Is Freight Taxable in NC? Rules for Businesses

Freight refers to the charges associated with transporting goods from a seller to a buyer, encompassing packaging, postage, and delivery. Sales tax laws in North Carolina apply to these charges, though specific conditions determine their taxability.

Taxability of Freight Charges

In North Carolina, the taxability of freight charges depends on the taxability of the items being shipped. If the goods sold are subject to North Carolina sales tax, then the associated shipping, handling, or delivery charges are also taxable. This holds true even if these charges are listed separately on the invoice provided to the customer.

If a business sells taxable tangible personal property, such as furniture or electronics, and charges the customer for delivery, that delivery fee is subject to sales tax. This rule applies regardless of whether the delivery is made by the seller’s own vehicle or through a third-party carrier.

When a shipment includes both taxable and non-taxable items, the freight charge must be allocated proportionally. Businesses can determine this allocation based on either the selling price or the weight of the taxable items. The sales tax is then applied only to the portion of the freight charge attributable to the taxable goods.

Untaxable Freight and Specific Exemptions

Freight, shipping, or delivery charges are not subject to North Carolina sales tax. Freight charges for items explicitly exempt from sales tax are also exempt. Examples of such exempt items may include certain agricultural products or prescribed medications.

Additionally, if freight charges are for services that are not subject to sales tax, these charges remain untaxed. In North Carolina, most services are not taxable, with some specific exceptions like certain repair, maintenance, and installation services. Transportation services are generally exempt from sales tax, though the equipment used for transportation may be taxable.

Another scenario for untaxed freight involves charges for direct mail delivery, provided these charges are separately stated on the invoice. If a customer has the option to arrange their own shipping with a third-party carrier and pays that carrier directly, the freight charge may not be subject to sales tax from the seller.

Practical Considerations for Businesses

Businesses must ensure their invoicing clearly differentiates freight charges. Itemizing these charges is important when an invoice includes both taxable and non-taxable goods, allowing for proper proportional allocation of sales tax. Accurate and detailed record-keeping of all sales and freight charges is important for compliance.

Sellers are responsible for collecting sales tax on taxable freight from customers and remitting it to the North Carolina Department of Revenue (NCDOR). Filing frequencies for sales tax returns can vary depending on the business’s tax liability. North Carolina operates under a destination-based sales tax system, meaning the sales tax rate is determined by the buyer’s location.