This guest post is by Mark Faggiano of TaxJar, an expert on eCommerce tax nuances such as how to handle sales tax on shipping charges.
As an online seller, it stands to reason that you ship your products to your customers. But if you charge your customers for shipping, things can get a little hinky when it comes to sales tax.
That’s because some states consider that shipping charges are subject to sales tax, while others don’t.
This article will delve into when online sellers should charge their customers sales tax on shipping charges, and when you’re not required to bother.
When should you charge sales tax on shipping charges?
Before we go much further, it pays to chew on two things:
1. U.S. sales tax is governed on the state level, so each state makes its own laws and regulations about whether shipping is taxable
2. Most state sales tax laws were written before eCommerce even existed
This is why some states charge sales tax on shipping and others don’t, and why – if you read each state’s sales tax laws on delivery charges – they don’t seem to make much sense in an eCommerce context.
Here’s a map of where shipping charges are considered taxable and non-taxable, but you can’t rely on this map alone because some states’ sales tax laws change if a seller is in a specific situation.
For example, in Florida shipping is not taxable if the buyer has the option to pick the product up themselves.
But if you sell on Amazon FBA or another marketplace, you can’t give your buyer the option to pick the item up at an Amazon fulfillment center, so shipping will be taxable in your case.
How to Charge Sales Tax on Shipping
Luckily, if you find that you are required to charge sales tax on shipping, you’ll see that most online shopping carts and marketplaces give you this option.
(There’s usually a box you can check in your sales channel’s sales tax settings. You can find guides to setting up sales tax on most online sales channels here.)
Let’s break sales tax on shipping down with an example:
You sell a lamp for $100 and charge $10 in shipping charges to your buyer.
In a state where shipping is not taxable, you’d only charge sales tax on the $100 price of the item. In other words, you’d charge sales tax on the $100 item price, then add the $10 shipping charge.
In a state where shipping charges are taxable, you’d charge sales tax on the entire $110 transaction.
Other Caveats about Shipping Taxability
It always pays to check with your state or with a sales tax expert for specific questions on sales tax. Here are a few areas where you might want to do more research if you think they apply to you:
• Delivery in your own vehicle – When we talk about sales tax on shipping, we’re generally focused on online marketplace sellers who either ship products through a common carrier (UPS, USPS, FedEx, etc.) or who use a service like Amazon FBA. Some states have different rules for sellers who deliver products in their own vehicles or who contract with a private carrier.
• Non-taxable products – In some states, some products like clothing or groceries are not subject to sales tax. If a product isn’t taxable, the shipping charges you charge your customer are generally not taxable either.
• Mixed taxability shipments – On the other hand, you may ship a mix of taxable and non-taxable items to a customer in a single shipment. In this case, state laws vary, but most states advise dividing the products in the shipment either by weight or by price, and only charging sales tax on the shipping charges that apply to the taxable items.
Keep in mind that because state laws vary so much, we can only give general information. It always pays to check with your state’s department of revenue or with a sales tax expert for specific questions on sales tax.
TaxJar is a service that makes sales tax reporting and filing simple for more than 10,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
Looking to drive more sales
at optimal profit margins?
Informed.co's automated repricing platform is just what you need.
It keeps your prices moving against
your most relevant competition,
so you win more Buy Boxes,
make more profitable sales,
and win the game of eCommerce.
Try it free for 14 days.
Just click the link below
to learn more and sign up: