Ecommerce couldn’t exist without shipping (and probably not without shipping’s partner “handling,” either), but do either incur sales tax?
As is often the case in sales tax, it depends on what, how and where. If the item is taxable, for instance, generally the shipping is, too – if the shipping is taxable at all in a jurisdiction, which it or the handling – or both – may be. Portions of packages that contain non-taxable or exempt items get a break on the tax on the S&H.
Clearly, rules vary state to state and recently have only gotten more complex (even more so in home rule states like Colorado, Alabama, Illinois and Louisana) though in many states stating shipping separately on the invoice excludes shipping from sales tax.
Beyond our previous overviews of S&H and sales tax, here’s a look at the latest developments.
‘Often confusion’
Few states spell out how perplexing sales tax on shipping, handling and delivery charges can be like Kentucky.
“Under current law, there is often confusion regarding when delivery charges related to retail sales are subject to sales and use tax,” the state says. “Separately stated shipping charges to deliver taxable products to the customer are exempt from tax when shipped to a point specified by the customer and delivered by the postal service or common carrier. However, shipping charges are generally taxable if the actual seller of the product makes the delivery. In addition, handling charges are always taxable. When a seller invoices the customer for a single charge for shipping and handling, then this combined charge is taxable regardless of who makes the delivery. Delivery charges are also taxable when the retailer is responsible for installing the product upon delivery.”
Also, beginning this summer “the meaning of ‘sales price’ under [Kentucky statute] will change to include all delivery charges,” the state says, adding that “ ‘delivery charges’ means charges by the retailer for the preparation and delivery to a location designated by the purchaser including transportation, shipping, postage, handling, crating and packaging. This change applies only to delivery charges related to the sale of a taxable product. If the seller bills the customer for a delivery charge, then that charge is part of the price of the product sold to the customer. If the product sold is taxable, then the delivery charge is taxable as well. Please note, however, that this change does not affect companies providing delivery services that are not making sales of tangible personal property. The new law will continue to treat delivery charges made by these service companies as exempt from sales and use tax.”
Just a two-(lengthy)paragraph sample of how confusing this topic can be.
RFD
One of biggest headlines in S&H in the past two years has been retail delivery fees (RDFs).
Colorado was first with an RDF, which is now (whether you term it a tax or a fee) 29 cents per package delivered within the state. It does have a retroactive small-seller exemption that was instated after initial howling by merchants that they were simply eating the fee rather than passing it on to customers.
The fee must be separately stated on the invoice as “retail delivery fees.”
The money goes for such initiatives as infrastructure and pollution mitigation.
Minnesota just added an RDF of 50 cents on each transaction where charges for these items equal or exceed $100 of clothing and of other tangible personal property (TPP) that’s subject to sales tax.
Illinois, New York and the state of Washington have also discussed RDFs and it seems plausible that other states will soon take up the debate, too.
By state
Alabama: Shipping exempt if separately stated on the invoice. If delivery is made in the seller’s own vehicle or in equipment leased by him or her, transportation charges are subject to sales or use tax.
Arizona: Gross receipts from services rendered in addition to selling TPP at retail are subject to tax unless the charge for service is shown separately on the sales invoice and records. Handling and S&H combined generally subject to sales tax.
Arkansas: Exempt only if the buyer is billed separately by a third-party carrier.
California: Subject to various conditions of delivery, shipping is taxable if the item is taxable.
Colorado: Delivery and freight charges are generally not subject to sales tax if the charges are both separable from the purchase and separately stated on the customer invoice, among other conditions.
Connecticut: Shipping is sales taxable if the item is.
District of Columbia: Generally taxable, depending on circumstances.
Florida: Sales tax is imposed on the total sales price of taxable TPP, including any services that are a part of the sale.
Georgia: Shipping is almost always taxable.
Hawaii: Incurs sales tax if the item does.
Idaho: To quote Boise, when shipping to the retailer, “You owe sales or use tax on the following items, even if they’re separately stated on the invoice.” To the buyer, not so much.
Illinois: S&H taxable when the transportation and delivery charges aren’t separately identified to the purchaser on the contract or invoice, among other conditions.
Indiana: Generally, incurs sales tax if the item does.
Iowa: Exempt if separately billed or separately stated on the invoice.
Kansas: If the retailer and buyer are in Kansas, the state’s sales tax is due on a retail sale, including S&H. When the retailer is in the state and the buyer is in another, Kansas sales tax is not due.
Louisiana: Sales or use tax is not collectible on the separately invoiced charge by the seller for the transportation of the TPP sold from the place of sale to the destination designated by the buyer. On transactions where delivery or transportation of TPP is provided, but the price of transportation or delivery is absorbed within the “sales price” or “cost price” of the property and not separately stated, the sales or use tax must be collected and remitted on the entire “sales price” or “cost price” of the property. Charges by a seller for transportation from the place of sale are excludible from the taxable “sales price” or “cost price” of the property only if the charges are optional, among other conditions.
Maine: Separately stated shipping charges generally not be subject to state sales tax when delivered directly to the customer. Handling fees and combined charges could still be taxable.
Maryland: Generally, exempt if separately stated on the invoice.
Massachusetts: Separately stated S&H excluded provided that the charge “reasonably reflects the costs of transportation.”
Michigan: Beginning last year, most delivery (and installation) charges are not subject to sales and use taxes, subject to certain conditions.
Minnesota: Taxable if the item is taxable.
Mississippi: Rate and application of sales or use tax on delivery charges follows the tax treatment of the property being shipped or delivered.
Missouri: Generally taxable if included in the price but exempt is separately stated and the buyer isn’t required to pay shipping.
Nebraska: Taxable if the item is.
Nevada: Taxable unless stated separately.
New Jersey: Taxable if the item is.
New Mexico: Taxable, but bear in mind that the state has a gross receipts tax, which can be passed on to the buyer or not.
New York: On a taxable product or service, shipping or delivery that the seller includes on the bill become part of the receipt and subject to sales tax.
North Carolina: S&H generally taxable.
North Dakota: Taxable if the product is.
Ohio: Generally taxable.
Oklahoma: If separately stated, exempt.
Pennsylvania: Shipments are proportionately taxable. If no breakout is provided, the entire shipping and handling charges are subject to sales tax.
Rhode Island: Sales tax is incurred on certain shipping charges.
South Carolina: Generally taxable if the item is.
South Dakota: Taxable unless the item is exempt or the charge is separate from the sale.
Tennessee: Taxable if the item is.
Texas: Taxable if the item is.
Utah: Exempt if separately stated.
Vermont: Taxable if the item is.
Virginia: Exempt if separate stated but handling is taxable.
Washington: Taxable if the item is.
West Virginia: Generally taxable if the item is. Municipalities that impose a municipal sales and use tax include shipping and handling charges.
Wisconsin: Taxable, with exceptions for when the sales price of direct mail does not include separately stated delivery charges or transportation or delivery charges paid by the Wisconsin purchaser to a carrier is independent of the seller.
Wyoming: Exempt if stated separately.
If you think your business may be impacted by sales tax developments, contact TaxConnex. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more.
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