Incorporator The Journal of U.S. Formation
Start Free Quiz
Editorial 7 MIN READ

Tariffs are a customs problem, not an incorporation problem

The 2025 IEEPA tariffs changed the landing cost of a container; they did not change where an LLC should be formed

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 7 sections
  1. What the 2025 orders actually did
  2. Incorporation decisions follow nexus, not duty rates
  3. Foreign trade zones, bonded warehouses, and HTS reclassification
  4. Mexican assembly, USMCA, and why it gets its own LLC
  5. The de minimis channel and what it used to mean
  6. What to tell the operator asking the question
  7. Sources

he 2025 tariff regime rewrote the landed cost of almost every import, and within a week of the February 1 executive orders we started getting the same question from operators: does this change where we incorporate? The answer is almost always no. Tariff exposure follows the customs nexus of the goods, not the state of formation of the LLC that owns them.

What has changed is the set of adjacent structures that sit next to the importing entity. Foreign trade zones, bonded warehouses, USMCA-compliant assembly arms, and the de minimis channel now matter more than they did a year ago, and each of them tends to get its own LLC.

What the 2025 orders actually did

On February 1, 2025 the President issued three executive orders invoking the International Emergency Economic Powers Act, 50 U.S.C. § 1702, to impose additional ad valorem duties on imports from China, Canada, and Mexico, citing fentanyl flows and border enforcement. China was hit with an additional 10 percent across the board. Canada and Mexico were hit with 25 percent, with a carveout for Canadian energy products at 10 percent. On February 3 the Canada and Mexico tariffs were paused for 30 days following negotiations; the China tariff took effect on February 4.

On April 2, 2025 the administration announced the Reciprocal Tariff Plan, again under IEEPA authority. The structure is a 10 percent baseline duty on imports from nearly all trading partners, stacked with country-specific rates of up to 50 percent for jurisdictions the administration designates as running persistent trade imbalances. The baseline took effect April 5; the country-specific tiers phased in through the spring and summer.

The legal authority is contested. In V.O.S. Selections, Inc. v. Trump, No. 25-1812, argued before the Federal Circuit in May 2025, the challengers argue that IEEPA does not authorize ad valorem tariffs at all and that the tariff power sits with Congress under Article I. The Federal Circuit permitted the tariffs to remain in effect pending appeal. As of September 2025 the appeal is submitted and the tariffs continue to be collected. For a planner, the practical posture is that the tariffs are in force, they could be vacated, and any structure built on them needs to work in either world.

Incorporation decisions follow nexus, not duty rates

A Delaware LLC pays the same customs duties on an imported pallet as a Wyoming LLC or a New Mexico LLC. The importer of record is the entity that files the CBP Form 7501 entry summary and posts the bond. That entity can be formed in any state, and its choice of state affects its registered-agent cost, its annual franchise tax, and its litigation forum. It does not affect its Harmonized Tariff Schedule classification, its country of origin determination, or its reciprocal-tariff tier.

Where the formation question does come back is in how operators structure the new boxes around the importer. When the operator splits off an FTZ operator, a USMCA assembly arm, or a separate direct-to-consumer shipper, each of those subsidiaries tends to sit in its own LLC for liability and accounting reasons. That is where the 2025 environment creates new formation work, and most of it is routine.

Foreign trade zones, bonded warehouses, and HTS reclassification

Foreign trade zones are authorized by 19 U.S.C. § 81a and administered by the Foreign-Trade Zones Board under 15 C.F.R. Part 400. Goods admitted to an FTZ are treated as outside the customs territory of the United States for duty purposes until they enter commerce. A company can warehouse Chinese-origin goods in a Los Angeles FTZ without paying the additional IEEPA duty at admission, and then pay it only on the portion that clears into the U.S. market. Goods that re-export never pay the U.S. duty.

The 2025 orders restrict this more than prior regimes. The February 1 China order requires that Chinese-origin goods admitted to an FTZ be received under Privileged Foreign status, which locks in the duty rate and classification at admission rather than at withdrawal. That eliminates the classic FTZ play of admitting the input and withdrawing the finished good at a lower duty. What remains is the cash-flow benefit and the re-export benefit.

Bonded warehouses under 19 U.S.C. § 1555 offer a similar deferral mechanism with different operational constraints. Both tend to be operated by a dedicated entity, typically an LLC, for reasons that have nothing to do with the tariff and everything to do with CBP bonding requirements and insurance.

HTS reclassification is the other lever. If an importer has been classifying a product under a subheading that attracts the country-specific reciprocal tariff, and a more accurate classification exists that does not, the importer can file a ruling request with CBP under 19 C.F.R. Part 177. This is routine customs work that predates the 2025 orders, and volume has predictably spiked. It does not change the entity; it changes the entry.

Mexican assembly, USMCA, and why it gets its own LLC

USMCA, implemented by the United States-Mexico-Canada Agreement Implementation Act, Pub. L. 116-113, contains rules of origin that allow qualifying goods to enter the United States duty-free. The February 1 Canada and Mexico orders, and their later iterations, preserved the USMCA-compliant carveout: goods that qualify as originating under USMCA Chapter 4 are not subject to the IEEPA additional duty. Non-qualifying goods are.

The USMCA-compliant production step is now worth more than it was. Companies that previously assembled in China are evaluating whether to run final assembly in a Mexican maquiladora and meet the regional value content thresholds, at which point the finished good enters the U.S. duty-free. This is the same maquiladora program that has existed since the 1960s, with the tariff math finally tilting hard enough to justify it for categories where it previously did not.

The entity question follows the operational split. The Mexican assembly arm is typically a Mexican sociedad, often an S. de R.L. de C.V., owned by a U.S. LLC. The U.S. LLC that imports the finished good from Mexico is usually distinct from the U.S. LLC that sold inputs to the Mexican arm, because transfer pricing and customs exposure want to be on different balance sheets. Texas and New Mexico are common for proximity; Delaware is common for the holding company on top. The formation decision is ordinary.

The de minimis channel and what it used to mean

Under 19 U.S.C. § 1321, low-value shipments entered by one person on one day could enter the United States free of duty and formal entry, subject to a threshold raised to $800 by the Trade Facilitation and Trade Enforcement Act of 2015. The operational effect was that a Chinese direct-to-consumer shipper could send individual orders under $800 into the United States without paying duty, and many did.

The February 1, 2025 China executive order suspended de minimis treatment for goods from China and Hong Kong. The order was initially immediate, then briefly paused while CBP worked through processing capacity, then reinstated with operational guidance. Shipments from China that would previously have entered duty-free under Section 321 now require formal entry and pay the full duty.

For operators who built a U.S. LLC as the U.S.-facing retail presence for a Chinese direct-to-consumer supplier, the suspension is existential. The fix is not a new state of formation; the fix is a bonded warehouse, a USMCA-compliant assembly step, a change in supplier country, or a different product mix. The incorporation work is downstream of an operational decision that has nothing to do with formation state.

What to tell the operator asking the question

Keep the operating LLC where it is. If the tariffs compress margin enough to change the business model, the response is operational: an FTZ operator entity on the coast, a maquiladora parent in a border state, a direct-import entity paired with a bonded warehouse. Each of those gets its own LLC because CBP, insurance, and transfer pricing want them separate, not because any state offers a tariff advantage. No state does.

The V.O.S. Selections appeal is worth watching. If the Federal Circuit affirms that IEEPA does not reach ad valorem tariffs, a large share of the 2025 regime comes off. If the appeal is reversed or the tariffs are re-grounded in Section 232 or Section 301, the structures stay. A formation decision made in 2025 should read the same under either outcome.

Sources

Keep reading

More from the journal.