As you purchase goods, whether they’re materials or finished items, you’re paying for various things – the base price of the item, possible enhancements made, taxes on import, purchase etc., transportation and handling, and not to forget, possible rebates or reduction in prices as well. 

A distinction needs to be made when we talk about taxes paid on purchase – whether they’re refundable or non-refundable.

If they’re refundable and you’re keeping record of all required information for the refund to actually happen (that is your authorities would get all the data they need and there will not be any problems with the refund) you will not include the tax in the cost price of the inventory. It’s refundable and therefore not an expense for you.

However, if we’re talking about non-refundable taxes, it’s another matter. Those are such taxes you will not be able to ask back from the collecting party under any circumstances and as such, they’re your expense. Now of course, should the amount be very small and happen just this once, you’re free to expense it right away on the income statement, however, the correct method for treating such expense is to include it in the cost price of the inventory item.

This treatment should be applied to all non-refundable duties and taxes paid on the purchase.