Is Shipping Taxable in Texas?

Navigating the rules for sales tax on shipping and delivery charges in Texas can be confusing. The taxability of a delivery fee follows a consistent logic based on the nature of the items being sold. Understanding this principle provides a clear framework for businesses to follow when invoicing for shipped goods.

The Core Rule for Taxing Delivery Charges

The foundation of taxing delivery charges in Texas rests on a straightforward principle: the taxability of the shipping fee mirrors the taxability of the item being sold. If the product is subject to sales tax, then any charge to deliver that product is also taxable. This rule applies regardless of whether the delivery charge is listed separately on the invoice or included in the total price.

The Texas Comptroller of Public Accounts defines “delivery charges” broadly, encompassing a range of related costs. This includes fees for shipping, transportation, freight, and even postage when it is part of the total charge from the seller to the buyer. The term also includes handling charges.

For example, if a business sells a piece of furniture for $1,000 and charges a $100 delivery fee, the sales tax is calculated on the total amount of $1,100. In contrast, if a farm sells and delivers a shipment of tax-exempt feed directly to a rancher, the separately stated delivery charge for that shipment would not be subject to sales tax.

This direct link is detailed in Texas Administrative Code Rule 3.303. The rule also specifies that the timing of the delivery, whether it occurs before or after the sale is finalized, does not alter its taxability.

Handling Mixed Shipments

The situation becomes more nuanced when a single shipment contains both taxable and nontaxable goods. In these mixed transactions, the method of invoicing the delivery charge directly determines the amount of sales tax due. The key factor is whether the delivery charges for taxable and nontaxable items are separated on the customer’s bill.

If a seller invoices a single, lump-sum delivery charge for a shipment containing both types of goods, the entire delivery charge becomes taxable. This is because the presence of any taxable item makes the unallocated fee subject to tax, as it is impossible to distinguish the portion for exempt items.

To avoid taxing the delivery of nontaxable goods, a seller must separately state the charges for taxable and nontaxable items on the invoice. The total shipping cost can be allocated on a reasonable basis, such as by weight or price. This ensures that only the portion of the delivery fee allocated to the taxable goods is subject to sales tax.

Consider an online order containing a $150 taxable lamp and $50 of tax-exempt food items, with a total delivery cost of $20. If the invoice shows a single “$20 delivery fee,” the entire $20 is taxable. However, if the seller allocates the fee based on price and the invoice shows a “$15 delivery charge for taxable items” and a “$5 delivery charge for exempt items,” only the $15 portion is subject to sales tax.

Determining the Correct Tax Rate

When a delivery charge is taxable, the correct sales tax rate must be applied. Texas uses a mixed-sourcing system where the rate depends on the seller’s location.

For remote sellers shipping into the state, Texas is a destination-based state, meaning the tax rate is determined by the buyer’s ship-to address. For Texas-based sellers, the rule is primarily origin-based, with the tax rate determined by the seller’s place of business. However, the total local tax due can be affected by the delivery destination.

The total sales tax rate is a combination of the statewide rate and any local taxes imposed by cities, counties, and special purpose districts. Because rates can vary significantly from one address to another, businesses must identify the specific rate for each delivery location. The Texas Comptroller of Public Accounts provides online tools that allow sellers to look up sales tax rates by address.

Treatment of Other Related Fees

Fuel surcharges added by carriers and passed on to customers are considered part of the overall delivery charge. They follow the same rule: if the delivery charge is taxable, the fuel surcharge is also taxable.

In a drop shipment, a retailer takes an order and has a third-party supplier ship the product directly to the customer. The shipping charge from the supplier to the Texas customer is taxable if the product is taxable. The retailer is responsible for collecting the tax on this charge from the end customer.