With discussion of tariff surcharges, and how they’re applied by resource and retailer, VOWS queried Abacus.AI with the following prompts:
What are the legal considerations to charging a tariff surcharge to wholesale customers?
and
What are the legal considerations for charging a tariff surcharge for retailers to their customers?
Sources:
Federal Trade Commission: Advertising and Marketing Basics;
FTC: Truth in Advertising;
NOLO: Can Retailers Add Surcharges to Credit Card Purchases;
Shopify Help Center;
Avatar: Are Surcharges Subject to Sales Tax; and
State Attorney General Consumer Protection Offices.
With the understanding that this remains a fluid environment... no one knows how long tariffs will be in place, or at what rate...we thought it important to publish the guidelines if for no other purpose than as a helpful reminder when contemplating today's circumstances.
Please note that this is not offered as legal advice, and it's important to check with the laws governing your particular state.
For Retailers:
When a retailer wants to charge a tariff surcharge to its customers (whether online or in-store), there are several legal considerations to keep in mind. These considerations are rooted in consumer protection, advertising, contract and tax law. Here’s a clear summary:
1. Clear Disclosure and Transparency
Retailers must clearly disclose any tariff surcharge to customers before the sale is completed. The surcharge should be visible during the checkout process, not hidden in fine print or added after the transaction. Failure to do so can be considered deceptive or unfair under consumer protection laws.
- Truthful and Non-Misleading Advertising
Any explanation or labeling of the surcharge (such as “tariff surcharge” or “import fee”) must be accurate. If you claim the fee is due to government tariffs, you should be able to substantiate that the charge is directly related to those tariffs and not simply a price increase.
- Compliance with State and Federal Consumer Protection Laws
Both federal (e.g., the Federal Trade Commission Act) and state laws regulate how fees and surcharges are presented to consumers. Some states have stricter requirements or may even prohibit certain surcharges. Retailers must ensure their practices comply with all applicable laws in the jurisdictions where they operate.
- Contractual Terms and Conditions
Your terms of sale (whether online or in-store) should mention the possibility of tariff surcharges. Customers should have access to these terms before completing a purchase. For online sales, this usually means including the surcharge in the order summary before payment.
- Sales Tax Implications
In many states, surcharges are considered part of the taxable sale price, meaning you may need to collect sales tax on the surcharge as well. Consult with a tax professional or your state’s department of revenue to ensure compliance.
- Reasonableness and Justification
The surcharge should reflect actual increased costs due to tariffs, not be used as a pretext for excessive price increases. Charging more than the actual cost increase could be considered price gouging, especially during emergencies or in regulated industries.
- Platform and Payment Processor Rules
If you sell through third-party platforms (like Amazon, Shopify, or eBay), review their policies. Some platforms restrict or require specific disclosures for surcharges.
- International Sales
If you sell to customers outside your home country, you must also comply with the consumer protection and e-commerce laws of those countries, which may have additional requirements for fee disclosures.
- Record-Keeping
Maintain clear records showing how the surcharge is calculated and that it is tied to actual tariff costs. This can help defend against any legal challenges or customer complaints.
In summary: Retailers can generally charge a tariff surcharge, but it must be disclosed clearly and truthfully, comply with all relevant laws, and be justifiable as a response to actual tariff costs. It’s wise to consult with a legal professional familiar with consumer protection and e-commerce law to ensure your practices are compliant.
For Wholesalers:
Charging a tariff surcharge to wholesale customers involves some different legal considerations compared to retail, but many core principles remain. Here’s what you should keep in mind:
- Contractual Agreements
The most important legal consideration in wholesale transactions is the contract. Your ability to charge a tariff surcharge depends on the terms of your sales agreements or purchase orders. If your contract is silent on surcharges, you may not be able to impose them unilaterally. It’s best to include clear language in your contracts allowing for tariff surcharges or price adjustments due to changes in import duties or tariffs.
- Disclosure and Transparency
Even in B2B (business-to-business) transactions, transparency is key. You should clearly communicate any surcharges in advance, ideally in writing. Surprises can lead to disputes, damaged business relationships, or even litigation.
- Uniform Commercial Code (UCC) In the United States, the UCC governs most sales of goods between businesses. Under the UCC, changes to price terms after a contract is formed generally require mutual agreement. Attempting to add a surcharge after the fact, without contractual basis, may be unenforceable.
- Good Faith and Fair Dealing Most jurisdictions impose a duty of good faith and fair dealing in commercial contracts. Surcharges should reflect actual increased costs due to tariffs, not be used as a pretext for price gouging.
- Documentation
Keep detailed records showing how the surcharge is calculated and that it is directly tied to actual tariff costs. This is important for both legal compliance and maintaining trust with your customers.
- Antitrust and Price Discrimination
Be cautious about how you apply surcharges. Charging different surcharges to similarly situated customers could raise issues under antitrust or price discrimination laws (such as the Robinson-Patman Act in the U.S.), unless you have a legitimate, cost-based reason.
- Sales Tax Implications
As with retail, surcharges may be considered part of the taxable sale price. Check with your tax advisor or state revenue department to ensure compliance.
- International Considerations
If you are selling to wholesale customers in other countries, you must comply with local commercial and tax laws, which may have their own requirements for surcharges and disclosures.
- Industry Standards and Practices
Some industries have established norms for handling tariff surcharges. Following industry standards can help avoid disputes and demonstrate good faith.
In summary: For wholesale customers, the legal right to charge a tariff surcharge depends primarily on your contract terms and clear, advance disclosure. Always document your rationale, apply surcharges fairly, and ensure compliance with tax and commercial laws. When in doubt, consult with a legal professional experienced in commercial contracts and trade law.
Please note: this is not a substitute for checking with your individual state laws, as several (such as California, Massachusetts and Minnesota) offer specific guidelines as summarized by Hannah Taylor, partner, on the recent Frankfurt Kurnit Klein + Selz blog:
State and federal laws...
“Prohibit advertising or displaying a price for a product or service unless it reflects the total amount a consumer is required to pay, excluding only government-imposed taxes and, in some cases, shipping—provided those costs are disclosed prior to checkout. In other words, advertising one price and then adding a mandatory surcharge or additional fee at checkout is likely a violation of the law.
Require businesses to clearly and accurately describe the nature and purpose of any fees. For example, labeling a charge as a “service fee” when it is actually a general revenue or profit driver may be considered deceptive.
May impose prominence or formatting requirements for price information (and require an all-in price to be displayed more prominently than other price information).”