Is shipping taxable? Just for once, wouldn't it be great if this
was a "yes" or "no"?
Oct. 2011 By Jim Frazier The Sales Tax Guy
The taxability of freight or
delivery charges is one of the most frequently asked questions. And the rules
vary all over the place. In more than half the states, freight charges are
taxable. This means that you would add the charges to the merchandise total
in determining the basis for the tax calculation.
This means that, if the sale is
taxable, then the freight will be taxable in those states. But if the sale is
not taxable (eg. manufacturing equipment or resale), freight isn't taxable.
Here are some additional points.
Remember though, that whether or not freight is taxable is only a question if
the sale is taxable.
- If the seller is actually
separately showing his inbound freight (for deliveries TO the seller),
then that charge is generally included in the basis - it's taxable. For
freight charges to be non-taxable, they can only be for shipments from
the seller to the buyer.
- In states where shipping charges
are NOT included in the basis, there are usually restrictions. Here's a
laundry list of the possible requirements. Note that these are highly
Shipping charges billed directly
to the buyer by a common carrier are generally not taxable (these are
"collect" charges). The buyer owes no use tax on those
- Is the
freight charge separately stated? This is universal. For shipping
charges to be non-taxable, they must be separately stated on the
- If the sale
terms are FOB origin, then the freight isn't taxable. Does the
ownership transfer at the shipping point?
- The seller
can't make a profit on the delivery charge: the charge better be pretty
close to what the carrier actually charged the vendor. If the seller's
freight charge is more than the freight he paid, the freight charge is
- Did the
seller ship via common carrier or in his own vehicle?
- Does the
buyer have the option of arranging their own shipment or going and
picking up the goods at the seller location?
- Was the
freight charge separately agreed upon? In some states, having it be on
a separate line on an order form is enough. In other states, it must be
a separate physical contract. In other states, it depends on the
precise wording of the agreement. If there's any restriction that is a
highly gray area, this is the one.
Please remember that this is a
taxing policy that is highly variable from state to state. You need to
research this carefully.
Then there are those
"easy" states who just say "Is the sale taxable? Then the
freight is taxable." I love those states.
Disclaimer: This is intended for
education and entertainment only and is not intended as legal advice. Tax
laws can vary significantly depending on the type of business, product,
location, and other factors not fully explored here. Always consult a
qualified attorney, CPA or tax adviser who is an expert in sales and use tax
law for your area before making business decisions.