What States Do Not Charge Tax on Shipping?
Navigate the complexities of sales tax on shipping. Understand state-specific rules and key factors determining if delivery charges are taxable.
Sales tax is a consumption tax imposed by state and local governments on the sale of goods and services. When consumers purchase items, a percentage of the sale price is added to the cost, which businesses then collect and remit to the taxing authorities. Shipping charges, which cover the delivery of goods from a seller to a buyer, often become part of this financial transaction. The taxability of these charges introduces a layer of complexity for both businesses and consumers.
States Where Shipping Is Not Taxable
Many states do not impose sales tax on shipping charges if certain conditions are met. A common condition is that the shipping charges are separately stated on the invoice, distinguishing them from the product’s price. For instance, Alabama, Arizona, California, and Colorado exempt shipping if it is itemized separately. This means a distinct line item for shipping can prevent it from being subject to sales tax, even if the item itself is taxable.
Florida and Louisiana also exempt shipping fees from sales tax when they are separately stated. In these states, an additional factor is whether the customer has the option to pick up the item or arrange their own third-party delivery. This option means that if the delivery service is not mandatory for the sale, it is viewed as a separate, non-taxable service. Idaho, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Missouri, Nevada, Oklahoma, Utah, Virginia, and Wyoming are other states where separately stated shipping charges are not taxable. This approach provides tax relief for consumers in these jurisdictions.
States Where Shipping Is Taxable
Conversely, a substantial number of states require sales tax to be collected on shipping charges. These states view delivery as an inseparable part of the overall sale of a taxable item. For example, Arkansas, Connecticut, Georgia, and Indiana tax shipping if the item being shipped is taxable, regardless of whether the shipping charge is separately stated. This means the entire transaction, including delivery, becomes subject to sales tax.
Hawaii taxes shipping, even if the item itself is exempt from sales tax. Other states where shipping charges are taxable include Kentucky, Minnesota, Mississippi, Nebraska, New Jersey, New Mexico, New York, and North Carolina. Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, and West Virginia also fall into this category. In these states, the sales tax calculation includes the shipping fee as part of the total taxable amount.
Factors Determining Shipping Taxability
The taxability of shipping charges is influenced by several factors beyond the state in which the transaction occurs. One factor is how the shipping charge is presented on the invoice. When shipping charges are bundled with the price of the goods or not separately itemized, they are subject to sales tax if the product is taxable. Conversely, separately stating shipping as a distinct line item leads to tax exemption in some states, as it signifies that the shipping is a distinct service rather than an integral part of the product’s sale.
The taxability of the item being sold also plays a role. If the product is non-taxable, such as certain food items or specific clothing, the shipping charge for that item is also non-taxable, even in states that tax shipping. This principle, “sales tax follows the product,” means that an exempt item’s delivery retains its exempt status. If a shipment contains both taxable and exempt goods, states require businesses to allocate the shipping charge proportionally, taxing only the portion related to the taxable items.
The method of delivery can affect taxability. Charges for delivery by a common carrier, like UPS or FedEx, are treated differently than charges for delivery by the seller’s own vehicle. Some states exempt charges for common carrier delivery if certain conditions are met, while direct seller delivery is considered a taxable service.
Additionally, the Free On Board (FOB) terms, which define when ownership and risk of loss transfer from the seller to the buyer, impact taxability. For example, under FOB shipping point, the buyer takes ownership at the seller’s location, and the transportation charges are non-taxable if the buyer arranges and pays for shipping directly. Conversely, FOB destination means the seller retains ownership until delivery, making the shipping a service provided by the seller and taxable.