As an online seller, you’re probably well aware that you have to charge sales tax to your buyers in most states where you have nexus, but did you know that roughly 1/3 of states do not consider shipping charges taxable as long as they’re a separate line item on the invoice or receipt?
Let’s dive into a few general exceptions and sales tax rules to watch for, but always remember that there are no universal truths when it comes to sales tax on shipping. You should always contact your state’s department of revenue or a vetted sales tax expert if you need more guidance.
(By the way, if you didn’t know you had to charge sales tax or if you have no idea what nexus us, you might want to check out our Sales Tax 101 for Online Sellers Guide.)
Sales Tax on Shipping 101
Sales tax is governed at the state level, meaning that each U.S. state makes their own rules and laws when it comes to sales tax. One thing that states differ on is whether or not retailers are required to collect sales tax on the shipping charges you charge to your customers.
Here’s a map showing (in general) which states require online sellers to collect sales tax on shipping, and which do not.
However, most states don’t give seller a simple yes or no answer when it comes to sales tax on shipping charges.
Exceptions to Sales Tax on Shipping
- The item is available for pickup
Some states rule that shipping is indeed taxable unless the item is available for customer pickup. If you can pick it up, then shipping is not viewed as a necessary part of the sale, and thus not taxable. As always, check your states with nexus. Illinois went back and forth on this ruling for years until they made an eventual ruling that shipping was taxable for eCommerce orders in the state.
- If other charges, such as handling, are included
In states like Virginia or Maryland shipping itself isn’t taxable, but if shipping and handling charges are combined, then “shipping and handling” is taxable even if it’s a separate line item from the products.
California, on the other hand, states that shipping is not taxable while “handling” is always taxable. Many states make a similar distinction between shipping and other charges related to handling like “delivery fees”.
- If some of the items in the shipment are non-taxable
In most states if an item isn’t taxable, you likewise do not charge sales tax on shipping that item. This can get tricky if combining taxable and non-taxable items in a single order. Generally, most states rule that in that case you should only charge sales tax on the shipping charges that apply to the taxable part of the shipment based on the price or weight of the taxable items.
Here’s an example: You sell a coffee maker for $50 and a shirt for $50 in a state where shipping is taxable and clothing is tax exempt. Since the coffee maker is taxable but the shirt is tax exempt, you’ll need to figure out how to only tax the portion of the shipping that applies to the coffee maker. You can choose to charge sales tax on half the shipping charge (since the coffee maker is half of the items in the shipment) or you can weigh both items and charge the sales tax based on the amount of shipping that would apply. If the coffee maker is 9 lbs and the shirt is 1 lb, you would charge sales tax on $9 out of the $10 shipping charge.
- If you’re delivering products in your own vehicle
Most state laws on shipping reference sellers that use common carriers like USPS, UPS, and FedEx. A handful of states like Maine state that shipping charges are non-taxable if delivered by a common carrier, but taxable if delivered in the seller’s own vehicle.
Let’s sum up
The big message in this post is that there are no “universal rules” to determine if shipping is taxable. Every state with sales tax creates and regulates their own rules, so you’ll always want to check the individual state. We recommend comparing this list of states that require sales tax on shipping with the states where you’re required to collect sales tax.
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