Are Delivery Charges Taxable in California?

Sales tax in California applies to the retail sale of tangible personal property, which includes items that can be seen, weighed, measured, felt, or touched. While many services are generally not subject to sales tax, exceptions exist when services are an inseparable part of a taxable transfer of property. The taxability of delivery charges in California can be complex, depending on the specific circumstances of the transaction.

Understanding Delivery Charges and Sales Tax

California’s sales tax is a consumption tax levied on the retail sale of tangible personal property. When physical goods, such as clothing or furniture, are purchased, sales tax is typically added to the price. The statewide sales tax rate in California is 7.25 percent, though local and district taxes can increase the combined rate to as high as 10.25 percent or more depending on the location of the sale.

A delivery charge refers to the amount a seller charges a buyer for the transportation of goods from the seller’s location to the buyer’s designated address. These charges can encompass various costs, including transportation, shipping, postage, handling, crating, and packing. The fundamental question in determining taxability centers on whether these charges are an integral part of the tangible personal property sale or a separate service. This distinction guides how sales tax rules apply.

When Delivery Charges Are Taxable

Delivery charges are generally subject to California sales tax when considered an inseparable part of the tangible personal property sale. This typically occurs under specific conditions. If a seller uses their own vehicle to transport goods to the buyer, the delivery charge is taxable. This is because the delivery is performed directly by the seller, making it an extension of the retail sale.

Delivery charges are also generally taxable if the buyer must pay for delivery as a condition of the sale, even if a third-party common carrier is used. This means delivery is a necessary component of acquiring the goods. If a single charge is listed for “shipping and handling” without separately itemizing the specific delivery cost, the entire charge often becomes taxable. Handling charges, in particular, are considered taxable in California.

If the delivery fee includes taxable installation services, the entire charge may be subject to sales tax. This applies if installation is part of the tangible item’s sale or creates new tangible personal property. If records do not adequately show the actual cost of an individual delivery, the entire delivery charge connected to a taxable sale may also become taxable.

When Delivery Charges Are Not Taxable

Delivery charges are not subject to California sales tax under specific conditions indicating the delivery is a distinct, optional service. Delivery by an independent common carrier, such as USPS, FedEx, or UPS, is a common scenario. If the charge is separately stated on the invoice and the buyer has the option to arrange their own transportation or pick up the goods, it is typically not taxable.

For a delivery charge to be non-taxable when a common carrier is used, the charge must not exceed the seller’s actual cost for delivery. If the charge is greater than the actual cost, the excess portion becomes taxable. Maintaining clear records of actual delivery costs is important to support the non-taxable nature of these charges during an audit.

If the item delivered is not subject to sales tax, its delivery charge is also not taxable. For example, certain food products for human consumption or prescription medications are exempt from sales tax, and their delivery charges are similarly exempt. If the delivery service is provided under a separate contract from the sale of goods and meets other criteria, such as being optional and performed by a common carrier, it may be non-taxable.

Common Delivery Scenarios

These rules apply across various common sales situations. For online retail purchases, “shipping and handling” charges are frequently encountered. If these charges are bundled or if the shipping cost exceeds the actual delivery expense, the entire amount or the excess portion may be taxable. To ensure non-taxable shipping, the delivery charge should be separately stated, reflect only the actual cost of transportation, and be delivered by a common carrier.

Restaurant food delivery has specific considerations. Generally, sales tax applies to hot prepared food, so delivery charges for hot food are typically taxable. Cold food items, such as cold sandwiches, are often not taxable, making their delivery charges non-taxable. If an order contains both hot and cold items, the entire delivery charge may become taxable if the items are part of a single selling price.

For large items like furniture or appliances, delivery charges can be taxable, especially if delivery includes assembly or installation services. If these services are mandatory or inseparable from the item’s sale, the delivery and associated service charges will be subject to sales tax. When a service is the primary transaction and tangible goods are only incidental, such as a repair service including a small, necessary part, the service itself is generally not taxable, but sales tax applies to the tangible part’s cost.