Are Shipping Charges Taxable in Arkansas?

Understanding sales tax obligations for shipping charges is important for businesses and affects consumer costs. Sales tax rules are complex and vary by jurisdiction. For businesses in Arkansas, navigating these regulations ensures accurate pricing and reporting.

Sales Tax on Shipping Charges

In Arkansas, shipping, delivery, freight, and transportation charges are subject to sales tax if the items being shipped are themselves taxable. This applies regardless of whether these charges are itemized separately on an invoice or included within the product’s price. For example, if a business sells a taxable tangible good, the associated shipping cost will also be taxed.

Conversely, if the products being shipped are exempt from sales tax, the corresponding shipping charges are also exempt. The state’s sales tax rate is 6.5%, with local rates varying, leading to combined rates ranging from 6.5% to 11.5% depending on the specific location of the sale.

Factors Determining Taxability

The taxability of shipping charges in Arkansas primarily depends on the nature of the goods being transported. For instance, if a tangible personal property item like furniture is taxable, its shipping fee is also taxable. Conversely, shipping an item like certain prescription drugs, which are exempt from sales tax, means the delivery charge is also exempt.

Even when shipping charges are listed distinctly on an invoice, they remain taxable in Arkansas if the underlying product is taxable. This differs from some other states where separately stated shipping might be exempt. If a shipment contains both taxable and non-taxable items, sales tax applies to the percentage of the delivery charge allocated to the taxable property. Handling charges, if combined with shipping, generally follow the same tax treatment. An exception exists if a third-party carrier directly bills the purchaser for the freight charges, in which case those charges are not subject to sales and use tax collected by the seller.

Compliance for Businesses

Businesses must accurately calculate and collect sales tax on shipping charges to ensure compliance in Arkansas. When invoicing customers, include the shipping cost in the total amount on which sales tax is computed, provided the items are taxable. This ensures the correct tax amount is collected from the purchaser.

Maintaining meticulous records of all sales, shipping charges, and collected sales tax is a compliance requirement. These records are essential for accurate reporting and can be crucial during potential sales tax audits. Collected sales tax must be remitted to the Arkansas Department of Finance and Administration according to the state’s filing schedule, typically by the 20th day of the month following the taxable period.