurant in Seattle adds a ‘living wage’ surcharge to all restaurant bills. David eats at the restaurant, and his total bill is $40, which includes a $3 living wage surcharge. The restaurant reports the entire $40 gross amount under retailing B&O tax and retail sales tax. 

Example 3

Steve is an attorney who charges his clients a $150 hourly rate plus a $50 ‘paralegal’ surcharge. Nancy hires Steve to help her draft a living will. Upon completing the will, Steve bills Nancy $1,250 (8 hours x $150 = $1,200 plus $50 surcharge). Steve must report the total $1,250 gross income under the service and other activities B&O tax classification.

Example 4

A moving company adds a $200 surcharge for hauling property from one point to another in Washington. Harold hires the moving company and is billed $2,500, which includes the $200 moving surcharge. The total $2,500 charge is subject to public utility tax under the appropriate classification.