Editor’s note: We know that being a great retailer today requires more than great shipping - you need to be across the entire spectrum of ecommerce to succeed. That’s why we’ve invited subject matter experts - like Jennifer Dunn, Chief of Content at TaxJar, to share her top #TemandoTips. TaxJar is a fellow Magento premier technology partner.
The United States of America has one of the most complex sales tax systems in the world. For eCommerce sellers, it’s only made more complex by the fact that - only in some cases but not all - the amount you charge your customer for shipping a product to their address is taxable. This post dives into why some shipping charges are taxable in the US, and how to ensure you’re charging your customers the right amount of sales tax.
The Basics of Sales Tax on Shipping Charges
To understand why you don’t always charge sales tax on shipping charges, you must first know a little bit about the US sales tax system. In the US, each of forty-five states and Washington D.C. have a sales tax. Since sales tax is governed at the state level, each state gets to make their own rules and laws when it comes to things like the sales tax rate, sales tax due dates, and whether or not shipping charges are taxable.
Some states consider shipping charges to a customer to be a necessary part of the sale, and therefore taxable. Other states consider shipping charges to be separate from the actual sale, as long as you - the merchant, indicates the shipping charge as a separate line item on the invoice you send to the customer. Still other states take a hybrid approach, considering shipping non-taxable, but handling taxable, and combined shipping and handling charges to be taxable.
Want to know if shipping charges in your state are taxable? Check out our “Is Shipping Taxable?” blog post for details on each state.
General Rules of Thumb about Sales Tax and Shipping Charges
Remember, every state is different, so don’t rely on these general rules. But for the most part you’ll find that:
State sales tax laws are behind the times
In most cases, states wrote their sales tax laws years ago before eCommerce was as massive as it is today. When reading a state’s specific sales tax law, you may notice that it can be hard to apply it to your situation as an eCommerce seller. Many states are passing new laws or issuing new rulings to provide better guidance to eCommerce sellers, but change is slow.
If the item isn’t taxable then the shipping charge isn’t taxable
In most cases, if you sell a non-taxable item to a customer, then you shouldn’t add sales tax to the shipping charge for that order.
Shipping a combination of taxable and non-taxable items can get tricky
Some, but not all states specify that if you’re shipping a combination of taxable and non-taxable items in the same shipment, you should only tax a portion of the shipping charge in relation to the taxable item. So, if you charge $5 in shipping and ship one taxable item and one non-taxable item, you’d only charge sales tax on the $2.50 you charged to ship the taxable item.
There are different rules for delivering in your own vehicle
Most of the rules of thumb we’re talking about here apply to sellers who use a common carrier such as the USPS, UPS or FedEx. Some states consider delivery charges when delivering items from your own personal or business vehicle to be taxable.
Free shipping isn’t taxable
That may sound like common sense, but we do get questions about this! If you don’t charge a shipping charge, then you can’t tax what doesn’t exist. However, if you have bundled your shipping charges into the price of the item (i.e. adding $3 to the sale price of the item rather than charging a separate charge for shipping) then that charge is generally considered a part of the price of the item and always taxable if the item you’re selling is taxable.
Last but not least, if you’re not sure whether or not you should charge sales tax on shipping, we recommend either contacting your state’s taxing authority or a reputable sales tax expert. Try bookmarking this blog post so you can easily refer to it when need be.
TaxJar is a service that makes sales tax reporting and filing simple for more than 8,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
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