Importers in the U.S. stand to take in an estimated $166 billion in tariff refunds, and now, some of their customers are angling for a piece of the pie.
While consumers and other businesses that paid higher prices from importers due to the now-illegal tariffs aren’t entitled to refunds directly from the government, they may have a chance at getting something back from the suppliers they purchased from. It’s an area closely watched by many legal observers and experts, yet one that finance teams may not even be aware of.
Glen Frost, founding partner of Frost Law Firm, is one such lawyer trying to get refunds for what he calls “downstream businesses,” that is, companies that didn’t pay tariffs directly but still had to pay higher prices from their importers. He says he’s already had some success in getting their direct suppliers to cooperate on refunds.
“I’ll be frank: Many of the suppliers are not going to refund the money; they’re going to try to keep it, unless they’re asked,” Frost says. “A lot of the businesses and even the CFOs we’re talking to, if they’re downstream, they don’t realize they can go to their supplier and get refunds.”
Frost acknowledges that it’s still a complex process, but he believes his clients are poised to get their fair share of the refund money. Some importers may also choose to issue refunds to maintain business relationships and avoid protracted court battles.
As Frost sees it, importers who get such refunds without sharing them are getting an unjust enrichment, or a windfall they wouldn’t otherwise be entitled to.
Frost says that several suppliers didn’t explicitly spell out cost increases they passed onto their customers, which is why his team has spent time analyzing hundreds of thousands of invoices. Their goal, he says, is to compare invoices both before and during tariffs issued under the International Emergency Economic Powers Act to determine how much money customers could be entitled to.
Frost declined to share specific names of clients, but noted that the category of potential downstream businesses that stand a chance at getting a chunk of tariff refund money includes companies like restaurant chains, health care systems, retailers, distributors and more.
Big vs. small importers
It’s worth noting that some large-scale transportation companies, such as FedEx, DHL and UPS, have already laid out plans to issue tariff refunds to customers. “FedEx will issue refunds for IEEPA tariffs paid to shippers and consumers who originally bore those charges once FedEx begins receiving refunds from CBP,” the company wrote in an FAQ document regarding tariff refunds.
Such refunds are different, and arguably a bit simpler, than the type that Frost is seeking for his clients. Frost notes that in some cases, importers “blended” the price of tariffs into the overall cost. In the case of big shipping companies, though, tariff prices are typically explicitly spelled out in an invoice, which makes downstream refunds easier to process.
“They actually know how much cost was passed on because they broke it out,” says Tim Meyer, international trade law professor at Duke University School of Law. “You can see in your shipping bill what the additional tariff cost was.”
Still, existing contractual agreements in other situations might pave the way for refunds further down the supply chain. Downstream businesses might find that their agreements with importers already have some kind of remedy in them.
And while such businesses don’t have a claim against the federal government, they might be able to pursue refunds under contractual agreements, Meyer notes.
Aside from individual consumer class action suits, Meyer says he’s not aware of any business-to-business moving through the courts just yet. That could be because businesses may have arbitration clauses in contracts with importers.
“It’s entirely possible that business-to-business cases could be resolved by arbitration,” Meyer says. That means that the full scope of these types of disputes may not be publicly known.
Tariff refunds as taxable income?
There is, of course, more at risk than just business relationships. Importers that seek tariff refunds from the government may carry an additional tax liability, says Mark Baran, managing director, national tax office, with accounting firm CBIZ.
“A lot of companies don’t realize that that’s oftentimes taxable income,” he says of tariff refunds. “If you previously received a tax benefit and baked it into your cost of goods sold, or you took a deduction … there’s a lot of rules to follow on when and how you take this into income. That could be a very significant amount.”
Baran notes that the same principle would apply to downstream buyers, as well, depending on how they recorded tariff costs in their books.
“Where tariffs were paid on imported items that the taxpayer deducted for income tax purposes, the refund of those tariffs constitutes a recovery of a previous year’s deduction that gave rise to a tax benefit,” CBIZ leaders wrote in a May 11 blog post. “Under the ‘tax benefit rule,’ a recovery of a previously deductible item is only taxable if and to the extent it provided the taxpayer with a tax benefit (e.g., reduction in liability or increase in a loss carryover) in a previous year.”
Tax considerations aside, there’s a great deal of uncertainty remaining in the tariff world. The Trump administration has been working to levy tariffs under differing authorities, for instance. And the Department of Justice earlier this month issued an appeal against some aspects of the Court of International Trade’s order directing the federal government to issue refunds.
“I think there’s clearly going to be litigation for a long period of time as new tariffs come online,” says Kathleen Claussen, professor of law at Georgetown Law.
