How Do U.S. Firms Track and Pay Tariffs? A Plain-English Guide
Tariffs—taxes on imported goods—are a fact of life for many U.S. businesses. But how do firms actually keep track of these costs, pay them, and stay compliant with ever-changing trade rules? Here’s a straightforward guide to how it works in practice.
What Is a Tariff and Who Pays It?
A tariff is a tax the U.S. government places on imported goods, either as a percentage of the item’s value (an ad valorem tariff) or as a fixed fee per unit (a specific tariff). When a U.S. business orders products from overseas, it is the importer—not the foreign supplier—who is responsible for paying any tariffs due when the shipment arrives at the border. These fees must be paid before the goods are released for sale in the U.S.
How Do Firms Track Tariffs?
1. Customs Declarations and Classification
- Every imported product must be classified under the Harmonized Tariff Schedule (HTS), which determines the tariff rate.
- Companies (or their customs brokers) submit entry documents to U.S. Customs and Border Protection (CBP) detailing the shipment’s contents, value, and country of origin.
- CBP reviews the paperwork, verifies the classification, and calculates the tariff owed.
2. Using Customs Brokers and Software
- Many firms rely on licensed customs brokers or specialized software to track tariff rates and ensure correct payment.
- These tools help businesses stay up to date with frequent tariff changes and avoid costly mistakes.
3. Internal Controls and Documentation
- Importers must keep detailed records of all imports, including invoices, shipping documents, and tariff payments, in case of audits or disputes.
- Proper documentation is also crucial for strategies like tariff engineering or duty drawback claims (see below).
How Are Tariffs Paid?
1. At the Port of Entry
- When goods arrive in the U.S., the importer (or their broker) pays the tariff to CBP as part of the customs clearance process.
- Payment is typically made electronically through the Automated Commercial Environment (ACE) system.
2. Who Ultimately Bears the Cost?
- While the importer pays the tariff upfront, the cost is often passed down to consumers through higher prices or absorbed by the business as a lower profit margin.
- Some companies may also seek alternative suppliers to avoid high tariffs, affecting supply chains and sourcing decisions.
How Do Firms Manage and Minimize Tariff Costs?
1. Tariff Engineering and Classification
- Businesses may legally modify products or reclassify them under different HTS codes to qualify for lower tariffs, provided changes are legitimate and well-documented.
2. Duty Drawback
- Importers can reclaim up to 99% of tariffs paid on goods that are later exported or destroyed, if they keep proper records and file timely claims with CBP.
3. Foreign Trade Zones and Bonded Warehouses
- Companies may use these customs programs to defer or avoid paying tariffs on goods that are not immediately entering U.S. commerce.
4. Exclusion Requests and Appeals
- Firms can request tariff exclusions for specific products or challenge CBP decisions through protests and appeals if they believe a tariff was wrongly assessed.
Compliance Is Critical
Failure to pay the correct tariffs or misclassifying goods can result in heavy fines, legal penalties, and even criminal prosecution. That’s why most companies work closely with customs experts and invest in compliance systems to ensure they get it right.
Bottom Line
U.S. firms track and pay tariffs through a combination of customs paperwork, classification expertise, and digital tools. The importer is responsible for payment, but the cost often ripples through the supply chain. Staying compliant and finding legal ways to minimize tariff exposure is essential in today’s volatile trade environment.
Learn about our Tariff Classification Workshop
Classification Workshop for import, export, FTA determination & clarification on Section 301 and Section 232. Critical information is not only for duty purposes but also to determine whether goods are subject to quotas, restraints, embargoes, or other restrictions.
