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Let’s start with the basics: All tariffs are taxes, but not all taxes are tariffs. CFO and Controllers must manage tariff and tax compliance, and big changes may be coming for SaaS and AI companies.
Here’s how automation and global tax support can simplify compliance, allowing your business to scale with less effort.
What Is a Tariff?
A tariff is a tax imposed on imported goods as they cross international borders. Unlike other taxes, tariffs serve primarily as trade policy tools designed to protect domestic industries, influence international trade relationships, or retaliate against trading partners.
The United States has a long history of using tariffs for economic protection. The infamous Smoot-Hawley Tariff of 1930 raised duties on thousands of goods imported into the US and increased the severity of that decade’s Great Depression. More recently, the Donald Trump administration implemented significant tariffs on steel, aluminum and various Chinese goods, demonstrating how world leaders use tariffs as a tool to reshape global commerce.
Key Concepts
Tariff rates come in two main forms:
- Specific tariffs - a fixed amount of tax per unit
- Ad valorem tariffs - a percentage of an item’s value
Most modern tariffs use the ad valorem approach, making them easier to calculate. But that also means they are more volatile as the price of the item fluctuates.
The goal of tariffs is generally to protect domestic companies and encourage economic growth at home, but if no domestic alternative is available, then they can adversely affect a country’s economy. For example, tariffs can raise costs for domestic companies that rely on imports to do business. This forces those businesses to either absorb high costs or pass those costs on to consumers.
The recent US-China trade tensions illustrate this dynamic. When the US imposed tariffs on Chinese steel and aluminum, China responded with tariffs on American agricultural products. This then escalated into a broader trade war that disrupted global supply chains and forced companies to scramble to source vital goods from new countries.
What Is a Tax?
If all tariffs are taxes, then what does that mean? Taxes are mandatory financial charges imposed by governments to fund public services and operations like schools, roads, and healthcare.
Unlike tariffs, which specifically target trade relationships, taxes broadly affect individuals, businesses, and transactions within a country’s jurisdiction.
Taxes fall into two main categories that impact businesses:
- Direct taxes – These affect profitability directly by reducing income or assets. Examples include income taxes, corporate taxes or property taxes.
- Indirect taxes – Taxes on transactions, such as the retail sale of goods. These affect invoicing, pricing, and require scrupulous compliance. Examples include sales tax, value added tax (VAT), and goods and services tax (GST).
Indirect Taxes that Impact SaaS and AI Companies
SaaS and AI companies face significant indirect tax obligations that can vary significantly by jurisdiction.
US Sales Tax on Digital Services
In the US, sales tax is governed at the state level. This means SaaS and AI companies must determine in which states they have a sales tax obligation. (In general, where the business has a physical presence or sells more than $100,000 per year to in-state customers). Then, from there, they must determine which of those states charge sales tax on SaaS or other digital goods and services. To make matters more complicated, some local jurisdictions within states, like Chicago, may tax SaaS and digital goods and services differently than the state.
EU VAT on Digital Services
Rules require that non-EU-based SaaS providers register in at least one EU member state and charge VAT ranging from 17% to 27% depending on the customer’s location. A set of taxes, known collectively as the “Netflix tax,” was passed in 2015 specifically to target digital service providers, making VAT compliance mandatory for any company serving European customers.
Canada’s GST/HST System
Non-resident businesses selling more than $30,000 CAD in digital products and services in any 12-month period into Canada must register for indirect tax in Canada. This includes the 5% federal GST plus provincial indirect taxes in most provinces. Combined tax rates charged to customers can reach up to 15% depending on the jurisdiction.
What Is an Import Duty?
Import duties are a specific type of tariff or customs duty applied to foreign goods entering a country. While “tariff” and “duty” are often used interchangeably, “duties” specifically refer to the charges importers pay at customs.
Import duties vary dramatically across countries and product categories, determined by harmonized system (HS) codes that classify goods for international trade. A laptop computer (HS code 8471.30) might face 0% duty in one country due to a free trade agreement, while requiring a 15% duty in another. The amount of duties required depends on local trade policies and agreements.
Duties vs Tariffs vs Taxes
To clear up the confusing terminology:
- Duties and tariffs are essentially synonymous, both referring to taxes on imported goods.
- Import duties specifically apply to goods that cross borders.
- Sales tax or VAT may also apply at customs, creating additional amounts due. (Ex: The EU’s “import VAT”.)
Leveraging Free Trade Agreements (FTAs)
Free trade agreements (FTAs) can significantly reduce or eliminate import duties between the participating countries. The United States-Mexico-Canada Agreement (USMCA) eliminates most tariffs among those three nations, while the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) creates preferential trading terms across 11 Pacific Rim countries.
CFOs and finance teams should keep close track of relevant trade agreements and their corresponding HS tax codes for their imported goods. A company importing computer components from Mexico to the US might qualify for duty-free treatment under USMCA, dramatically reducing landed costs (i.e., total costs for import, including duties and tariffs) compared to imports from non-FTA countries.
However, manually tracking these opportunities quickly becomes difficult, especially as your company scales, offers new products, and does business with more global partners. Automated systems that monitor trade agreements and calculate tariff implications help companies capture savings while ensuring compliance with all regulatory requirements.
Tariff vs Tax: Key Differences
It’s vital for decision makers to understand the differences between tariffs and taxes. Both affect your business, but how they impact revenue and business operations can differ.
Purpose
While taxes are for revenue generation, tariffs also serve policy objectives. Governments use tariff policy to protect domestic industries from foreign competition, retaliate against unfair trade practices, or gain leverage in trade negotiations. For example, the 2018-2019 US tariffs on Chinese goods aimed to address significant imbalances in trade between the two countries as well as intellectual property rights concerns. This is just one way tariffs are used as not just a revenue generator but a diplomatic tool.
Taxes, on the other hand, provide stable government revenue streams. The US federal government collected $4.9 trillion in tax revenue in fiscal year 2022, funding everything from defense spending to social programs. This revenue function makes taxes predictable policy tools that governments rely on for long-term budget planning.
Scope of Application
Tariffs affect only imported goods, making them very narrow in scope, but still directly impacting specific supply chains by adding additional costs. For example, a 25% tariff on steel affects automakers, construction companies, and appliance manufacturers, but leaves services businesses like SaaS companies or accounting services largely unaffected.
Taxes cast a wide net and tend to touch many more businesses. Corporate income tax affects all profitable businesses, taking a portion of profits. VAT touches virtually every commercial transaction. In the US, sales tax affects the sales of physical goods and some services (including digital services.) This broad scope makes taxes a concern for every business.
For CFOs, the difference between tariffs and taxes is significant. Taxes are administratively heavy, but predictable. Tariffs are unpredictable and can create a sudden shock that disrupts costs and supply chains.
Economic & Business Impact
New tariffs create immediate cost increases that ripple through supply chains. Tariffs hit businesses first, as importers pay more to purchase the goods they need. According to the Peterson Institute for International Economics, the burden of the current 2025 Trump-era tariffs are mostly being borne by businesses. However, in general, the tariff costs are then passed on to consumers through higher retail prices.
Taxes create different, but more predictable, challenges. VAT compliance requires businesses to register in multiple jurisdictions, calculate complex tax rates, and remit collections on specific schedules. Late payments or calculation errors trigger penalties and audit risks. The administrative burden can even exceed the actual tax amounts, especially for growing companies expanding into new markets.
Free trade agreements can be a boon to businesses by reducing or entirely eliminating tariffs between partner countries. The USMCA eliminated most tariffs among the US, Mexico, and Canada, helping companies diversify supply chains away from higher-tariff regions.
Predictability is another key factor. Tax rates and rules do change, but relatively slowly and through set legislative processes. Tariff rates can shift rapidly through executive action, creating sudden planning challenges. Companies that can budget for predictable tax changes must stay flexible in preparation for tariff changes.
Tariffs, Taxes, and Their Effect on SaaS Profitability
Importers & Supply Chains
SaaS and AI companies sell digital products, not physical goods. But they're still affected by tariffs in a number of ways, and it can be easy to underestimate or even discount how tariffs will affect your SaaS or AI offering. For example, many SaaS companies import hardware for data centers or offices. The equipment needed for AI training also faces various tariffs based on country of origin and destination.
Increased tariffs on hardware costs can send ripple effects through SaaS business models. For example, a new 25% tariff on servers would directly increase infrastructure costs, potentially forcing SaaS companies to raise subscription prices for customers or bear the cost themselves.
CFOs need to know real time landed costs in order to set pricing strategies, predict future earnings and other trends, and potentially source equipment from a new country less burdened by tariffs. For example, with a new tariff, a server that originally cost $10,000 might actually cost $13,500 when all is said and done due to tariffs, VAT and other shipping and logistics fees.
Revenue & Compliance
Each state or country has its own unique rules for tax collection and reporting, and your firm may have to submit data through dozens of individual portals. These rules impact how you invoice and when (and where, if multinational) you record revenue.
Errors can lead to penalties, audits, and reputational damage. If your business faces a sales tax audit, you must review years of transaction-level billing data, customer contracts, and exemption certificates.
The complexity multiplies quickly. A SaaS company selling to customers in 20 countries may need to follow 20 different sets of rules when it comes to reporting revenue and calculating direct and indirect taxes.
Strategic Planning
Finance teams should model out both tariff stability and tariff volatility in their future planning. Tariffs present sudden external risks that can swiftly increase costs. Taxes, on the other hand, are also an administrative burden but more predictable as companies scale globally.
For example, US tariffs on Chinese goods recently caused companies to restructure their supply chains, switching purchases they would normally make from Chinese manufacturers to suppliers in Taiwan, South Korea or domestic suppliers. This was an unforeseen event that caused businesses to scramble for new sources.
Meanwhile, if that same company decided to strategically expand into a new market, they could predict and model how much they would pay in corporate taxes as well as VAT, GST or sales tax. This would make for simpler financial models for finance teams.
Where Sphere Fits In
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Tax compliance is a continuous challenge that requires handling large amounts of granular, fragmented data. Tariff shocks add volatility and uncertainty to the mix. If you’re scaling your business, you need comprehensive tax management.
Sphere is the all-in-one solution for automated global sales tax compliance. Unlike other solutions, which have had to backfill AI capabilities, Sphere is the only AI-first global sales and indirect tax solution. Sphere’s platform provides data normalization that simplifies compliance.
Automating Indirect Tax Compliance
How can Sphere automate tax compliance?
- Tax Review and Assessment Model (TRAM) - This proprietary model is trained on the world’s tax law and can determine the taxability of any product wherever it is sold, globally.
- AI-driven tax code assignment – Sphere integrates with your ERP to automatically assign tax codes to all of your products, reducing manual work and human error, and ensuring you charge the right amount of tax, no matter what product or what customer.
- Automated filing, registration, and compliance monitoring – Sphere determines when you are approaching or have met a registration threshold, registers for you, and then files on your behalf. It’s truly streamlined end-to-end tax compliance, globally. Your team will thank you for eliminating these repetitive tasks.
- Multi-region support for VAT, GST, and sales tax – Sphere currently covers 80+ countries and their corresponding tax types. There’s no need to purchase a new tax solution or hire an indirect tax pro if you want to take your business global.
Preparing for Future Tariff/Duty Compliance
Sphere is expanding into customs and tariff calculations for 2026. This evolution positions Sphere as a comprehensive trade compliance platform that will integrate tariff, duty, and VAT data to provide complete landed cost visibility.
Future Sphere capabilities will help CFOs model the true cost of global expansion, factoring in both predictable tax obligations and volatile tariff risks. By combining duty calculations with existing tax compliance, Sphere will offer the single source of truth that finance leaders need to manage global trade complexity.
This integrated approach helps companies anticipate policy changes and protect profitability. When tariff rates shift or new tax rules emerge, Sphere's AI engine will automatically update calculations and alert finance teams to potential impacts. CFOs will finally have one platform that handles everything from calculating the right sales tax on a subscription to modeling the full landed cost of imported hardware.
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The Bottom Line
Tariffs can affect your cost of goods and supply chains suddenly and thoroughly, while taxes create ongoing compliance obligations that touch every customer transaction. Both impact profitability, but require modern CFOs to employ different skillsets and strategies.
CFOS and finance teams need visibility into both challenges simultaneously. Tariff volatility requires scenario planning and supply chain flexibility. Tax compliance demands systematic processes and automated accuracy. The companies that thrive globally will be those that master both elements.
Sphere is your foundation: an AI-driven platform that scales with your business while preparing you to grow with tomorrow’s compliance challenges.
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