In light of the Supreme Court's recent ruling, two experts from Eisner Advisory Group — Dean Peterson, partner-in-charge of the international tax services group, and Blair Robbins, partner and leader of the manufacturing and distribution group — discuss the tax and business ramifications of the Trump administration's tariff policies that accountants should be advising clients about.
Transcription:
Dan Hood (00:03):
Welcome to On the Air with Accounting Today. I'm Editor-in-Chief Dan Hood. Tariffs have been big news recently with the Supreme Court decision invalidating some of President Trump's tariffs, and the administration determined to keep using them as an instrument of both economic and political policy. There are all kinds of viewpoints around this, but for accountants, of course, the real question is, what does this mean for our clients and for our firms? Here to talk about all that, our two experts from Top 100 firm, Eisner Advisory Group. First off, we've got Dean Peterson. He's the partner in charge of the International Tax Services Group at Eisner. Dean, thanks for joining us.
Dean Peterson (00:32):
Thank you, Dan.
Dan Hood (00:34):
And we also have Blair Robbins. He's a partner and the leader of the manufacturing and distribution group at Eisner. Blair, thanks for joining us.
Blair Robbins (00:40):
Thanks, Dan. Pleasure to be here.
Dan Hood (00:42):
Blair, I'm going to jump to you first. What sort of impact have you seen tariffs have on your clients and how do you think that the recent SCOTUS decision will change that, if at all?
Blair Robbins (00:53):
Tariffs impacted decision-making for our clients in many different areas. This includes where you source your manufacturing, which could be through third-party contract manufacturers or company's own operating facilities throughout the globe. It certainly impacts where you would select suppliers of raw materials for manufacturing operation that's here in the US. And it can be the basis for various tax planning strategies and transfer pricing initiatives. And the volatility that we've seen in tariffs over the past year and a half has caused a lot of additional complexities for clients. The tariff volatility causes a multitude of impacts from inventory management. For example, at the end of 2024 and the beginning of 2025, we saw a rush to stock goods before the new tariffs went into effect. And then once that settled out and the tariffs were in place, we saw clients needing to renegotiate supply contracts with various suppliers, whether that's looking to potentially diversify and change localities where they're sourcing goods.
(02:03):
It could be dealing with minimum order guarantees they had in supply contracts. And then certainly inventory costing itself was heavily impacted. The complexity of the new tariff regime was much more than the previous tariffs were, which created a lot of complexities for clients in figuring out how to allocate these costs to the individual SKUs, both from an inventory costing perspective and from a pricing perspective. And a lot of companies, systems just really weren't set up to handle that amount of accounting implication. And so seeing a lot of companies struggle through that, trying to find temporary solutions and workarounds throughout their journey through this, needing to constantly update standard costing became a challenge for a lot of companies that had more stagnant standard costing processes where those costing changes as often and as much as the tariffs calls into. And then there's a lot of accounting impact, lower of cost or net reliable value, impairments, things like that certainly became more of an issue for clients than they had been in the past.
(03:16):
And all of those things really lead up to the biggest impact, I think, is pricing and figuring out how to address this in pricing with their customers, the strategy and the negotiations around that, whether to surcharge a client for a tariff or to just try and bake in a more dynamic pricing model. And then all of that creating a need to balance competitiveness, your existing customer relationships and profitability became a real tight balancing act for a lot of companies who just needed time to sort through all that and sort it through and maintain their business without losing the profitability that they had along the way. I think the recent Supreme Court ruling impacts it by creating continued volatility because just as companies were getting used to the current landscape, now they have this change. I think the hope is over time it will settle itself out as companies are able to hopefully get a little bit more clarity and certainty and back to a more traditional process for the government to set these tariffs.
(04:33):
Right now, there's the intermediate tariffs that sit in the window of the next 150 days that the Trump administration put on when the old tariffs were ruled to be illegal by the Supreme Court, but hopefully over the next several months, there'll be some more clarity that will allow businesses to reset and again, sort through a rough patch and get some more stability looking forward.
Dan Hood (05:03):
Right. Yeah. I mean, I think at first blush, a lot of people were sort of hoping, wait, does this mean we don't have to deal with the crazy complexity of the tariffs that we've seen over the last year? But really, the complexity and some of the volatility at least remains.
Blair Robbins (05:17):
Absolutely. I think if nothing, it's going to be a little bit more for a short period of time. And then hopefully, I guess it'll come back around and settle down. But right now, the most certain thing is the amount of uncertainty that there is and will continue to be for a period of time. Gotcha.
Dan Hood (05:34):
And so I mean, the best thing firms or businesses can hope for is just to get better at managing it. As you say, they weren't prepared for this level of volatility, this level of complexity, but if they could build the systems up, at least they'll be ready to deal with the ongoing complexity volatility.
Blair Robbins (05:50):
Absolutely.
Dan Hood (05:51):
Gotcha. Let me ask you, when tariffs first came up, as they had not since say the 1930s or the 1890s, depending on your favorite historical period of tariff importance, there was a lot of people said, "Well, if you do what you're doing in the United States, if you're a manufacturer in the United States, it probably doesn't really matter to you. " And then people would talk about, well, the global reach of most people's supply chains. Most people, even if they're doing most of their manufacturing or their business in the US, at some point, you might be getting a piece or a part or a part of your supplies or some input to your thing that might come from overseas so that they really affected every business everywhere. Are there any sectors that you've seen that have been particularly impacted by tariffs or that might benefit from this decision at all?
Blair Robbins (06:44):
I think, like you said, everybody's impacted by tariffs because there's very little that you're going to make that is either completely made in the United States or at the very least is made in the United States and with materials that are sourced here. A lot of the dynamic around navigating tariffs is companies obviously want to find lower tariff jurisdictions when they're procuring goods, but there's just some geographical limitations to that. So where you manufacture product, where you source supplies from is often based on where those materials come from. And so if you're making rubber gloves, you might need to be near a place that rubber can be sourced from, things like that. And so there's just some general limitation on how much you can be flexible and move where you're getting items from. The next thing is just the speed in which companies can adapt.
(07:42):
So you can't always change suppliers and manufacturers very easily. You've got to put quality control and other factors at the front of every decision-making process, and the cost important may fall second to those. And I think that ties into what you were asking about who's going to maybe come out ahead is those that can adapt more quickly. So companies that can be more agile, whether that's diversifying the group that you can source from so that you can make changes in a more dynamic way as things change by day. The other is just having better information. So I touched on system limitations and people outrowing systems as this all got more complicated. And I think companies that have adapted to that are those that are boys to succeed going forward because they can be much more competitive. And you can turn this into a competitive advantage if you're able to price better than your competitors, if you're able to offer price concessions quicker as prices come down, things like that.
(08:53):
Obviously, price is going to be an important factor for people's customers. And just having that better information, being able to react quickly is going to be a great advantage that the companies are able to do that.
Dan Hood (09:06):
Gotcha. So it's less about type of business that you're in and more about the type of business you are. If you're a flexible, agile business who can think more quickly and nimbly about that sort of thing, you're going to be in a better position. Makes a ton of sense. Dana, I want to draw you into this. I want to talk a little bit about refundability. One of the big issues that people have been talking about is all this money has been collected if these tariffs are ruled out of court. What does that mean? There's money somewhere that belongs to someone. What sort of expectations do we have around refundability, particularly of the ones that have been collected that relate to the Supreme Court decision?
Dean Peterson (09:42):
Sure. Thanks, Dan. And I want to refer back to a question you just asked, what sectors are going to benefit from these tariffs? One sector that's going to benefit absolutely our customs and duties law firms. Because when we're talking about refunds, that is a question that's up in the air. There's two views on refunds. Our clients have one view of refunds. They think they should get refunds for tariffs that were invalidated by the Supreme Court decision. But the other view is the government says, "Hey, this is approximately $175 billion collected in tariffs, leading to potential refunds." The government doesn't just have $175 billion to ship out to those who pay the tariffs, so they're going to have to meet in the middle somewhere. Right now, Congress is talking about how the refunds are going to be administered, and some are calling for tariffs to be instantly refunded using government systems to allow customers or US taxpayers who pay the tariffs to receive an instant refund of those IEPA tariffs.
(10:39):
However, that's likely not going to happen. What's going to happen is clients are going to have to determine which of their tariffs were IEPA tariffs that may be eligible for a refund. Then they're going to have to go to a customs and duty law firm to help them with that refund process. After that, who knows what's going to happen with refunds. We know we're hopeful and anticipating that there will be some mechanisms put in place by the government to allow refunds to come through for these US taxpayers who paid the tariffs, but we're not sure what to expect. So we're watching the news day by day and anticipating that there will be some chaos ahead when it comes to refunds.
Dan Hood (11:18):
That does seem to be the one thing that we can all depend on is that there will be some chaos, some level of chaos around a lot of these things. And it's interesting, I mean, as you say, they're not sitting around. You would think the government would actually be sitting around on some amount of money, but apparently they don't. And wouldn't want to give it up anyways, even if they
Blair Robbins (11:35):
Could.
Dan Hood (11:37):
So I've got ballrooms to build. I didn't say that. I want to talk a little bit more about the tax angles of this, particularly deductibility of tariffs in a second, but we're going to take a quick break. All right. And we're back with Blair Robbins and Dean Peterson of Eisner Advisory Group talking about all things tariffs. And I want to turn to a subject obviously near and dear to all accountant's heart, which is the tax ramifications of tariffs. Blair, you were talking about how you might negotiate the prices of the tariffs with your clients or with your customers or your suppliers or how you would figure that out in terms of pricing. But in the end, technically the US importer is responsible for paying the tariff actually to the government. So how are they working all on the backend is one thing. But in terms of that, assuming that the importer has paid it and hasn't figured out some other way to do it, is that deductible, Dean?
(12:28):
Can they deduct that from the cost of doing business?
Dean Peterson (12:32):
So we get this question all the time, and generally the tariffs themselves are not deductible. They are capitalized into cost of goods sold, and then they are deducted accordingly as those costs of goods sold are deducted, not necessarily in the year of payment. For capital equipment, tariffs are added to the assets depreciable basis and recovered through depreciation as well. So one question that comes up that's interesting is what happens if you've paid a tariff that was deducted in 2025 and later received a refund? So the tax benefit rule is likely going to make that refund taxable in the year it is received. So there is an extra kick in the teeth at the end that you may end up paying some taxes on that tariff refund.
Blair Robbins (13:13):
We're
Dan Hood (13:14):
Not giving that money up easily. Let's be clear. They're not
Dean Peterson (13:16):
Giving- That's right. They
Dan Hood (13:17):
May give it up, but they're not going to give it up easily.
Dean Peterson (13:19):
Yeah. So one other point on that is if tariffs were capitalized into inventory that was not yet sold, a refund would reduce the inventory basis rather than generate income. So the timing and the facts are very important here. So our clients and taxpayers need to pay attention to when they paid the tariffs and how they've been accounted for in their cost of goods sold.
Dan Hood (13:41):
Right. And I mean, obviously some of this is stuff that the businesses would've been tracking to one degree or another, but so much of it seems like a whole new realms that they wouldn't have been prepared for to be thinking about, at least in terms of all these different recordkeeping requirements, but then also the legal ramifications going out over a couple of years at least. So one thing they'll want to be talk, their accountants should be warning them about and that they should be talking to their accountants and their lawyers about as well. Your point about customs and duties lawyers coming out well out of this is well taken, but I think accountants and tax advisors may benefit from it a little bit as well in the course of helping their clients. Are there any other sort of tax considerations? We've talked a lot about them.
(14:23):
Are there any other sort of tax ramifications that people should be bearing in mind?
Dean Peterson (14:27):
Yeah, absolutely. As Blair mentioned earlier, transfer pricing is going to be an important consideration for our clients who have intercompany transactions and are selling goods back and forth between their own entities because the IRS and customs and border patrol entities look at intercompany prices from opposite directions. Transfer pricing looks at it from a tax perspective, customs and border patrol looks at it from a declared value perspective. So what we'd like to try and do is get the transfer pricing price as well as the customs value as close as possible together. So that'll be something you'll have to work closely with your transfer pricing advisor on to make sure that you're taking advantage of any tax efficiencies that might present. There are also some state and local tax implications, tariff costs and inflate inventory values, which can increase sales and use tax bases as well as property tax assessments leading to higher cost of goods sold, and that could affect state income tax apportionment.
(15:29):
There's also a very attractive deduction from the international tax perspective called the FIDI deduction that in 2025 may be affected by retaliatory foreign tariffs. The FITI deduction allows exporters of goods from the US to receive a lower tax rate on the value of some of those exports based on a couple of complicated calculations that we do in my group. So for 2025, the fitting deduction may be reduced because the exporters will be exporting fewer goods than they would in normal years without these tariffs. So there are also foreign tax credit implications, financial statement considerations. There's a lot to look at absolutely from the tax perspective. Yeah.
Dan Hood (16:14):
Wow, there's a ton. And I think through all these discussions, I think it's been pretty clear from what you've both have been saying, that there are a lot of different ways in which accountants can be helping their clients. At the very least, keeping them abreast of all the different complexities that I don't think a lot of clients would naturally have thought of. Obviously, people who are super experienced with any kind of international business, they might have some of that, but a lot of people who work internationally are not necessarily as expert as large companies, that sort of thing. So there's certainly just the informational aspect of things, but Blair, maybe are there things, do you look around and you say, wow, people really need to be talking to their accountants about this, or accountants nearly need to be talking to their clients about this. Any particular steps that accountants should be taking to make sure their clients are covered?
Blair Robbins (16:59):
Absolutely. I think there's some of those overarching themes like helping clients with system design and implementation. Obviously, control environments will need to be tweaked and updated for some of this. Just the magnitude of what we're talking about here is so much more than it was in past years. And so making sure the level of precision in the controls is operating at the right level. Consulting help with that is certainly at the top of our list. Beyond that though, there are a lot of financial statement implications that clients will help need help navigating. The inventory costing, certainly revenue recognition issues, especially around some of these considerations about refund. So it's not uncommon that we see companies negotiating one-off changes to pricing models to address the tariffs. And so if that's baked into your agreements with your customers that you can essentially pass these costs along and not just reset prices because you have higher costs, it'll be interesting to see how companies go back to their suppliers and say, "Okay, you charged me more for this because you told me there was a tariff surcharge on my invoice.
(18:10):
You got to refund. Where's mine?" And they're not always tied together, practically speaking, at the company level, you might just be putting an amount on to recoup as much as you can of those tariffs, and they're definitely not always tracked at that level to really flush out, what did I get a refund on? How much of that do I need to reset with the customer? And all of the impact on pricing also affects potentially firm purchase commitment guarantees where you're going to take a loss because you weren't buying from that same supply at the same rate. Certainly can impact lower cost and net reliable value on inventory where I don't know what the selling price is going to be six, nine, 12 months down the road because I don't know how these are all going to flush through. So what can I sell the product I have an inventory today at in the future isn't the same environment that it would've been in years past for trying to have a better gauge on what that's going to be.
(19:05):
So there's a lot of different things that I think clients will need a little bit of guidance navigating through and just making sure they're thinking back correctly because all of this is going to impact more than just checking a box on a financial statement, how you negotiate with your banks on your debt covenants, how you present information to investors and potential investors because it lacks comparability now because what happened last year certainly didn't happen this year, and if I get refunds next year, that's going to put a whole nother ripple into the dynamic. And really it just goes back to the beginning. The more information a company has, the better suited they are to be able to address these things and really understand their own numbers and their own business so that they can be set with their best foot forward.
Dan Hood (19:53):
Makes sense. Makes sense. Dean, how about you? As you think about what account accountants, tax professionals, tax practitioners should be helping their clients to manage all of those?
Dean Peterson (20:03):
One thing that I want to emphasize, something Blair already mentioned about getting clients getting their systems in order so they can actually define where they're paying tariffs, how much the tariffs were, and which tariffs they are paying. So the first thing they need to do is determine if there is any refund eligibility for themselves under IEPA. I think that's really a first step that clients need to do today. They need to coordinate with their customs council on filing strategies for these refunds and then model out the tax consequences of the receipt of the refunds, and that's very time sensitive. Another thing that clients need to do is they need to have a look at their transfer pricing policies so that their transfer pricing policies can be closely matched with the customs valuations and update their other intercompany agreements to reflect the current tariff environment. One of the things that they're also going to have to do is ensure that their tariff costs were properly capitalized into inventory and depreciable asset bases in accordance with the tax rules.
(20:58):
These are going to be critically important to any of our clients that are affected by tariffs.
Dan Hood (21:04):
It's a lot. It's a lot. It's just a law. I mean, I think one thing I was going to ask you, what can businesses be doing? I think we've talked a lot about that. Obviously systems making sure their systems are not just up-to-date, but that they're reporting all the different types of inputs that they need, which come from a bunch of different aspects of the business and from a bunch of different perspectives. But then also, as you say, Dean, just to be thinking about, do they know all the different tariffs they're paying in all the different levels of their business, different departments, et cetera, et cetera. They have a single source of truth on all that, or at least getting it all together. And then obviously to be aware of the changes as this is a very volatile area, as we know, giant Supreme Court case, but then the administration came right back and said they've got other plans.
(21:50):
We don't know how that's going to work out. So keeping abreast to that is all huge. Any other thought? Any other things they keep doing other than just not doing any business overseas at all, which would solve all of this problem? Any other thoughts on things businesses can do or accountants can be doing to help them get right? Dean, I'll give you first shot at this.
Dean Peterson (22:08):
Sure. And I think that as noted earlier, our clients and US taxpayers who have paid tariffs need to do a full import audit. They need to take a look at every imported product, every tech classification of tariffs, the country of origin, the applicable duty rate, and the legal authority for the tariff. This is something they can do individually or with their customs council. I think they also need to model out future scenarios using different tariffs possibilities because as Blair mentioned earlier, there's the new tariff under Section 122 of the 1974 Trade Act that is imposing a 10% rate for 150 days across the board right now. That could be raised to 15%, which the president said he was going to do, but that is not actually what went into effect. So we're expecting the 15% to go into effect soon. So our clients need to model out exactly what the tariffs are going to look like and how they're going to import their business.
(23:04):
They need to conduct a customs compliance review to ensure that all their import documentation, classifications and valuation practices are accurate because all this tariff uncertainty increases business uncertainty and it puts a lot of stress on supply chains as well as the bottom line.
Dan Hood (23:23):
Blair, any final thoughts on how businesses could be better prepared for this?
Blair Robbins (23:28):
The last thing that I'll say, taking all the things that Dean just laid out is to make sure that companies are maintaining the documentation. I think a lot of companies rely on their customs brokers at times to just have a handle on some of this. And it's really incumbent on the company to make sure they have all the records because there is going to be uncertainty in the refund process for a period of time going forward until something gets established and settled out. And so making sure they have all the documentation, that they're downloading their reports from the automated commercial environment from the CBP and keeping all the detail behind the broker invoices and everything else so that no matter what it is that they need to do to be able to prove this on appeal or on claim for the refund, that they have it.
(24:17):
The current threshold for proof that you're entitled to a refund is very high. And so you've got to keep meticulous documentation. And I think experience is kind of taught when people go and try and get these refunds. If they're not buttoned up in the documentation, whether they paid the tariff or not isn't going to be enough. It's going to be being able to prove that you paid the tariff and then your time for the refund.
Dan Hood (24:43):
Right. Yeah, because they want the money. They have the money and they want to hold onto it. This is normal. Everybody's that way. Very few people want to give away money. If they've got it, they want to hold onto it. But thank you both. This is an area of huge confusion. It's going to continue to be uncertain, as we know going forward, but I think this has been super illuminating. It's really clarified a lot of things, at least a lot of things that people need to be paying attention to, and I think that's a great first step. So Blair Robbins and Dean Peterson of Eisner, thank you both so much for showing up. This was great.
Blair Robbins (25:12):
Thank you.
Dean Peterson (25:13):
Thanks, Dan.
Dan Hood (25:14):
And thank you all for listening. This episode of On The Air was produced by accounting today with audio production by Adnan Khan. Ray to review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guests, and thank you for listening.
