Is Shipping Taxable? Your Ultimate Guide to Sales Tax on Shipping

Is there such a thing as sales tax on shipping? You might wonder whether shipping and handling charges are taxable if you’re an online seller. The answer to this question varies by state.

As an ecommerce seller in the US, you likely already collect sales tax from your customers for the products and services you sell. But what about shipping? Do you need to charge sales tax on shipping as well?

Understanding how sales tax on shipping is crucial to maintaining compliance with states you have nexus. This blog delves into shipping taxability and provides all the details you need.

 

What are Shipping and Handling Services?

Regarding shipping and handling services, it’s essential to understand that these terms encompass different activities involved in delivering products to customers.

Shipping involves explicit activities such as: 

• selecting a shipping carrier
• packaging items
• generating shipping labels
• tracking shipments
• transporting items

Handling services, on the other hand, include activities like

• product inspection 
• sorting and organizing
• package assembly
• ensuring package safety
• labeling packages
• coordinating with shipping carriers

While the taxability of these services varies by state, it’s worth noting that shipping services are taxable in some states, while others exempt them from sales tax. On the contrary, handling services are typically subject to sales tax in most states.

Continue reading as we provide a more detailed explanation of the tax implications for shipping and handling services.

 

What Factors Determine if Shipping is Taxable? 

Shipping tax or the sales tax on shipping involves considering several factors. Here are some of the critical factors that play a role: 

1. Destination – The customer’s location determines whether sales tax applies to shipping. Depending on the state’s sales tax rate and taxability laws where the products are being shipped, the shipping cost may be subject to sales tax.  
2. Taxability of Product – Another important factor is the taxability of the product being shipped. Certain products may be exempt from sales tax, while others are taxable. The distinction can impact whether sales tax applies to the shipping charges. 
3. Mode of Transportation – The method used for transportation, whether the seller uses their own vehicle or a third-party shipping carrier, can also influence the shipping taxability. Different states may have specific rules or exemptions based on the mode of transportation.

Considering these factors, you can determine whether sales tax should apply to shipping charges.

 

When is Sales Tax on Shipping Charged? 

Determining when to charge sales tax on shipping can indeed be overwhelming for ecommerce businesses due to the complexity and variations in state rules. It’s essential to understand the regulations to avoid potential liabilities.

Forgetting to collect sales tax on shipping can result in personal financial responsibility. To ensure compliance and mitigate risks, it’s crucial to familiarize yourself with the specific sales tax requirements in each state where you have nexus.

Here are some general guidelines to keep in mind:

• Taxable Items – If the shipped items are taxable, the shipping charges will likely be subject to sales tax unless stated otherwise.
• Non-Taxable Items – No state typically imposes a sales tax on shipping non-taxable items as long as they are shipped separately from taxable items.
• Combined Shipments – In cases where a shipment includes taxable and exempt products, the shipping cost allocated to the taxable sales is taxable.
• Separate Shipping Charges – Some states may exempt shipping charges from sales tax if you separately charge customers for shipping, distinct from the selling price of the product. However, if you include shipping costs in the item’s price, it is generally considered taxable, and you must calculate sales tax on the total amount (product price + shipping cost).

These guidelines provide a starting point, but digging deeper into the specific sales tax regulations of the states where you operate is essential to ensure accurate compliance.

 

States Guide on Sales Tax on Shipping

Here is our comprehensive guide with a state-by-state breakdown of key details about sales tax on shipping.

STATE IS SHIPPING TAXABLE? EXEMPTIONS, IF ANY Alabama Yes Sales tax is exempt if:  shipping charges are billed as a separate line item from the price of the item and are paid by the customer (indirectly or directly) and delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service Alaska Not applicable There is no sales tax in this state. Arizona No Sales tax is exempt if:  shipping charges are separable from the product price and stated separately Arkansas Yes Sales tax on shipping is exempt if the item is exempt. California No Sales tax is exempt if:  shipping charges are billed as a separate line item from the price of the item and are paid by the customer (indirectly or directly) and  delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service Colorado No Sales tax is exempt if:  shipping charges are separable from the product price and stated separately Connecticut Yes Sales tax on shipping is exempt if the item is exempt. Delaware Not applicable There is no sales tax in this state. District of Columbia Yes Sales tax is exempt if:  delivery happens after the sale and shipping charges are stated separately Florida No Sales tax is exempt if:  shipping is optional (i.e., buyer is allowed to pick up the item) and shipping charges are stated separately Georgia Yes Sales tax on shipping is exempt if the item is exempt. Hawaii Yes Sales tax is exempt if shipments are made outside of the state. Idaho No Sales tax is exempt if shipping charges are stated separately. Illinois No Sales tax is exempt if:  shipping charges are separately contracted for and the buyer is allowed to pick up the purchased item   Sales tax on shipping is exempt if the item is exempt. Indiana Yes Sales tax is exempt if delivery charges are billed and furnished by a third party. Iowa No Sales tax is exempt if:  shipping charges are separately contracted for and separately stated. Kansas Yes Beginning July 1, 2023, sales tax is exempt for delivery charges separately stated on the invoice. Kentucky Yes Sales tax on shipping is exempt if the item is exempt. Louisiana No Sales tax is exempt if:  delivery happens after the sale and shipping charges are stated separately Maine Yes Sales tax is exempt if:  shipping charges are billed as a separate line item from the price of the item and are paid by the customer (indirectly or directly), delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service, and shipment is made directly to the customer. Maryland No Sales tax is exempt if shipping charges are stated separately. Massachusetts No Sales tax is exempt if:  shipping costs are related to the cost of preparing and delivering goods to a location set by the buyer, shipping charges are stated separately, and the prices are set in good faith and are reasonable. Michigan No Sales tax is exempt if:  shipping charges are stated separately and seller maintains records to show transactions used to determine sales tax separately.   Shipping costs related to a utility’s sale of natural gas, electricity, or artificial gas are still taxable. Minnesota Yes Sales tax on shipping is exempt if the item is exempt. Mississippi Yes Sales tax on shipping is exempt if the item is exempt. Missouri No Shipping and handling charges in the state of Missouri are not taxable. Montana Not applicable There is no sales tax in this state. Nebraska Yes Sales tax is exempt if the buyer/customer paid the shipping charge separately from the product’s sale to the shipping carrier or delivery/freight company. Nevada No Sales tax is exempt if:  shipping charges are stated separately and title passes to the purchaser before shipment according to a written agreement. New Hampshire Not applicable There is no sales tax in this state. New Jersey Yes Sales tax on shipping is exempt if the item is exempt. New Mexico Yes Sales tax is exempt if the seller paid the shipping charge separately from the product’s sale to the shipping carrier or delivery/freight company. New York Yes Sales tax is exempt if they have separately stated charges to ship promotional materials. North Carolina Yes Sales tax on shipping is exempt if the item is exempt. North Dakota Yes Sales tax on shipping is exempt if the item is exempt. Ohio Yes Sales tax is exempt if: the buyer/customer paid the shipping charge separately from the sale of the product to the shipping carrier or delivery/freight company or item is exempt. Oklahoma No Sales tax is exempt if shipping charges are stated separately. Oregon Not applicable There is no sales tax in this state. Pennsylvania Yes Sales tax on shipping is exempt if the item is exempt. Rhode Island Yes Sales tax on shipping is exempt if the item is exempt. South Carolina Yes Sales tax is exempt if shipping charges are incurred after the title has passed to the buyer. South Dakota Yes Sales tax is exempt if: the buyer/customer paid the shipping charge separately from the sale of the product to the shipping carrier or delivery/freight company or item is exempt. Tennessee Yes Sales tax on shipping is exempt if the item is exempt. Texas Yes Sales tax is exempt if:  the buyer/customer paid the shipping charge separately from the sale of the product to the shipping carrier or delivery/freight company or item is exempt. Utah No Sales tax is exempt if shipping charges are stated separately. Vermont Yes Sales tax is exempt if separately stated shipping charges for direct mail and not retail sales Virginia No Sales tax is exempt if shipping charges are stated separately. Washington Yes Sales tax is exempt if: a third party delivers goods to the customer after the sale of the goods or item is exempt. West Virginia Yes Sales tax on shipping is exempt if the item is exempt. Wisconsin Yes Sales tax is exempt if:  separately stated shipping charges for direct mail and not retail sales, or item is exempt. Wyoming No Sales tax is exempt if shipping charges are stated separately.

 

Is Shipping Taxable On Out-of-State Sales?

Nexus determines the taxability of shipping, whether it is an in-state or out-of-state sale. Sales tax nexus refers to a business’s presence or connection in a particular state that triggers sales tax obligations.

If you do not have an economic nexus in a specific state, you are not required to collect sales tax from buyers in that state, including sales tax on shipping. Conversely, if you have a sales tax nexus in a state, but the state exempts sales tax on shipping, you are not obligated to collect it from customers.

It’s important to note that each state has its own rules and regulations regarding sales tax on shipping. To determine whether shipping tax is payable on out-of-state sales, it’s best to contact the Department of Revenue in those states. They can provide information on their policies regarding sales tax nexus and shipping taxability.

Remember to consult professionals or TaxHero’s sales tax experts to receive accurate and up-to-date advice tailored to your specific business circumstances.

 

Should you charge sales tax on your shipping fee?

Shipping taxability is just one of the elements you must get right to ensure compliance for your ecommerce business. We know it is challenging. That is why TaxHero is here to assist you. Our team specializes in and handles all your sales tax functions.

To get personalized advice tailored to your business, we invite you to speak with Lahari, our CEO. More than TaxHero’s founder, she is a sales tax expert with extensive experience managing ecom companies’ sales tax.