Online sales could not exist without shipping, and the charges associated with shipping are subject to sales tax in many states.

Question is, who has to pay that sales tax these days, and where?

For sales tax purposes, you’ll see reference to “shipping,” “shipping and handling” (Arizona taxes these two, for instance) and “delivery”. Three terms with confusing differences as you try to meet sales tax obligations in states and jurisdictions where you have economic nexus.

Here’s an overview and some of the latest news.

Taxable, exempt or both?

As with most details of sales tax, much depends on the situation, jurisdiction and new laws. Many states, for instance, say that when the contents of a shipment are taxable, so is the shipping cost. When items in a shipment are exempt from sales tax in a given state, so is the cost of shipping. Connecticut, Georgia, Michigan, North Dakota, South Carolina, Tennessee, Texas, Vermont, Washington, West Virginia and Wisconsin follow this rule.

A mixed package incurs sales tax on the portion of shipping equal to that portion of the package that is taxable goods: This occurs in Arkansas, Minnesota, Nebraska, New York, North Carolina and Rhode Island. In New Jersey and Ohio, if you fail to allocate portions of taxable versus exempt, the shipping on your whole shipment becomes taxable.

Tax-free states

Deliveries into the five states that don’t have sales tax –Alaska, Delaware, Montana, New Hampshire and Oregon – incur no state-mandated sales tax on the item or on shipping.

But in Alaska you must make sure to differentiate the cost of the item and the cost of the shipping separately on the bill (not to mention that intensifying local sales tax laws could one day change the taxation of shipping to Alaska).

Among states with sales tax, shipping generally incurs sales tax in the District of Columbia, Kansas and New Mexico. In Nevada, any charges for freight, transportation or delivery in connection with the sale of tangible personal property separately stated to the end user are not taxable; handling, packaging and crating or any other services are still taxable even if separately stated.

In our next blog, we’ll look at the nuances of some states regarding sales tax on shipping, including big (and unpopular) new fees.

If you’re worried about how shipping might impact your sales tax obligations, TaxConnex is an outsourced sales tax service provider who can take sales tax off your plate – get in touch to learn how we can help!

Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2011 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.