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Tariffs are a form of tax that restrict trade and increases the cost of doing business with a foreign supplier. There are several types of tariffs in existence that the government can use to tax imported goods. Some of the different types of tariffs used by our government today are specific tariffs, which are a flat fee for each individual unit being imported based on the type of product it is. There are ad valorem tariffs, which are tariffs that are levied based on a percentage of the goods value. Tariffs do more than just keep pricing fair, they are used by the governments to protect consumers, domestic employment, and national security, and at times can be used as retaliation.

The United States must treat all World Trade Organization (WTO) members consistently and follow the tariff guidelines set by the WTO when conducting business with a another member country, but are not regulated to do so for non-WTO members. Looking at different countries you can import your product from could possibly lead you to choose one manufacturer over another, since non-WTO members tend to be taxed at a higher rate. There are also other regulations or agreements that may be a factor in tariff pricing. For example, the US is involved in the North American Free Trade Agreement (NAFTA) with Mexico and Canada. This significantly reduces the price of tariffs between the three countries. The United States currently has 17 of these free trade agreements in place.

The US also issues Harmonized Tariff Schedules. These schedules contain a list of goods made overseas that are imported to the United States. They also describe the tariff and classification for each product that is imported. The Harmonized Tariff Schedule is a simple tool that can produce valuable information quickly and should be utilized to compare tax percentages and make your company more informed and more cost efficient.

It is crucial for any company doing business with a foreign supplier to be aware of the regulations and tariffs that exist as a component of pricing. As described above, there are different tariffs. Knowing how your product is being taxed, from production to sale, can have an impact on your external pricing strategies. Each good manufactured is taxed differently based on its qualities and characteristics. This includes, but is not limited to, the type of product, weight, size, price and packaging. For example, a company that imports lead crystal stemware glasses from most WTO countries pays a 7.3% tariff if the glasses are in category 7013.22.30 (valued over $3 but not over $5 each), whereas lead crystal stemware glasses in category 7013.22.50 (valued over $5 each) are charged a 3% tariff. Assuming the company imports 100,000 glasses annually, it will pay a $32,850 tariff on glasses valued at $4.50 each, but only $15,000 on glasses valued at $5.00. So, the company pockets a $17,850 reduction in tariff payments to the government and a 10% increase in gross profit from the price increase.

Altering your product sourcing slightly may be very beneficial and could impact your corporation's bottom line.

For more information or questions on this topic, please contact your local UHY LLP professional.