Your Tariff Refund Landed. Now Comes the Harder Decision.

Author: Elbert Johnson, Dallas Practice Manager & Consulting CFO

When the tariffs hit, Wexel Art didn’t see them coming.

The Austin company makes acrylic floating frames - the kind that let you swap out your kid’s artwork in seconds - and it imports from China. As KVUE reported, cofounder Natasha McRee described annual tariff costs jumping roughly tenfold, from single-digit thousands to many times that. The company’s numbers went red. It cut staff, pulled back inventory, tightened spending, and took on a bank loan to stay open.

Then the Supreme Court struck the IEEPA tariffs down, and Wexel Art eventually recovered tens of thousands of dollars. Getting it back meant working through CBP’s refund portal largely unaided - McRee told KVUE the team turned to online forums and AI tools for direction, describing the experience as “a little bit like the blind leading the blind.”

That story is going to sound familiar to a lot of Texas business owners right now. And it points at something worth saying plainly: getting the money back is not the end of the story. It’s the beginning of a decision most companies have never had to make.

A refund is a one-time capital event, not operating cash

The most common mistake we see is the quietest one: the refund lands in the operating account, gets absorbed into the general cash position, and three months later nobody can say what it bought.

For most importing SMBs, a tariff refund is a meaningful percentage of trailing EBITDA - arriving all at once, from a source that will never repeat. That’s the definition of a one-time capital event, and it deserves the same deliberateness you’d apply to an asset sale or an insurance settlement. Name it, ring-fence it, and decide where it goes on purpose.

Wexel Art’s instinct - pay down the loan taken on to survive the squeeze - is often exactly right for a leveraged small business. But it’s worth reaching that conclusion deliberately rather than by default, because the alternatives are real.

Four places the money can go

In practice, the decision usually comes down to four uses. Most companies end up splitting across two or three:

Retire expensive debt. If you borrowed to bridge the tariff period, paying that down is a guaranteed, risk-free return equal to your interest rate - and it restores borrowing capacity for the next disruption. Usually the strongest default for a leveraged business.
Rebuild working capital. If you thinned inventory to conserve cash, you may be quietly losing sales to stockouts. Restoring inventory can carry a higher return than debt paydown - but only if demand is genuinely there.
Fund deferred investment. Equipment, systems, hiring, or supply-chain diversification you postponed. This is the highest-return use if the project is real and you can execute it - and the easiest to rationalize if it isn’t.
Hold it as reserve. Unsatisfying, but sometimes correct. If your input costs are still moving and your forecast has wide error bars, cash on the balance sheet is a legitimate strategic choice - not a failure to decide.

The right split depends on your cost of debt, your demand outlook, and how exposed you still are. What matters is that it’s a decision with a rationale behind it, documented well enough that you can explain it to your board or your banker.

The refund isn’t the recovery. It’s a one-time capital event that lands in the middle of an ongoing one - and what you do with it will matter more than the fact that it arrived.

Before you spend it: who else has a claim on this money?

This is the part that catches business owners off guard, and it’s the reason to pause before deploying anything.

The refund goes to the importer of record. But that doesn’t automatically mean the importer keeps all of it.

Customers who absorbed a surcharge. If you itemized a tariff surcharge on invoices or passed the cost through explicitly, expect questions - and potentially claims. Large retailers are already facing consumer class actions over exactly this, and some public companies have recorded liabilities for amounts they’ve committed to reimburse customers.
Contract counterparties. Supply agreements, distribution contracts, and cost-plus arrangements sometimes address duty adjustments directly. Read the contracts before you spend the money, not after someone sends you a letter.
Your lender. Credit agreements often include mandatory prepayment provisions triggered by “extraordinary receipts.” A large, unusual inflow can fall squarely inside that definition. Refunds can also distort EBITDA-based covenant calculations - in your favor this quarter, and awkwardly against you next year when the comparison resets.
A buyer or seller, if you’ve transacted. If the business changed hands during the tariff period, who owns the refund is a purchase-agreement question, and it is rarely obvious.

None of these are reasons to panic. They’re reasons to spend an hour with your contracts and your credit agreement before you commit the cash.

Taxes will take a share, and timing matters

You deducted those duties as a cost when you paid them. Recovering them generally has tax consequences - and the period in which you recognize the refund can move the bill.

This is where the Tariff Refunds: The Accounting Decisions That Will Shape Your Financials stops being an accounting technicality and starts being a cash-planning one: the timing of recognition, the classification of the benefit, and your tax position are one connected decision. Bring your tax advisor in before year-end planning, not after.

The next shock is already forming

Here’s the sobering part of the Wexel Art story. Even as the refund arrived, the company reported a new squeeze: acrylic is a petroleum-based product, and suppliers have been raising prices amid overseas conflict. The company has also expanded manufacturing into Vietnam and Taiwan to spread its risk.

That’s the real lesson. The refund closes one chapter of a disruption that hasn’t ended. Input costs, freight, and trade policy are all still moving - and the wider tariff picture continues to shift. The companies that come out of this strongest won’t be the ones that got the biggest check. They’ll be the ones that used the episode to build capabilities they didn’t have before:

True landed-cost visibility by SKU and by supplier - so the next duty change is a calculation, not a surprise.
A forecast that runs scenarios rather than a single number, with the cost shock modeled before it arrives.
Supplier diversification evaluated on economics, not just anxiety - including the real cost of qualifying a second source.
Pricing and contract terms that let you pass through cost changes without renegotiating from scratch every time.

Wexel Art was blindsided once. Very few businesses can afford to be blindsided twice by the same category of risk.

Your next moves

Ring-fence the refund so it doesn’t disappear into operating cash before you’ve decided anything.
Check who else has a claim - customer pass-throughs, contract terms, credit agreement provisions, transaction documents.
Model the uses side by side - debt paydown vs. inventory vs. deferred investment vs. reserve - with the after-tax number, not the gross.
Decide, document, and communicate. Your banker and your board will ask. Have the rationale ready.
Fix the blind spot the tariffs exposed while the pain is still fresh enough to fund the fix.

You shouldn’t have to figure this out from a forum thread

The Wexel Art team got their money back, and they deserve real credit for that - they did it while running a business that was already under strain. But no owner should have to reverse-engineer a capital decision from search results and message boards.

That’s the seat a fractional CFO sits in: where working capital, debt structure, tax timing, contract exposure, and forecasting all converge. At vcfo, our consulting CFOs work alongside your customs broker, your tax advisor, and your auditors - not in place of them - to turn a one-time windfall into a permanent improvement in how the business runs. We’ve done it with more than 6,000 companies across Austin, Dallas, Houston, Denver, and nationwide over the last 30 years.

If a refund has landed - or is about to - let’s talk through what to do with it.

vcfo - Your Partner in Building Business Value.

About the author

Elbert Johnson(opens in new tab) is a senior finance professional with nearly three decades of experience in financial reporting and analysis, banking and credit relationships, treasury-cash management, profit improvement, budgeting and forecasting, and e-commerce across multiple industries. He is particularly skilled in implementing effective cost control strategies, improving business operations and bottom-line profitability, using his strong analytical skills to support accurate corporate decision making, and managing diverse organizational teams to improve revenues while retaining top talent. His leadership skills span from recruiting, training, and mentoring the next generation of finance professionals to being a trusted financial advisor to corporate management teams.

What should a business do with a tariff refund?

Treat it as a one-time capital event rather than operating cash. The four realistic uses are retiring expensive debt, rebuilding working capital and inventory, funding deferred investment such as equipment or supplier diversification, and holding it as reserve. Most companies split across two or three. Decide before the money is absorbed into general cash - and check who else may have a claim on it first.

Do I have to pass my tariff refund on to customers?

It depends on how you handled the cost. Refunds are paid to the importer of record, who is not automatically required to share them. But if you itemized a tariff surcharge on invoices, passed the cost through explicitly, or have contracts addressing duty adjustments, customers may have a claim. Several large retailers are facing consumer class actions on this point, and some public companies have recorded liabilities for committed customer reimbursements. Review your invoices and contracts before spending the money.

How do tariff refunds affect loan covenants and EBITDA?

Two ways, both worth checking early. Many credit agreements contain mandatory prepayment provisions triggered by “extraordinary receipts,” and a large one-time refund can fall inside that definition. Separately, a refund recognized through cost of goods sold inflates EBITDA in that period, which can flatter covenant ratios now and create an awkward comparison later. Talk to your lender before deploying the cash.

Are tariff refunds taxable?

Generally, recovering a previously deducted cost has tax consequences, and the period in which you recognize the refund can change the timing of the liability. Because classification and recognition timing drive the tax result, coordinate the accounting decision and the tax planning together, with your tax advisor, rather than treating them as separate steps.

Should I use my tariff refund to pay down debt?

For a leveraged small business, it is often the strongest default. Retiring debt taken on during the tariff squeeze delivers a guaranteed return equal to your interest rate and restores borrowing capacity for the next disruption. The main alternatives worth weighing are rebuilding inventory if you are losing sales to stockouts, and funding a deferred investment with a genuinely higher return.

What happens after CBP accepts my CAPE claim?

CBP recalculates the duties and issues the refund electronically to the bank account on file, and the agency has indicated valid refunds are generally issued within roughly 60 to 90 days of acceptance. Refunds are paid by ACH, so your banking details must be current in the ACE portal. Your customs broker is the right party to manage the filing itself; the financial planning around it is a CFO decision.