Learn about the rules and regulations for charging sales tax on shipping and handling, and how to comply with the laws to avoid penalties and fines.
If you are a business owner who charges customers for shipping and handling, it's important to understand the rules and regulations for charging sales tax on these items. Failure to comply with the laws could result in penalties and fines, so it's crucial to get it right. In this blog post, we'll explain some things you need to know about charging sales tax on shipping and handling, including the rules, exceptions, and best practices.
Rules and Regulations
The rules for charging sales tax on shipping and handling vary by state, so it's important to understand the laws in the states where your business operates. In some states, shipping and handling are considered part of the taxable transaction, while in others, they are exempt from sales tax. Some states have specific rules about when and how sales tax should be charged, such as when the seller uses its own delivery vehicle or when the customer has the option to pick up the merchandise. Wouldn’t it be nice if all the states would just agree on something and streamline the process? Perhaps someday.
It may be best to refer to a state-by-state guide to the taxability of delivery charges when determining whether to charge sales tax on your shipping.
There are also exceptions to the rules for charging sales tax on shipping and handling. For example, some states exempt shipping and handling charges for sales to exempt organizations or for items shipped out of state. Other states have specific exemptions for certain types of transactions, such as the sale of prescription drugs or medical devices.
It’s important to ensure you comply with the laws and avoid penalties and fines, we have found that shipping charges in states that don’t allow that are a hot ticket item for auditors. Follow these best practices to stay compliant:
- Know the laws in the states where your business operates and stay up-to-date on any changes.
- Clearly communicate to customers when and how sales tax will be charged on shipping and handling.
- Use an effective sales tax solution to ensure accuracy and compliance with the laws.
- Keep accurate records of sales tax collected and remitted to the appropriate tax authorities.
No worries. There are always questions around delicately nuanced topics like this. Anthony Robbins once said, “Asking the right questions takes as much skill as giving the right answers.” We are happy to address any questions you have in regards to sales tax compliance. It’s always good to see companies in search of the right answers instead of burying their head in the sand, hoping their concerns go away. We want to see you succeed, and we will work through your specific situation with you. We look forward to hearing from you on a free “What’s Next Call".