Is Freight Subject to Sales Tax in New York?

Sales tax in New York State is a complex area, particularly when it comes to freight, shipping, and delivery charges. Businesses and consumers alike must understand these nuances, as the taxability of freight can significantly impact the total cost of a transaction. New York operates as a destination-based sales tax state, meaning the sales tax rate applied is generally based on the location where the buyer receives the goods.

Understanding New York Sales Tax on Freight

In New York, if a product or service is subject to sales tax, any charges for its delivery, including freight, shipping, or handling, may also be taxable. These “freight charges” typically encompass costs identified as transportation, handling, or postage. The taxability of freight often follows the taxability of the item being shipped; therefore, if an item is taxable, its delivery charges will generally also be subject to sales tax.

When a seller includes shipping or delivery charges on a bill for a taxable product or service, these charges become part of the taxable receipt. For example, if a department store sells an appliance and charges a delivery fee, sales tax applies to both the appliance and the delivery charge.

Factors Determining Freight Taxability

Several factors determine whether freight charges are taxable in New York. A key consideration is whether the freight charge is “separately stated” on the invoice. If taxable and non-taxable items are shipped together with a single delivery charge, the entire delivery charge is generally taxable. However, if the charge for shipping is fairly allocated and separately stated between taxable and non-taxable products, only the portion allocated to taxable goods is subject to sales tax.

The “FOB (Free On Board)” terms of a sale also significantly impact taxability, as they determine when title passes from the seller to the buyer. For instance, under “FOB Destination,” the seller retains title and risk of loss until the goods reach the buyer’s specified location, making the freight charges generally taxable as part of the sale. Conversely, under “FOB Shipping Point” (or origin), title and risk transfer to the buyer at the shipping point, potentially making separately stated freight charges non-taxable if the transportation occurs after the sale is complete.

Whether the seller or a third-party carrier is responsible for arranging and charging for shipping affects taxability. If the seller arranges and bills for shipping, it is typically taxable if the goods are taxable. If a customer separately contracts for delivery directly with a common carrier and pays that carrier, the charge for the transportation service is generally not taxable.

Scenarios Where Freight is Not Taxable

Freight charges are not subject to New York sales tax in specific situations. If the underlying goods being shipped are themselves exempt from sales tax, any associated shipping charges are also exempt. For example, if a customer purchases non-taxable food products, the entire charge, including shipping and handling, is exempt from tax. This also applies when a customer provides a valid resale certificate or other exemption document.

Freight charges for services, rather than tangible goods, are generally not taxable unless the service itself is specifically listed as taxable. While many services are subject to New York sales tax, such as certain utility, telecommunication, or repair services, transportation services are generally not. This occurs when a buyer arranges their own shipping directly with a carrier for goods already purchased, making the freight a separate, non-taxable transaction.

Business Considerations for Freight Tax Compliance

Businesses must implement robust practices to ensure compliance with New York State sales tax regulations concerning freight charges. Clear invoicing is important; invoices should accurately reflect the nature of the charges and whether they are separately stated or allocated. For instance, if both taxable and non-taxable items are shipped, clearly itemizing and allocating the shipping cost for each category can prevent the entire charge from becoming taxable.

Accurate record-keeping of freight charges and their tax treatment is essential for audit purposes. Businesses should maintain documentation that supports the taxability or exemption of shipping fees, including details of shipping terms, carrier agreements, and customer contracts. Consistently applying these rules across all transactions helps avoid potential penalties and interest during tax audits.