If you are an online seller, chances are you’re well aware that you need to charge a percentage of sales tax to your buyers. (Unless you are lucky enough to be based in one of the 5 states without a sales tax!)
But many states throw in another little wrinkle – just for online sellers – to the sales tax equation: taxable shipping charges.
A majority of states consider shipping charges to be a vital part of the transaction, and therefore consider shipping charges taxable. But a little less than 1/3 of states, though, do not consider shipping charges taxable as long as they are separately stated on the invoice or receipt. Nevada is a prime example.
While we’ll state some general exceptions and rules to watch out for here, keep in mind that there are no hard and fast universals when it comes to sales tax on shipping. If you need a ruling, you should contact your state’s department of revenue or a vetted sales tax expert.
Exceptions to Sales Tax on Shipping
You’re delivering products in your own vehicle
State laws on shipping and sales tax generally reference sellers who are delivering via common carriers (i.e. USPS, UPS, FedEx, etc.) Maine, however, is one of a handful of states that considers shipping charges to be non-taxable if the item is delivered by common carrier, but taxable if delivered in the seller’s own vehicle.
The item is available for pickup
Some states consider shipping a vital part of a transaction unless the item is available for the customer to pick up in person. If the item is available for pickup, then shipping isn’t a necessary part of the sale and is not taxable. Illinois, for example, went back and forth over this issue for several years, until finally concluding that shipping is taxable on e-commerce orders in the state.
Other charges, like “handling” are included
In Maryland and Virginia, shipping is not taxable, but if shipping and handling charges are combined, then “shipping and handling” is taxable even if the charge is separately stated on the invoice. In California, shipping is not taxable in many cases, while “handling” is. Many states make a distinction between shipping and handling (and other charges related to handling, such as a “delivery fee.”)
Some items in the shipment are non-taxable
States generally specify that if the item you are shipping is non-taxable then there is also no sales tax on shipping charges. But what if you are shipping partially taxable items and partially non-taxable items? Though this once again varies, most states have issued guidance saying that you should only charge sales tax on the portion of the shipping charges that apply to the taxable part of the shipment. You can base this on either price of the items or their weight.
Example: You sell a pair of pants for $50 and a coffee table book for $50 in a state where clothing is tax exempt and shipping is taxable. Since the pants are tax exempt, only the portion of the shipping charges that apply to the book are taxable. So you can choose to either charge sales tax on half of the shipping charge (based on the fact that the taxable book makes up half of the items included in the shipment.) Or you can weigh the book and the pants and charge sales tax based on the amount of shipping that would apply to the book. (Let’s say the book weighed 9 lbs. and the pants weighed 1 lb. You would charge sales tax on $9 out of the $10 shipping charge.)
The most important thing to note about sales tax on shipping charges is that there are no “universal rules.” Every state with a sales tax creates their own laws and applies their sales tax regulations a little differently. Most state laws were written well before e-commerce was born, this means that many state laws will be applicable to brick and mortar stores, but may be confusing when it comes to e-commerce.
For a deeper dive into specific state laws, here is a list of states that require sales tax on shipping and states that do not.
Mark Faggiano is the Founder and CEO of TaxJar, a service built to make sales tax collection, reporting and filing simple for eCommerce sellers. TaxJar’s SmartCalcs Sales Tax API takes tricky sales tax rules like shipping taxability into account so you don’t have to. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
Shippo is a multi-carrier API and web app that helps retailers, marketplaces and platforms connect to a global network of carriers. Businesses use Shippo to get real-time rates, print labels, automate international paperwork, track packages and facilitate returns. Shippo provides the tools to help businesses succeed through shipping.