Should tariffs be included in COGS? Landed cost for online sellers

The tax rule is old and simple. Treas. Reg. § 1.471-3(b) says the cost of purchased merchandise is the invoice price, less trade discounts, plus “transportation or other necessary charges incurred in acquiring possession of the goods.” Customs duties and tariffs are necessary charges. So are inbound freight and customs brokerage.

GAAP books follow the same idea. Costs to get inventory to its location and ready for sale are part of inventory.

The practical effect: a tariff is not an expense on the day you pay CBP. It becomes part of each unit’s cost. You deduct it through cost of goods sold (COGS) when the unit sells.

As of October 2026, tariff rates and programs keep changing. The Supreme Court held on February 20, 2026 that IEEPA does not authorize tariffs (Learning Resources, Inc. v. Trump, No. 24-1287). That ruling covered IEEPA tariffs only. Other duties still apply. The accounting rule above does not change with the rate. If you get an IEEPA refund, see is a tariff refund taxable.

Landed cost is everything you paid to get one unit into your warehouse or to the Amazon or 3PL dock. The formula:

Landed cost per unit = (supplier cost + inbound freight + duties and tariffs + brokerage and customs fees + inbound insurance + freight to your warehouse or fulfillment center) ÷ units received

Illustrative example. A seller imports 1,000 units. Supplier invoice $8,000. Ocean freight $1,200. Duty $2,000. Brokerage and customs fees $300. Truck to the 3PL $500. Total $12,000, so landed cost is $12.00 per unit.

• The seller sells 700 units this year. COGS is 700 × $12.00 = $8,400.
• 300 units are unsold at year end. Ending inventory is 300 × $12.00 = $3,600.
• Of the $2,000 duty, $1,400 reached COGS this year. $600 is still in inventory.

If the bookkeeper had expensed the $2,000 duty when it was paid, this year’s profit would be understated by $600 and next year’s overstated by $600. Margin by SKU would also be wrong.

Calculate landed cost per shipment (per lot), not with a single annual average, when tariff rates change during the year. Two lots of the same SKU can carry very different duty.

Two Internal Revenue Code provisions matter for small sellers. Both use the Section 448(c) gross receipts test. For tax years beginning in 2026, an entity meets the test if its average annual gross receipts for the prior three tax years are $32,000,000 or less (Rev. Proc. 2025-32, section .30). Certain tax shelters cannot use either rule.

• No UNICAP. Section 263A(i) exempts qualifying taxpayers from the uniform capitalization rules. That means you do not have to add a share of warehousing, purchasing and handling overhead to inventory for tax. You still include direct acquisition costs like duty and freight-in.
• Simpler inventory methods. Section 471(c) lets a qualifying business treat inventory as non-incidental materials and supplies, or follow the method in its books and records (or its applicable financial statement, if it has one). Neither option lets you deduct inventory the day you buy it. See inventory accounting for small businesses.

Sellers above the threshold must apply Section 263A. For resellers, that generally means capitalizing more indirect costs, such as storage and purchasing, into inventory.

The importer of record (IOR) is the party on the customs entry that is responsible for paying duty to U.S. Customs and Border Protection. Many small brands are the IOR without realizing it, because their freight forwarder or broker files entries in their name.

• You are the IOR. You pay duty directly or through your broker. Record it as a separate line on each shipment’s landed cost.
• Supplier ships DDP. The supplier or its agent is usually the IOR. Your landed cost is the total DDP price plus any freight you pay after delivery.
• Small parcels. As of October 2026, the $800 de minimis exemption is suspended. CBP made the suspension indefinite in interim final rules effective June 24, 2026 (FR Doc. 2026-12670). Low-value shipments now go through formal or informal entry and can carry duty.

Knowing who the IOR is matters for your books and for refunds. CBP pays IEEPA refunds to the importer of record, according to its IEEPA refund guidance.

Best for: Shopify, Amazon and multichannel brands that import inventory and are not sure their COGS includes duty, freight and brokerage.

1. Free initial consultation. Tell us how you source, ship and sell.
2. Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter before work starts.
3. Landed cost build. We tie supplier invoices, freight bills and customs entries to each shipment and SKU.
4. Books and tax. We post inventory and COGS in your books and carry the right method to your tax return.
5. Ongoing. Monthly e-commerce accounting keeps margins current as tariffs change.