On March 11, 2025, Forvis Mazars presented a webinar, featuring Flora Pierce of Miller & Chevalier along with Michael Cornett of Forvis Mazars’ Washington National Tax Office, discussing the fundamentals of tariffs and the current conversation and actions happening in Washington, D.C. A recording of the webinar can be accessed here. Many of the following questions and answers were covered in the webinar.
What is a tariff?
Similar to a customs duty, a tariff is a tax imposed by a government on imported goods. A tariff is designed to regulate trade, protect domestic industries, and generate revenue. Tariffs also can be used as a political tool to influence international trade policies and negotiations.
Who is responsible for collecting the tariff?
In the United States, U.S. Customs and Border Protection (CBP) is responsible for assessing and collecting customs duties, tariffs, excise taxes, and fees on imported goods.
Who is responsible for paying the tariff?
The importer of record is responsible for paying the tariff and any associated taxes and/or fees. The “importer of record” is the owner or purchaser of imported merchandise, or a licensed customs broker appointed by the owner, purchaser, or consignee, according to 19 U.S.C. Section 1484.
What are the obligations as an importer?
An importer should exercise reasonable care by making a good-faith effort to help ensure that all information provided to CBP is accurate and complete. This includes correctly valuing and classifying merchandise and determining the appropriate country of origin. An importer may hire customs brokers to handle customs business, but the duty of reasonable care remains with the importer.
What are the key elements to determine duties owed?
- Classification. The classification of goods is the main factor in determining the duties owed on imported merchandise. It is governed by the Harmonized Tariff Schedule of the United States (HTSUS), which is a comprehensive product classification system consisting of 96 chapters grouped into 21 sections. The classification follows a structured format: [four digits].[two digits].[four digits]. To determine the appropriate HTSUS code for a product, one must follow the General Rules of Interpretation of the HTSUS.
- Country of Origin. The country of origin determines a product’s eligibility for preferential treatment under free trade agreements or the applicability of additional tariffs, such as §301 tariffs. The country of origin is not necessarily the country from which the goods are shipped, aka the country of export. For goods containing materials from multiple countries, the “substantial transformation” test applies—whether the product has been substantially transformed into a new and different item with a new name, character, and use. Country of origin also is crucial in determining the applicability of antidumping and countervailing duties, which are determined by the U.S. Department of Commerce.
- Valuation. The declared value of imported goods serves as the basis for assessing applicable duties, taxes, and fees. An importer must use reasonable care when determining the value of its merchandise. The preferred method of valuation is “transaction value,” or the price actually paid or payable for merchandise when sold for exportation to the U.S., according to 19 CFR §152.103. This includes the total payment—either direct or indirect—made by the buyer to the seller, excluding international freight, insurance, and other costs.
What are the different types of tariffs?
- Ad Valorem Tariff: A percentage of the product’s value, e.g., 10% of the total cost
- Specific Tariff: A fixed fee per unit of a product, e.g., $5 per item
- Compound Tariff: A combination of both ad valorem and specific tariffs
- Protective Tariff: Designed to protect domestic industries from foreign competition, e.g., §201 safeguard measures
- Retaliatory Tariff: Imposed in response to unfair trade practices or policies from other countries, e.g., antidumping and countervailing duties; §301 tariff
Who has the authority to enact tariff and international trade policy?
Under the Constitution, Congress has the power to impose tariffs and regulate commerce with foreign countries. Congress over the years has authorized the president to address tariff and international commerce issues. For example, in 1934, the Reciprocal Tariff Act authorized the president the power to negotiate bilateral and reciprocal trade agreements. Through various statutes, Congress has given the president the authority to adjust tariff rates. For example, the International Emergency Economic Powers Act enacted in 1977 allows the president to regulate international commerce after declaring a national emergency. Section 338 of the Tariff Act of 1930, which has been rarely used, allows the president to impose “new or additional duties” of up to 50% under certain circumstances. Section 301 of the Trade Act of 1974 permits the president to request that the Office of the U.S. Trade Representative (USTR) investigate whether a foreign country took unjustifiable, unreasonable, or discriminatory action that “burden[ed] or restrict[ed] U.S. commerce.” As a result of these measures, it has been close to 100 years since Congress raised tariffs.
What are the tariffs either proposed or imposed by President Donald Trump?
By declaring a national emergency, using various sources of authority, Trump has proposed/imposed the following tariffs as of March 6, 2025:
| Objective | Date Announced | Tariff or Action | Form of Announcement | Implementation Date | Authority | Reasoning |
|---|---|---|---|---|---|---|
| Canada and Mexico | February 1, 2025 | 25% on most products, 10% on Canadian energy. Exception announced March 5 for automobiles imported under the USMCA for one month | Executive Order (x3) | Originally February 4, delayed to March 4. De minimis bar delayed until further notice. Exception announced March 6 for goods imported under the USMCA for one month. | Section 1702(a)(1)(B) of IEEPA | Drug smuggling and immigration |
| China | February 1, 2025; March 3, 2025 | 10% on all products; increased to 20% on March 3, 2025 | Executive Order | February 4, 2025 De minimis bar delayed until further notice | Section 1702(a)(1)(B) of IEEPA | Synthetic opioid supply chain in China |
| Steel and Aluminum Products and Derivatives | February 10, 2025 | 25% on HTS Chapter(s) 73 (steel), 76 (Aluminum); some content-specific tariffs for derivatives; 200% for Russia, 50% for Turkey | Executive Order | March 12, 2025 for most actions, unspecified future date for others as announced in March 3 Commerce Notices | Section 232 | Impairment of national security due to large quantities being imported |
| Reciprocal Tariffs | February 13, 2025 | Unspecified reciprocation, expected to take place on April 2 | Memo to Commerce, U.S. Trade Representative, other agencies | Review by April 1, Office of Management and Budget to assess within 180 days | Not yet specified – possibly Section(s) 338, 301, IEEPA | Responding to unfair practices by other countries |
| Copper, Scrap Copper, and Its Derivatives | February 26, 2025 | Investigation into national security risks of copper import dependency | Executive Order | Secretary of Commerce report due to president within 270 days | Section 232 | National security risk of import dependency |
| Lumber | March 1, 2025 | Investigation into effects on national security of lumber, timber imports, need to meet military and civilian capacity | Executive Order | Secretary of Commerce report due to president within 270 days | Section 232 | National security risk of imports, dumping |
What is the relationship between valuation for customs purposes and valuation for income tax purposes in related party transactions?
Section 1059A of the Internal Revenue Code requires conformity between customs valuation and income tax valuation for related party transactions. An income tax valuation that is higher than a customs valuation may raise concerns that transfer pricing under §482 is not appropriate. For more information, please contact a professional at Forvis Mazars.