Shipping is indispensable to eCommerce yet sales tax on it remains a mishmash of regulations across the states.
In our previous blog, we looked at how exemptions, the taxability of the item being shipped and selling into tax-free states affect sales tax on shipping. What other factors change your shipping/sales tax obligations and in what states?
Delivery methods and options seem to add to the confusion in Mississippi and California. In Florida, delivery charges are generally exempt from sales tax when the charge is separately stated and the buyer has the option to pick up the item or arrange third-party delivery. Shipping and handling charges on taxable items are generally taxable in Indiana – but separately stated “postage charges” are exempt, as are delivery charges billed and furnished by a third party.
In Kentucky, 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 – but shipping charges are generally taxable if the actual seller of the product makes the delivery. Shipping charges in Louisiana may be exempt if the purchaser has the option to separately contract for shipping.
Delivery charges in Maine are exempt from sales tax if shipment is direct to the purchaser, shipping charges are separately stated and shipment is made by common or contract carrier or the U.S. mail. Shipping is taxable in Illinois, by the way, after years of confusion. And in South Carolina, sales tax on shopping depends on whether the delivery terms are by destination or shipping point.
In Pennsylvania, shipping charges are considered part of the taxable purchase price when billed by the vendor even though a third party ships the item. When the vendor fails to charge tax on the shipping portion of a charge for a taxable item, the customer is responsible for remitting the use tax to the Commonwealth.
Taxability can also depend on how the bill/invoice is presented. Stating the shipping cost separately on the invoice, for instance, affects taxability in Alabama (as does how the item is delivered), Arizona, Iowa, Maryland, Massachusetts (if the shipping cost “reasonably reflects” the vendor’s real cost), Missouri and Wisconsin – but not in Tennessee. A sale can be exempt in Massachusetts if the buyer is outside the state when they made the purchase, among other conditions.
Separately stated charges for delivery to the buyer are generally exempt in Virginia and exempt in Oklahoma, Utah, Wyoming. Ditto Idaho, except fees for shipping goods to the retailer are not exempt. Separately stated delivery charges by a third-party shipper are also exempt from Texas sales tax when provided at the customer’s request.
New forms and names
The future of sales tax on shipping is unsure, to say the least. For example, delivery and freight charges for taxable sales generally are not subject to sales tax in Colorado if the charges are separately stated on the invoice and separable from the purchase. But the state has begun imposing a 27-cent fee on every retail delivery made by motor vehicle to a destination in the state.
Though not strictly shipping, the fee will apply when at least one item is subject to sales or use tax and the delivery is mailed, shipped or delivered by motor vehicle. The fee must be separately stated on the invoice as “retail delivery fees.”
Confusion over sale tax never ends – and clearly shipping is a required obligation.
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!