If you run an eCommerce business, you’re quite familiar with shipping products. But did you know that states have different ideas of what UPS or post office shipping fees are considered taxable?
As an online retailer, it’s important that you know which transactions are taxable and which are not so you can collect the right amount of sales tax. This post will dive deep into when you should collect sales tax on shipping charges. But first, let’s look at an example.
Examples of sales tax on shipping charges in different states
Let’s say you sold a $100 lamp and charged $10 in shipping charges.
In a state where shipping charges are taxable, the total taxable sale is $110. You would charge sales tax on the entire $110.
But, in a state where shipping charges are NOT considered taxable, then the taxable amount of the sale is only $100. You would only charge sales tax on the $100 you charged for the item, but not on the $10 you charged in sales tax.
This can be a little confusing, and it doesn’t help that each state has slightly different laws when it comes to sales tax and shipping.
General rules for charging sales tax on shipping
With sales tax, every state has different rules and laws. While you should always check with your state on specifics, here are some general rules when it comes to sales tax and shipping.
We should also mention that this post assumes that you are delivering goods via “common carrier” like USPS, UPS or FedEx and not in your own private delivery vehicle. (In many states, different sales tax rules apply to sellers using their own delivery vehicles.)
1) You must state shipping separately on invoices
In most states where shipping is not taxable, you must separate out the shipping charge on the invoice. This allows your customers to see how much they paid sales tax on, and how much they paid in shipping. Also, in case of an audit, your state tax authorities will want to see the charges itemized.
2) Shipping charges are usually only taxable if the item you sold is taxable
For example, shipping charges are taxable in Pennsylvania, but clothing is not taxable. So if you ship clothing to someone in Pennsylvania, the shipping charge would not be taxable. But if you ship a coffee mug or other taxable item to a buyer in Pennsylvania, then the shipping charge, like the mug, is taxable.
Recommended Reading: The Business Owner’s Guide to Tackling Sales Tax in Each State
3) Sometimes “shipping” and “handling” are taxed differently
In Virginia, for example, handling charges are taxable, but shipping charges are not taxable. This means if you charge a separate handling charge, that charge should be taxable. Also, in most cases, if you combine the shipping and handling then the entire charge becomes taxable.
4) Some states are more strict than others
In California, shipping is not taxable only if you charge your customer the exact rate it costs you to ship them the item. If you always charge a flat shipping fee $2.99 but it truly only cost you $1.99 to ship an item, the state considers that extra $1.00 you charged your customer as taxable.
As you can see, states can get quite picky when it comes to sales tax and shipping. If you’re not sure about your state’s stance, save yourself some searching by checking TaxJar’s full list of states where shipping is and is not taxable, and what each state’s taxing laws have to say about shipping taxability.
Also keep in mind that your state may be the exception to one of these general rules, so if you have questions be sure to contact your state’s department of revenue or a vetted sales tax CPA.
Do you have questions or something to say about shipping taxability? Start the conversation in the comments!
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