Are Shipping and Delivery Charges Taxable in Kansas?

The taxability of shipping and delivery charges in Kansas often confuses businesses and consumers. Understanding these rules is important for compliance. This article clarifies when shipping and delivery charges are subject to sales tax in Kansas.

General Tax Treatment of Shipping Charges

Kansas law generally dictates the tax treatment of shipping and delivery charges based on whether the underlying sale is taxable. Historically, if a sale was subject to sales tax, then any charges for delivering the item to the purchaser, including shipping, handling, and transportation, were also taxable. This applied regardless of whether these charges were stated separately on the invoice. This principle was part of the definition of “sales or selling price” within Kansas sales tax statutes.

However, a change occurred on July 1, 2023, with the enactment of 2022 House Bill 2136. This legislation amended the definition of “sales or selling price” under K.S.A. 79-3602. Under the revised law, delivery charges that are separately stated on the invoice or similar document are no longer included in the sales or selling price. These separately stated delivery charges are not subject to Kansas sales tax.

This change impacts both state and local sales taxes. If delivery charges are not separately stated, they remain part of the sales price and are therefore subject to sales tax. The Kansas Department of Revenue specifies that to qualify for this exclusion, the charges must be clearly denominated as charges for delivery, transmission, or transportation.

Shipping Charges on Taxable Sales

Effective July 1, 2023, the taxability of shipping charges on taxable sales changed. If the delivery charges are clearly and separately stated on the invoice for a taxable item, they are no longer subject to sales tax. This applies to charges for transportation, shipping, postage, handling, crating, and packing.

For instance, if a customer purchases a taxable product and the seller itemizes a delivery fee on the invoice, that delivery fee will not be taxed. However, if the seller includes the delivery cost within the price of the product or does not separately state it, the entire amount remains subject to sales tax. Businesses have the discretion to decide how they present these charges on their billing statements. This distinction is important for retailers, especially those involved in e-commerce or mail-order sales, as it directly impacts the final sales tax calculation for their customers.

Shipping Charges on Non-Taxable Sales

When the item being shipped is not subject to sales tax in Kansas, the associated shipping charge is also generally not taxable. This applies to non-taxable goods, such as certain groceries or prescription medications, as well as sales made for resale where a valid exemption certificate is provided.

Similarly, if the shipping is associated with a service that is not subject to Kansas sales tax, the shipping charge would also be exempt. Kansas generally does not tax most services unless specifically enumerated by statute.

A distinction exists between “shipping charges” and charges paid directly by the buyer to a third-party common carrier. Only charges for delivery arranged and billed by the seller are typically considered part of the sales price. If a buyer directly contracts and pays a common carrier for transportation, the common carrier’s charge is generally separate from the seller’s sales tax obligations.

Applying Shipping Tax Rules

Businesses in Kansas must accurately apply the updated sales tax rules for shipping charges to ensure compliance. Invoicing should involve clearly itemizing delivery charges on sales documents. Separately stating charges for delivery, transmission, or transportation on the invoice will ensure they are excluded from the sales tax base. If these charges are not clearly delineated, they will be considered part of the taxable sales price.

Maintaining accurate records is important for auditing purposes. Businesses should retain documentation that supports how shipping charges were determined and whether they were separately stated. This includes invoices, bills of sale, and any internal records related to delivery costs and charges. The Kansas Department of Revenue may request these records to verify compliance.

A common misconception is that all shipping charges are automatically taxable or exempt. The key factor is whether the delivery charge is separately stated on the invoice. Businesses should also be mindful of the distinction between inbound freight costs for their inventory, which are typically part of their cost of goods, and outbound shipping to customers, which is the focus of these sales tax rules. Staying informed about guidance from the Kansas Department of Revenue is important, as tax laws and interpretations can change.