Retailers Relying on Tariff Exemption Must Rethink Pricing Plans

President Donald Trump’s massive tax package permanently eliminates the duty-free treatment of all goods shipped to the US valued under $800 effective July 1, 2027.

Business leaders who rely on this treatment, known as the de minimis privilege, must rethink their pricing strategies, inventory management, and proactively take steps to improve efficiencies and mitigate compliance risks.

Learning to Adapt

In an environment of rapidly shifting tariff policies, the upcoming global elimination of the de minimis exemption and the new penalty regime can create challenges for small and midsize companies that often operate on thinner margins. Cross-border e-commerce retailers that depend on low-value imports will be especially strained.

The de minimis exemption traditionally has allowed these businesses, such as online merchants Shein and Temu, to receive low-cost goods efficiently, avoid supply chain disruptions, and incorporate savings into their pricing or expansion strategies.

Such benefits soon will no longer be available. Adapting to the permanent changes in the new tax law will require business sectors with distribution models reliant on duty-free imports to evaluate modifications to their overall supply chain process, structure and operations.

When planning for the implementation of de minimis changes, businesses may want to:

Review supply chain process and structure. Consider automation for customs compliance processes, such as duty and tax calculations, and evaluate opportunities to invest in more efficient production methods to help lower overall costs.

Explore opportunities to invest in more efficient production processes that lower the overall cost of goods sold, and consider consolidated shipments to reduce the frequency of low-value goods subject to duties. For example, supply chain and order management software can identify consolidation opportunities in real time. Manufacturers may be able to standardize packaging sizes and configurations to maximize the use of container space.

Businesses also may want to assess their ability to expand US fulfillment operations or partnerships with US suppliers. Evaluate bulk shipping models and shifting specific sourcing to countries offering more favorable tariff rates.

Begin by documenting the current sources of your inputs, parts, or finished goods, and the applicable US tariff rates per location. Leverage US International Trade Commission and US Customs resources to compare tariff rates by country and product category.

Maximize allowable tax benefits. Collaborate with their tax advisers to uncover additional tax-advantaged strategies to improve cash flow and lower income taxes that will reduce the impact of additional tariffs.

Consider whether the last in, first out accounting method would boost your cash flow. With LIFO, the business assumes it sold the most recent purchases first, which can boost tax deduction purposes during periods of increased costs.

Several new and enhanced tax benefits are available to businesses that were enacted as part of the tax legislation. The restoration of 100% bonus depreciation, enhancements to Section 179 equipment expensing, and the new 100% deduction for qualified production property may provide much-needed cash savings to offset tariff costs and minimize tax expenses.

Mitigate de minimis penalty exposure. Invest in training to implement regulatory changes effectively and remain compliant. This can be done by strengthening recordkeeping practices and establishing a regulatory compliance audit. Consider automating customs compliance procedures, such as using artificial intelligence to classify products, calculate duties and taxes, and prepare documentation.

Looking Ahead

To prepare for the elimination of the de minimis exemption in 2027—as well as the new de minimis misuse penalties that will take effect Aug. 3—businesses must proactively optimize pricing, safeguard profitability, reduce costs and penalty exposure, ensure compliance, and maximize operational and tax efficiencies. Professional service providers can help tailor the best solutions to specific needs.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Mark Baran is managing director, national tax office, at CBIZ.

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