Along with the extensive sales tax compliance changes your merchant clients have had to contend with over past year, add in the intricate, state-by-state rules related to sales tax on shipping.
There are two ways for sellers to handle shipping and delivery charges: separately state them on the invoice or bill of sale or include them. If separately stated, taxability generally depends on whether these charges are taxable in the state. The general rule of thumb in many states for included shipping charges is as follows:
- If the contents of the shipment are taxable, the charges to ship it are taxable.
- If the contents of the shipment are exempt, the charges to ship it are typically exempt.
- If the shipment contains both exempt and taxable products, the portion of the charge allocated to the taxable sale is taxable, and the portion attributed to the exempt sale is exempt.
But that’s just the tip of the iceberg, because there are exceptions to every rule when sales tax is involved. Furthermore, some states have different rules for different situations.
To help make shipping go more smoothly for your clients in 2019, here's a handy state-by-state guide to shipping taxability:
Alabama: Deliveries made in a vehicle leased or owned by the seller are generally taxable in Alabama, while separately stated transportation charges for shipments made by common carrier are exempt when paid (directly or indirectly) by the consumer.
Arizona: Delivery charges for exempt sales are generally exempt in Arizona, whether separately stated or included. For taxable sales, separately stated delivery charges are exempt but delivery charges that are included are taxable. Handling charges are always taxable, as are combined shipping and handling charges.
Arkansas: Delivery charges are considered part of the gross receipts or gross proceeds of a sale in Arkansas. If the sale is taxable, delivery charges are generally taxable; if the sale is exempt, delivery charges are generally exempt. If a shipment includes both taxable and exempt property, tax applies to the percentage of the delivery charge allocated to the taxable property.
California: Generally, if the sale isn’t taxable, related delivery charges are non-taxable; if the sale is taxable, delivery-related charges may be non-taxable, partially taxable, or fully taxable.
About Gail Cole
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts and endeavors to make complex sales tax laws more digestible for both experts and laypeople.