I agree with you on being annoyed about āhidden fees.ā Not long ago restaurants were adding on charges like āfuel surchargeā when gas prices went up. Recently at one restaurant we had a line item of our bill paying for āemployees health insurance.ā It is getting out of control, and needless to say never have been back to those restaurants.
But back to your postā¦ Are tariffs taxable? It is minimal but a $110 priced item will be taxed more than the $100 item. So there is a difference there, be it a small one.
It might depend on the state and if services in general are taxable.
I think the key to remember here is that the ātariff surchargeā line item isnāt actually a tariff being paid by the consumer. Itās just an additional fee. It could also be called āFck Trmp Feeā.
" Several statesāincluding California, South Carolina, and Washingtonāhave issued guidance that a line item for a tariff or tariff surcharge on a customerās invoice would be part of the sales tax base."
Donāt Overlook the Impact of Tariffs on State Indirect Taxes
I usually research every situation, but I THINK, generally, the rule of thumb is that if a fee is charged in association with the purchase of goods that sales tax is applied to that fee UNLESS the customer can opt out of paying the fee. For example, a pizza delivery fee might not be taxable if the customer can reasonably expect to pick up the pizza themselves from the restaurant and not be charged the delivery fee.
Now youāre really taking me back to my old macro lessons! And Iād reckon demand for mid to high end bikes is highly elastic too, so all this talk about passing on the cost increases in the expectation the purchaser will eat it seems a bit misguided. But Iām not a Trek/Specialized/etc. sales manager so maybe Iām wrong.
Iām good with either one.
(Sorry, couldnāt resist)
Thatās a pretty good way to describe the current situation. For the sake of my sanity, I try to believe the tariff madness is primarily being used to disrupt the status quo and force some parties to the table. Without a compelling event, nothing ever changes. If the current administration actually think the broad use of tariffs are a good long term strategy, itās going to be very ugly for a long time. Itās obviously going to be very painful for a while, I donāt think anyone knows how far the hole has to go before you canāt dig out. As you say, a very dangerous game of chicken with the world economy sitting in the middle.
Take off your accounting hat and put on your marketing/sales hat and it will make more sense. As someone else mentioned, itās no different from some companies that used the āfuel surchargeā to point blame for price increases in the past. They are valid costs, but just another component of COGS. With tariffs being front and center in world news, itās certainly smart to call it out in pricing and deflect some blame away from the company. But whatever tariff fee Trek (or whomever) is adding as a line item, that tariff fee was almost certainly determined by mixture of sales/product/finance people, not with some calculation of the actual tariff on an individual bike/component. They might put a tariff fee on a less elastic product even if it isnāt impacted.
And they might not add a tariff fee on something with a tariff if they donāt think it will sell at a higher price. Companies often use standard costing across their mixed inventory with some poor soul projecting what tariffs will be over the next 18-36 months (with another poor soul projecting demand based on a bunch of different pricing scenarios). And all of itās changing daily.
Agree that itās rare, but they are out there. Iāve seen gross margins much higher than that for cosmetics and skin care products. The packaging is usually the most expensive part (and itās cheap). All their costs are marketing/sales/distribution. And not usually a luxury item, by many life science companies (pharma, etc.) also run high, but have huge R&D to recoup, so doesnāt seem as ridiculous as the makeup and skin care margins. So, if if you see Ulta tacking on a big tariff surcharge on that $50 bottle of whatever, you pretty much know itās BS.
Well thatās what I mean, as a consumer, seeing that as a line item makes me feel like Iām getting absolutely hosed by the company. Same really goes for any other type of fee. Anytime a company advertises one price but then tacks on a bunch of fees at the point of sale I put them mentally in my scumbag company list.
Oh yeahā¦those margins are obscene. I was referring more to hard goods, durables, etc.
Generally not a fan of the practice either, but find it more an annoyance (and kind of expect it for many things). But I do think the tariff stuff brings a ādeflectionā dynamic that other fees might not have. The company is basically saying that the price is going up, but hoping people blame the government rather than it reflecting negatively on the company. For me, itās not going to change my impression of the company either way. And maybe a byproduct of calling out the tariffs is some market outrage to put pressure on the government to bring some order ASAP.
generally I feel the same. In this specific situation, from the brandās perspective, I think the surcharges make some sense because things are so fluid. Itās much easier to change/add/remove a surcharge compared to changing cost-of-goods and MSRP on many products when you have no idea how many times they might change in the next 90 days or six months.
From a consumer standpoint, itās a drag to see some tacked-on fees, but I think the brands and retailers can do some work there to indicate āall purchases may be subject to surchargeā up front and lessen the nasty surprise. That prepares the consumer to accept some volatility. For me personally as a consumer, if I see the actual marked prices changing frequently, I feel like I never know if Iām really getting the best price, and it makes me wonder if Iām being taken advantage of. No easy solutions in these conditions!
Definitely! This is why Iām not in marketing. I feel like itās kind of similar how car salesmen like to talk in monthly payments. For some people, hearing the small monthly payment is what really gets them. However, for other people they just want to know what the total price is. Gotta figure out which approach works for the most customers.
Thatās not an accurate sentiment. Youāre getting absolutely hosed, yesā¦ by your government, which instituted a new tax on your imports with near-zero notice. Of course businesses have to recoup all or most of that costā¦ or they donāt stay in business.
The company is basically saying that the government IS to blame, 100% for that sudden increase in the price you pay. And theyāre 100% right. The price of the product didnāt go up. Your taxes on it did.
If sales tax went up, would you blame the company? Probably not. This is just another tax.
Acknowledging that the tariffās are implemented in poor practice, unreasonable, etc., I think many in the US would welcome more bike frames being fabricated in the US at a reasonable cost increase. Whether than can be done (at a reasonable cost), may not be possible in some cases. Iād be curious to know what the actual added cost would be.
When Allied recently announced/released their new gravel bike, many posters here expressed disappointment that the bikes are no longer fabricated in the US. Not to mention, the price didnāt seem to reflect the change in manufacturing location.
I personally try to purchase items made in the US whenever reasonably possible. My titanium bike was made in the US, as are my boots, truck/travel trailer, backpack/luggage, extensive home gym, and best tools. For all those items, Iām happy to pay a reasonable premium both in support for US manufacturing and also because items that are made in the US are often some of the best in quality. In fact, other than much of my Japanese clothing, most of the products I am most passionate about are all made in the US.. I draw a blank trying to think of something I really love, quality wise, that isnāt made here.. Of course, lots of cheap āgoodā things are brought in for overseaās, most of which serve their intended purpose perfectly well.
Trek tried it on their high-end bikes, reasoning that with the tariffs that existed at the time (many years ago), they could match the COGS. They eventually ended up shifting almost all that production back overseas.
Logic says that with even higher tariffs, it would be possible to match the same landed price now with US productionā¦but either way, it ends up being a higher end price to the consumerā¦i.e. inflation.
Allied has been pretty open that the reason they switched manufacturing for the US was that they realized that others could simply do it better than them. I give them kudos for being so frank about the decision.
I saw a recent post on LinkedIn where the author was applauding the tariffs as a way that US companies could not compete in manufacturing for the toy industry. He laid out a case where what is now a $9.99 toy would cost $24.99 after the tariffs, and now US manufacturers could match those retail prices.
The fact that this guy could not see the obvious negative implications of that kind of inflation, while lauding changing to US manufacturing was kinda jaw-dropping. This was further compounded by the fact that he said it would only be possible with automated manufacturingā¦so really, not many new jobs.
So where is the net benefit of that scenario? (somewhat rhetorical, not directed towards you, @Trix8806 )
All good points and I agree. Itās the $10 toys and other ācheap crapā that will really be hit the hardest. My comments on quality are really irrelevant to those types of items (and largely, electronics) as I donāt know that moving manufacturing to the US would even be noticeably improved. The $10 toys generally serve their purpose just fine.
For anyone interested, the podcast linked below covers the launch of the new bike and moving production to asia. In my working days, I had the opportunity to see manufacturing of all kinds of goods all over the world. Jet engines to crappy Walmart jewelry. There is junk made everywhere, including the US. And lots of high quality manufacturing in Asia. I toured the Allied facility near Bentonville last year as part of a public tour group. What I saw was extreme passion about cycling and making the best bikes possible, but the manufacturing practices were not impressive. Despite their best efforts, they were not in the same league as the companies who have been doing it in volume for decades.
Would I rather buy locally produced goods? Sure, if all else were equal. But at some point, itās silly to force local buying if your neighboring city/state/country is fundamentally better at producing something than you are. Manufacturing is hard. To think we are just going to shift the manufacturing of some of these foreign made goods to the US in a matter of a couple years is silly. And I wouldnāt assume thatās the real agenda. Again, lots of dangerous games being played. I donāt believe much of what is being said publicly.
Why is everyone getting bent out of shape, the exporting country pays the tariff not the consumer. The president was very specific about this.
Seriously??? Who do you think will take the hit in covering this increase??
Not sure if youāre serious, but I urge a bit of research if you are taking that line for the truth.
Forgot the /s