With no end to the pandemic in sight, and ecommerce sales likely to remain strong — especially at the holidays — retail clients need to know how to tax delivery charges.
There’s no one way to get products into the hands of customers, and there’s no one way to tax delivery charges.A general rule of thumb 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. What follows are general guidelines for you and your clients to follow, not specific tax advice.
Taxability of Delivery Charges by State
Alabama: Delivery by company vehicle is generally taxable in Alabama, as is shipping by a private carrier, combined shipping and handling charges, and charges for electronic delivery. But shipping by common carrier is generally exempt, as is postage for direct mail and shipping charges that exceed the actual cost of delivery.
Arizona: Most shipping charges are exempt in Arizona, but combined shipping and handling charges are generally taxable. Charges for electronic delivery are generally exempt, though local tax may apply in some parts of the state.
Arkansas: Many shipping charges are taxable in Arkansas. However, delivery charges are considered part of the gross receipts or gross proceeds of a sale in Arkansas unless the charges are billed directly to the purchaser by a carrier other than the seller. Generally, if the tangible personal property being shipped is taxable, delivery charges are taxable; if the sale is exempt, delivery charges are also exempt; and if a shipment includes both taxable and exempt property, tax applies to the percentage of the delivery charge allocated to the taxable property.
California: For the most part, shipping charges are exempt if the sale is exempt, but if the sale is taxable, delivery-related charges may be nontaxable, partially taxable, or fully taxable. In general, charges for delivery by company vehicle are taxable if the transfer of title takes place after the purchaser takes possession of the product (FOB destination), but charges are exempt if the transfer of title takes place prior to delivery of the product (FOB origin). Shipping charges that exceed the actual cost of delivery are generally taxable, but shipping charges that exceed reasonable prevailing rates are generally exempt. Combined shipping and handling charges are generally taxable, while charges for electronic delivery are generally exempt.
Colorado: Delivery and freight charges for taxable sales are generally taxable in Colorado if included in the sale price but may be exempt if the consumer has the option to arrange their own shipping. Electronic delivery charges are generally taxable. Different rules may apply for local sales tax.
Connecticut: Shipping and delivery charges for taxable sales are generally taxable in Connecticut whether separately stated or included in the sale price, and whether provided by the seller or a third party. Shipping and delivery charges for exempt sales are generally exempt.
Florida: Transportation charges for taxable sales are generally taxable whether separately stated or included in the sale price. However, delivery charges are generally exempt when the charge is separately stated, and the purchaser has the option to pick up the item or arrange their own third-party transportation services. Charges for electronic delivery are also generally exempt.
Georgia: Charges for delivery, freight, transportation, shipping, and handling are generally considered part of the sale price, so they’re exempt if the sale is exempt and taxable if the sale is taxable. Charges for delivery not associated with the sale of taxable property generally are exempt, as are charges to deliver electronic property.
Hawaii: Hawaii’s general excise tax (GET) is a privilege tax imposed on business activity in Hawaii. It generally applies to most transactions, including shipping and handling fees.
Idaho: Shipping and handling charges are supposed to be separately stated in Idaho, and separately stated charges for delivery to the buyer are exempt in Idaho. However, charges for electronically delivered products are generally taxable.
Illinois: Shipping and handling charges for taxable goods are generally taxable in Illinois. If a retailer determines that either the purchaser or all property being sold is tax exempt, delivery charges would also be exempt. Additionally, when shipping FOB origin, charges are exempt if the customer has the option to arrange their own shipping via a third party.
Indiana: Shipping and handling charges are generally taxable in Indiana. However, separately stated “postage charges” (the purchase price of stamps or similar charges for mail or parcel delivery through the U.S.) are exempt. When shipping FOB origin, charges are exempt if the customer has the option to arrange their own shipping via a third party.
Iowa: Delivery charges are generally exempt in Iowa. However, inbound freight or freight-in charges — charges for the seller to obtain the merchandise that’s sold to customers — are generally taxable if passed on to the customer.
Kansas: Shipping and handling charges are generally taxable in Kansas whether included in the sale price, separately stated, or billed separately.
Kentucky: Delivery charges (charges by the retailer for preparation and delivery to a location designated by the purchaser) are included in the sale price and are subject to tax if the sale is taxable, and exempt if the sale is exempt.
Louisiana: State sales tax doesn’t generally apply to separately stated delivery charges. For taxable sales, delivery and shipping charges that are included in the sale price are generally subject to state sales tax. Shipping charges are exempt if the purchaser has the option to separately contract for shipping (e.g., by picking up the goods or arranging a third-party delivery). Charges for electronically delivered products are subject to state sales tax. Different rules may apply for local sales tax.
Maine: For the most part, delivery charges are exempt from sales tax if these three conditions are met: Shipment is made directly to the purchaser, shipping charges are separately stated, and shipment is made by common or contract carrier or the U.S. mail. Charges for delivery by the seller in their own vehicle are generally included in the taxable sale price if the products being delivered are taxable. Charges for the delivery of electronic products are also taxable.
Maryland: Most delivery charges are exempt from Maryland sales tax. However, delivery charges included in the taxable price are generally taxable, as are combined shipping and handling charges.
Massachusetts: Separately stated shipping and delivery charges are exempt from Massachusetts sales and use tax if delivery occurs after the purchase takes place. Handling charges can be combined with shipping charges; if stated separately, shipping and handling charges are exempt. However, shipping charges that exceed the actual cost of delivery are generally taxable.
Michigan: Shipping and handling charges on taxable retail sales are generally taxable in Michigan, including when incurred prior to the transfer of ownership of property. However, delivery charges for exempt property are generally exempt. When there’s a single charge to transport both taxable and exempt goods, tax applies to the percentage of the sale that’s taxable (determined by price or weight).
Minnesota: Shipping and handling charges for taxable items are generally taxable. Shipping and handling charges for exempt items are generally exempt. If a transaction includes both taxable and exempt products, the tax on shipping and delivery charges should be allocated based on either the percentage or weight of taxable goods. Delivery services furnished and billed by a third party are generally exempt for deliveries of aggregate materials or concrete block.
Mississippi: Charges for the shipping, handling, and delivery of taxable goods are generally subject to Mississippi sales tax. However, shipping charges that exceed reasonable or prevailing rates may be exempt.
Missouri: Shipping and handling charges for taxable goods are generally taxable in Missouri when included in the sale price or when the purchaser is required to pay it. Separately stated transportation charges are generally exempt provided the purchaser isn’t required to pay for the service. However, if the buyer isn’t required to pay for transportation charges but they aren’t separately stated, they’re generally taxable. Separately stated charges for the electronic delivery of goods are generally exempt.
Nebraska: Shipping and handling charges are generally taxable in Nebraska when the sale is taxable, and the charges are paid to the retailer. They’re generally exempt when the sale is exempt. If there’s a single delivery charge for the shipment of exempt and taxable property, tax should be allocated. Charges for delivery, freight, postage, shipping, or transportation paid to a person other than the retailer are generally exempt.
Nevada: Services necessary to complete the sale of tangible personal property, such as shipping and handling services, are generally taxable in Nevada. Separately stated postage, shipping, and transportation charges are generally exempt, but crating, handling, packaging, or similar charges are taxable whether separately stated or included in the sale price. Charges to electronically delivery products are generally exempt.
New Jersey: Most charges associated with shipping and delivery are subject to New Jersey sales tax, although delivery and handling charges for exempt sales are generally exempt. When a shipment includes both taxable and exempt goods, the seller should tax the portion of the delivery charge allocated to transport the taxable goods (determined by weight or price). If the seller doesn’t allocate the delivery charge, the whole charge is taxable.
New Mexico: Gross receipts tax generally applies to delivery and shipping charges (including postage and transportation charges) in New Mexico, whether separately stated or included in the sale price. However, charges to electronically deliver products are generally exempt.
New York: Shipping, handling, and delivery charges on taxable sales are generally taxable in New York. However, if the customer arranges delivery by a third party and pays that third party directly, the third-party delivery charge is exempt. Shipping, handling, and delivery charges for nontaxable sales are generally exempt. Combined charges for transporting both taxable and exempt sales are generally taxable, but if the charge for shipping or delivery is separately stated and fairly allocated between taxable and nontaxable sales, then shipping charges for the taxable sales are taxable and shipping charges for the exempt sales are exempt. Charges to electronically deliver products are generally exempt.
North Carolina: Shipping and handling, transportation, and delivery charges imposed by a retailer and connected with taxable sales are generally subject to sales and use tax in North Carolina, whether included in the sale price or separately stated. If both taxable and exempt sales are listed on an invoice, shipping and handling charges should be allocated proportionally to each item. If shipping and handling charges are based on a flat rate per package, “the retailer can allocate the charges to any of the items in the package rather than apportion the charges.”
North Dakota: Freight, delivery, and other transportation charges, including shipping and handling, are considered part of the sale price in North Dakota. Thus, if the sale is taxable, shipping charges are taxable, and if it’s exempt, they’re exempt. However, delivery charges billed directly to the customer (i.e., not connected to a sale of tangible personal property) are generally exempt. If a retailer ships both taxable and exempt goods in one delivery, the portion of the cost to ship the taxable goods is taxable; if the retailer doesn’t prorate the tax, the entire lump sum is taxable.
Ohio: Most charges to ship taxable goods are taxable in Ohio. Delivery charges are considered part of the sale price whether separately stated or included in the price, so they’re taxable if the sale is taxable and exempt if the sale is exempt. If one delivery charge includes both taxable and exempt sales, it can be allocated (by weight or sale price) so tax is only charged to ship the portion of the shipment that’s taxable. If it isn’t allocated, tax applies to the whole shipping charge. Delivery charges not connected with a taxable sale are exempt. There’s no tax on electronic delivery charges.
Oklahoma: Separately stated charges for the delivery of direct mail are exempt in Oklahoma, whether the contents of the package are taxable or exempt. Shipping and handling charges included in the sale price of taxable tangible personal property are taxable. Oklahoma sales tax applies to electronic delivery charges but not postage for direct mail.
Pennsylvania: If the item(s) being shipped is taxable, the shipping and handling charges are generally subject to tax whether separately stated or included in the sale price. If the item(s) being shipped is exempt, the shipping and handling charges are generally exempt. If a shipment contains both taxable and nontaxable goods, then the shipping and handling charges for the entire shipment are subject to tax. Charges for delivery made and billed by a third party are exempt.
Rhode Island: Delivery charges (including handling charges) are considered part of the sale price, so they’re generally exempt when the sale is exempt and taxable when the sale is taxable. If a shipment contains both taxable and exempt goods, the seller should allocate the delivery charges by sale price or weight. Charges for the electronic delivery of products are generally taxable.
South Carolina: Shipping and handling charges for taxable goods are generally taxable in South Carolina, while shipping and handling charges for exempt goods are generally exempt. The taxability of charges for a retailer to deliver tangible personal property in its own truck depends on whether the terms are FOB destination or FOB shipping point (or origin): FOB destination is generally taxable and FOB shipping point is generally exempt.
South Dakota: In general, a retailer’s charge for delivery and handling of taxable products is subject to the same state and municipal sales tax as the product. Since most sales in South Dakota are taxable, shipping and handling charges are generally taxable. However, If the sale is exempt, shipping and handling charges are also exempt. If both taxable and nontaxable products are in the same shipment, sales tax is due on the portion of the delivery charge for the taxable products (determined by sale price or weight). If a retailer hires a third party to make a delivery, and bills the customer for the delivery, the retailer must include the transportation charges in the taxable receipts.
Tennessee: Delivery charges are part of the sale price in Tennessee. Thus, if the sale is taxable, delivery charges are taxable; if the sale is exempt, delivery charges are exempt. If a shipment contains both exempt and taxable sales, sales tax applies to the percentage of the shipment that’s taxable (determined by weight or sale price).
Texas: Shipping and delivery charges in Texas are taxable if the sale is taxable, and exempt if the sale is exempt. Separately stated delivery charges by a third-party shipper are also exempt when provided at the customer’s request.
Utah: Delivery charges for both taxable and exempt sales are exempt if separately stated. Charges to ship taxable goods may be taxable if they’re part of the sale price (or “freight-in”).
Vermont: If a sale is subject to Vermont sales tax, sales tax is also due on delivery and freight charges for delivery of the item. However, if a sale is exempt, associated delivery charges are also exempt. There’s generally no sales tax on stand-alone shipping charges not associated with a retail sale.
Virginia: Separately stated shipping charges, including postage, are generally exempt from Virginia sales tax, but handling charges are always taxable. When shipping charges are combined with handling or other fees as a single charge, they’re taxable.
Washington: Sales tax generally applies to charges to deliver taxable goods, even if separately stated, or if the seller is also the carrier. However, charges to deliver exempt goods are generally exempt. If a shipment contains both taxable and exempt goods, tax applies to the percentage of the delivery charges due on the taxable goods (determined by sale price or weight). Delivery charges may be exempt when a third party is hired by the consumer to deliver purchased goods after the sale.
West Virginia: Shipping and handling charges are considered part of the sale price in West Virginia. For taxable sales, the charges are generally taxable; for exempt sales, they’re generally exempt.
Wisconsin: Delivery charges for taxable sales are generally taxable in Wisconsin, whether delivery is by common or contract carrier, the U.S. Postal Service, or the seller’s vehicle. Likewise, delivery charges for exempt sales are generally exempt. If a shipment includes both taxable and nontaxable sales, the portion allocated to nontaxable sales is exempt; if no allocation is made, the entire charge is taxable. Delivery charges for separately stated direct mail are generally exempt.
Wyoming: Shipping and handling charges are generally exempt in Wyoming when separately stated and distinguishable from any taxable charge that may appear on the same invoice. However, when part of the sale price of a taxable sale, the charges are generally taxable.
Washington, D.C.: Shipping and handling charges are generally taxable in the District of Columbia. However, shipping charges are generally exempt when title transfers to the purchaser at the time of sale (i.e., prior to shipment), or FOB origin.
Consumers want shipping to be cheap, fast, and reliable. They also want it taxed correctly — or at least they don’t want to pay sales tax on shipping unless necessary.
