State & Local Tax Blog

Shipping Charges Taxable?

Freight charges always seem to be a thorn in the side of tax professionals. They’re usually too small to worry about on an individual transaction basis, but they can loom large in sample audits where just a few errors in a sample can translate to huge assessments when extrapolated to a population.

Separately Stated
The sales/use tax treatment of shipping charges varies all over the board with lots of little conditions. Almost half of the states do not tax shipping charges depending on certain factors. One major factor is whether the shipping charge is separately stated. In fact, according to our research, in AZ, ID, MD, UT and VA, as long as the charge is separately stated, it is not included in the taxable sale amount and that’s the only condition.
Other Conditions
There are additional states that do not tax shipping charges and require the charges to be separately stated, but also have other conditions. Included in that list are: AL, CA, DC, FL, IA, LA, ME, MA, MI, MO, NV, WI. BUT, keep in mind that even in those states, there are other (IMPORTANT, EVEN CRITICAL) conditions that apply. You’ll want to see our chart for the details. For example, in Alabama, shipping charges are not taxable if (1) charges are separately stated and paid by the purchaser, and (2) delivery is by common carrier or the U.S. Postal Service. And in AL, transportation charges are not “separate and identifiable” if included with other charges and billed as “shipping and handling” or “postage and handling.” In WI, the shipping charges are not taxed, if (1) charges are separately stated and (2) delivery occurs after the sale. Charges are excluded when billed by a third party transportation company, if buyer contracts with the third party company for transportation of the property.

Usually Needs Research
As you can see, it can be a little tricky. In some states, shipping charges are just flat taxable regardless of how they are stated, who paid for them, whether they occur before or after the sale, etc. In other states, just separately state them, and the shipping charges are not taxable. In most states, there are certain conditions that apply and they can be convoluted. Research is usually necessary. Please remember that these charts are general in nature. Your situation may very likely involve some particular facts and circumstances that would yield a different result. This chart is a good starting point, but should not be your only research source.

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