Are Freight Charges Taxable in Maryland?

Sales and use tax in Maryland applies broadly to the sale of tangible personal property and certain services. Sellers typically collect this tax and remit it to the state. Maryland’s sales tax rate is 6%, with no additional local sales taxes imposed by counties or cities.

The taxability of transportation charges, such as freight, shipping, or delivery fees, is not always straightforward within Maryland’s sales and use tax framework. These charges can be subject to sales tax, depending on specific circumstances surrounding the sale and delivery of goods.

When Freight Charges Are Taxable

Freight, shipping, handling, or delivery charges are generally subject to Maryland sales and use tax if they are connected to the sale of tangible personal property that is itself taxable. These charges are considered part of the “sales price” of the taxable item. This holds true even if the freight charge is listed separately on an invoice. For example, if a business sells electronics, furniture, or general merchandise, and these items are subject to sales tax, then any associated delivery charge is also taxable.

Maryland law specifies that handling charges cannot be separately stated and are always taxed on taxable sales. If shipping and handling charges are combined into a single fee, the entire combined charge, including the shipping portion, becomes taxable. This rule ensures that businesses do not avoid tax by bundling taxable handling fees with non-taxable shipping.

This means that if you purchase a taxable item like clothing or a new appliance, the cost of shipping that item to your location will also incur sales tax. The seller acts as an agent for the state by collecting this tax from the purchaser. This approach simplifies tax collection for the state by extending the tax base to include necessary delivery costs associated with the sale.

When Freight Charges Are Not Taxable

Freight charges are not subject to Maryland sales and use tax under specific conditions. One primary circumstance is when the tangible personal property being transported is exempt from sales tax itself. For instance, if certain food products, prescription medications, or agricultural products used for farming are shipped, the associated freight charges are also exempt from sales tax. The exemption for the goods extends to their delivery charges.

Another scenario where freight charges are not taxable occurs when the transportation service is provided under a separate contract from the sale of the goods. This implies a distinct agreement exists solely for the transportation, independent of the original sale of the goods. In such cases, if the charge is clearly for transportation services only and is separately stated, it may not be subject to sales tax. This distinction is important for businesses that might outsource their shipping to third-party carriers directly billed to the customer.

Furthermore, freight charges are not taxable when they are solely for the transportation of non-taxable services rather than tangible personal property. For example, if equipment is moved for a service that is not subject to sales tax, the transportation fee for that equipment would typically not be taxed. However, charges for delivering goods to the seller or between various locations of the seller are generally not excluded from the taxable price.