Is Freight Taxable in North Carolina?

Freight or delivery charges are a common component of sales transactions, often appearing on invoices alongside the cost of goods. Determining whether these charges are subject to sales tax can be confusing for consumers and businesses. This article clarifies how North Carolina treats freight charges for sales tax purposes.

Understanding North Carolina’s Sales Tax on Freight

North Carolina’s sales tax regulations typically consider freight, transportation, or delivery charges as part of the total sales price when the item being shipped is subject to sales tax. This rule applies even if these charges are listed separately on the invoice. The state generally views these delivery costs as an inseparable part of the sale of taxable goods.

This principle holds true regardless of whether the seller uses their own vehicles for delivery or contracts with a third-party common carrier. For example, if a business sells furniture, electronics, or clothing, which are all taxable goods, the associated freight charges for shipping these items to the customer would also be taxable. The North Carolina Department of Revenue considers such delivery charges to be included within the definition of “sales price” for taxable transactions, as outlined in NC Gen. Stat. § 105-164.3.

Freight Charges for Untaxed Items and Services

Conversely, if an item shipped is exempt from North Carolina sales tax, the associated freight charge for that item is not subject to sales tax. This applies when the underlying transaction involves non-taxable goods or untaxed services. The key is to correctly identify the tax status of the primary item or service being delivered.

Examples of untaxed goods include certain prescription drugs, qualified food products, and items sold for resale with a valid resale certificate. If a charge is exclusively for the delivery of an untaxed service, separate from any taxable goods, that freight charge would also not be subject to sales tax.

Practical Considerations for Businesses

Businesses handling sales and freight must manage invoices that include both taxable and non-taxable goods. When a single shipment contains both types of items, the freight charge should be allocated proportionally between the taxable and non-taxable portions, based on price or weight. If freight charges can be clearly attributed to specific items, they should be applied accordingly.

Maintaining accurate and detailed records is crucial for businesses to substantiate the taxability or non-taxability of their freight charges. These records are essential for compliance and during a state sales tax audit. Documentation helps ensure sales tax was correctly applied to all relevant transactions.

Businesses with complex freight taxation scenarios should consult a qualified tax professional. While general guidance is helpful, specific situations may require tailored advice for full compliance with North Carolina’s sales tax regulations. This helps prevent potential issues and ensures proper tax remittance.