Is Tax Charged on Shipping Costs?

[GizmoFreak]

In my experience, sales tax is charged on your purchase cost, then you add the shipping cost. I just came upon a store that calculates tax after adding the shipping cost. Is this the norm?

 

[sygyzy]

I don't think it's supposed to be but I was looking at a Monoprice.com invoice and they tax the shipping. What gives?

 

[pcnerd37]

I have never paid tax on shipping but then again it is rare that I even pay shipping because I prefer to stick to places like Amazon where I can get free shipping. Now that Colorado passed a law last week mandating online purchases be taxed, I don't know how long that will be the case.

 

[grrl]

I'm not sure either, but states could consider shipping to be a service thus making it taxable.

 

[BrunoPuntzJones]

Depends on the state.

Find out your state laws and if they are not required to collect sales tax on shipping charges, report it to the state comptroller. They'd be interested in where the sales tax money that the company is charging is going since it probably isn't being sent to them...

 

[mugs]

Depends on the state.

Find out your state laws and if they are not required to collect sales tax on shipping charges, report it to the state comptroller. They'd be interested in where the sales tax money that the company is charging is going since it probably isn't being sent to them...

It probably is being sent to the state actually.

Businesses don't re-calculate how much they SHOULD have collected in sales tax, because they've already calculated it once - at the time of purchase. They just total up how much they collected and send that amount to the state.

 

[Ns1]

in CA, tax is chargeable on handling costs, NOT shipping costs

however, that only applies of the invoice specifically separates handling from shipping

We (as a store) tax s/h costs since we don't separate them out on the invoice


10. Are delivery and handling charges taxable?

Delivery charges.

* You have the property delivered directly to your customer using a common carrier, the U.S. Mail, or an independent contractor

Tax does not apply to the delivery charges under these conditions if the charges are clearly stated as a separate entry on the invoice or other bill of sale. If the delivery charges are not stated separately, they are taxable.

Example.

You sell a refrigerator and have it delivered by an independent contract carrier. On the invoice, you show a $750 charge for the refrigerator plus a separately stated $50 charge for delivery (the amount charged you by the carrier). Since the delivery charge is stated separately, tax applies only to the charge of the refrigerator ($750). If the invoice had shown a single charge of $800, tax would apply to the entire amount.

Note: If you charge more for delivery than your actual costs, the added amount is subject to tax. In the example above, if you had charged your customer $60 for delivery, but your actual delivery cost was $50 (the amount charged by the independent contract carrier), tax would apply to the additional $10 charge.

* You use your vehicle to make the delivery

Tax applies to the delivery charges if you use your own vehicle, whether or not those charges are separately stated on the invoice.

Example. You sell a refrigerator and deliver it to your customer using your own vehicle. On the invoice, you show a $750 charge for the refrigerator plus a separately stated $50 charge for delivery. Tax applies both to the delivery charge and the charge for the refrigerator.

Note: Tax does not apply to delivery charges using your own vehicle if there is a written contract of sale, signed before delivery, that transfers ownership of the property to the purchaser prior to delivery.

Handling charges. Handling charges are generally taxable.

Combined charges. If you charge a single amount for delivery and handling (for example, the invoice shows a single amount for "postage and handling" or "shipping and handling"), the portion of the charge that represents handling is generally taxable, while the portion that represents delivery may or may not be taxable.

Note: It is important to use terms such as "delivery," "shipping," or "postage" on the invoice to represent delivery charges. A separately stated charge that says only "handling", for example, is not considered a delivery charge and the entire handling charge is taxable--even if postage or shipment charges are indicated on the package.

For more information on delivery charges, or information on how tax may apply to a specific transaction, please see Regulation 1628, Transportation Charges or Publication 100, Shipping and Delivery Charges. You can also contact the Board's Information Center 800-400-7115 or your nearest Board office.

 

[GizmoFreak]

So in essence, a company that doesn't separate out handling charges from delivery charges (I assume so the customer can't see just how much they are collecting for the sometimes dubious handling charge) is needlessly costing customers extra money and filling the coffers of the local government.

 

[BrunoPuntzJones]

It probably is being sent to the state actually.

Businesses don't re-calculate how much they SHOULD have collected in sales tax, because they've already calculated it once - at the time of purchase. They just total up how much they collected and send that amount to the state.

They still have to file their quarterly or yearly sales tax reports. I've worked on several clients who habitually don't have anything in their payables lining up with what they actually owe.

 

[Ns1]

So in essence, a company that doesn't separate out handling charges from delivery charges (I assume so the customer can't see just how much they are collecting for the sometimes dubious handling charge) is needlessly costing customers extra money and filling the coffers of the local government.

Yes.