Is there such a thing as sales tax on shipping? You might wonder whether shipping and handling charges are taxable if you’re an online seller. The answer to this question varies by state.As an ecommerce seller in the US, you likely already collect sales tax from your customers for the products and services you sell. But what about shipping? Do you need to charge sales tax on shipping as well?Understanding how sales tax on shipping is crucial to maintaining compliance with states you have nexus. This blog delves into shipping taxability and provides all the details you need.
What are Shipping and Handling Services?
Regarding shipping and handling services, it’s essential to understand that these terms encompass different activities involved in delivering products to customers.Shipping involves explicit activities such as:
- selecting a shipping carrier
- packaging items
- generating shipping labels
- tracking shipments
- transporting items
Handling services, on the other hand, include activities like
- product inspection
- sorting and organizing
- package assembly
- ensuring package safety
- labeling packages
- coordinating with shipping carriers
While the taxability of these services varies by state, it’s worth noting that shipping services are taxable in some states, while others exempt them from sales tax. On the contrary, handling services are typically subject to sales tax in most states.Continue reading as we provide a more detailed explanation of the tax implications for shipping and handling services.
What Factors Determine if Shipping is Taxable?
Shipping tax or the sales tax on shipping involves considering several factors. Here are some of the critical factors that play a role:
- Destination – The customer’s location determines whether sales tax applies to shipping. Depending on the state’s sales tax rate and taxability laws where the products are being shipped, the shipping cost may be subject to sales tax.
- Taxability of Product – Another important factor is the taxability of the product being shipped. Certain products may be exempt from sales tax, while others are taxable. The distinction can impact whether sales tax applies to the shipping charges.
- Mode of Transportation – The method used for transportation, whether the seller uses their own vehicle or a third-party shipping carrier, can also influence the shipping taxability. Different states may have specific rules or exemptions based on the mode of transportation.
Considering these factors, you can determine whether sales tax should apply to shipping charges.
When is Sales Tax on Shipping Charged?
Determining when to charge sales tax on shipping can indeed be overwhelming for ecommerce businesses due to the complexity and variations in state rules. It’s essential to understand the regulations to avoid potential liabilities.Forgetting to collect sales tax on shipping can result in personal financial responsibility. To ensure compliance and mitigate risks, it’s crucial to familiarize yourself with the specific sales tax requirements in each state where you have nexus.Here are some general guidelines to keep in mind:
- Taxable Items – If the shipped items are taxable, the shipping charges will likely be subject to sales tax unless stated otherwise.
- Non-Taxable Items – No state typically imposes a sales tax on shipping non-taxable items as long as they are shipped separately from taxable items.
- Combined Shipments – In cases where a shipment includes taxable and exempt products, the shipping cost allocated to the taxable sales is taxable.
- Separate Shipping Charges – Some states may exempt shipping charges from sales tax if you separately charge customers for shipping, distinct from the selling price of the product. However, if you include shipping costs in the item’s price, it is generally considered taxable, and you must calculate sales tax on the total amount (product price + shipping cost).
These guidelines provide a starting point, but digging deeper into the specific sales tax regulations of the states where you operate is essential to ensure accurate compliance.
States Guide on Sales Tax on Shipping
Here is our comprehensive guide with a state-by-state breakdown of key details about sales tax on shipping.
| STATE | IS SHIPPING TAXABLE? | EXEMPTIONS, IF ANY |
| Alabama | Yes | Sales tax is exempt if:
|
| Alaska | Not applicable | There is no sales tax in this state. |
| Arizona | No | Sales tax is exempt if:
|
| Arkansas | Yes | Sales tax on shipping is exempt if the item is exempt. |
| California | No | Sales tax is exempt if:
|
| Colorado | No | Sales tax is exempt if:
|
| Connecticut | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Delaware | Not applicable | There is no sales tax in this state. |
| District of Columbia | Yes | Sales tax is exempt if:
|
| Florida | No | Sales tax is exempt if:
|
| Georgia | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Hawaii | Yes | Sales tax is exempt ifshipments are made outside of the state. |
| Idaho | No | Sales tax is exempt ifshipping charges are stated separately. |
| Illinois | No | Sales tax is exempt if:
|
| Indiana | Yes | Sales tax is exempt ifdelivery charges are billed and furnished by a third party. |
| Iowa | No | Sales tax is exempt if:
|
| Kansas | Yes | Beginning July 1, 2023, sales tax is exempt for delivery charges separately stated on the invoice. |
| Kentucky | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Louisiana | No | Sales tax is exempt if:
|
| Maine | Yes | Sales tax is exempt if:
|
| Maryland | No | Sales tax is exempt ifshipping charges are stated separately. |
| Massachusetts | No | Sales tax is exempt if:
|
| Michigan | No | Sales tax is exempt if:
|
| Minnesota | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Mississippi | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Missouri | No | Shipping and handling charges in the state of Missouri are not taxable. |
| Montana | Not applicable | There is no sales tax in this state. |
| Nebraska | Yes | Sales tax is exempt ifthe buyer/customer paid the shipping charge separately from the product’s sale to the shipping carrier or delivery/freight company. |
| Nevada | No | Sales tax is exempt if:
|
| NewHampshire | Not applicable | There is no sales tax in this state. |
| NewJersey | Yes | Sales tax on shipping is exempt if the item is exempt. |
| NewMexico | Yes | Sales tax is exempt ifthe seller paid the shipping charge separately from the product’s sale to the shipping carrier or delivery/freight company. |
| New York | Yes | Sales tax is exempt ifthey have separately stated charges to ship promotional materials. |
| NorthCarolina | Yes | Sales tax on shipping is exempt if the item is exempt. |
| North Dakota | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Ohio | Yes | Sales tax is exempt if:
|
| Oklahoma | No | Sales tax is exempt ifshipping charges are stated separately. |
| Oregon | Not applicable | There is no sales tax in this state. |
| Pennsylvania | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Rhode Island | Yes | Sales tax on shipping is exempt if the item is exempt. |
| South Carolina | Yes | Sales tax is exempt ifshipping charges are incurred after the title has passed to the buyer. |
| South Dakota | Yes | Sales tax is exempt if:
|
| Tennessee | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Texas | Yes | Sales tax is exempt if:
|
| Utah | No | Sales tax is exempt ifshipping charges are stated separately. |
| Vermont | Yes | Sales tax is exempt ifseparately stated shipping charges for direct mail and not retail sales |
| Virginia | No | Sales tax is exempt ifshipping charges are stated separately. |
| Washington | Yes | Sales tax is exempt if:
|
| West Virginia | Yes | Sales tax on shipping is exempt if the item is exempt. |
| Wisconsin | Yes | Sales tax is exempt if:
|
| Wyoming | No | Sales tax is exempt ifshipping charges are stated separately. |
Is Shipping Taxable On Out-of-State Sales?
Nexus determines the taxability of shipping, whether it is an in-state or out-of-state sale. Sales tax nexus refers to a business’s presence or connection in a particular state that triggers sales tax obligations.If you do not have an economic nexus in a specific state, you are not required to collect sales tax from buyers in that state, including sales tax on shipping. Conversely, if you have a sales tax nexus in a state, but the state exempts sales tax on shipping, you are not obligated to collect it from customers.It’s important to note that each state has its own rules and regulations regarding sales tax on shipping. To determine whether shipping tax is payable on out-of-state sales, it’s best to contact the Department of Revenue in those states. They can provide information on their policies regarding sales tax nexus and shipping taxability.Remember to consult professionals or TaxHero’s sales tax experts to receive accurate and up-to-date advice tailored to your specific business circ*mstances.
Should you charge sales tax on your shipping fee?
Shipping taxability is just one of the elements you must get right to ensure compliance for your ecommerce business. We know it is challenging. That is why TaxHero is here to assist you. Our team specializes in and handles all your sales tax functions. To get personalized advice tailored to your business, we invite you to speak with Lahari, our CEO. More than TaxHero’s founder, she is a sales tax expert with extensive experience managing ecom companies’ sales tax.
