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Tax Law (Questions About Taxes)/Is it legal for businesses to tax shipping & handling online


Glasher wrote at 2008-04-14 19:16:51
You started to answer the question at hand about shipping & handling charges being taxable or not, but then you confused and clouded the answer to the question with the follow-ups to the point that question still has not seemed to have been answered.

I believe handling (material to ship, and the phisical effort to pack and send off the product) may well be a service and subject to a tax, But I thought Shipping is a glorified term to what is not that much different than affixing a stamp to a letter. I thought stamps were nontaxable, in itself already a tax.

The Tax Dude™ wrote at 2008-05-01 18:43:18

The follow-ups you are referring to where posted by the questioner, not by me.  The answer given is response to the question of whether or not sales tax should be charged on "Shipping and Handling" fees is very clear.  

For the record, here was my answer:  "Shipping and handling is not subject to sales tax in any state I am aware of.  You need to contact any retailer who charged sales tax on shipping and handling charges and request a refund."

I don't know how much clearer I could be.

Tom wrote at 2008-06-03 17:27:29
Most state DO in fact charge tax on shipping, whether or not handling is involved.  In some states (CA), the charge is only on the shipping profit; in others (like TN,GA,FL and a host of others) sales tax on shipping is a new way of generating tax revenue.  TN changed the law in 2008, others earlier.  Check the website for your state and search - you can usually find out if shipping is taxable.

The Tax Dude™ wrote at 2008-06-12 15:58:54

Thanks for your post.  When direct shipping costs are passed through to the consumer, sales tax should not be charged.  The fact is many companies use shipping and handling charges as a profit center.  When this occurs, the amount in excess of direct shipping cost is subject to sales tax.  It does makes sense considering the shipping mark up is no different than charging a high price for the product.

MR ANDERSON wrote at 2009-06-17 21:19:44

The Tax Dude® wrote at 2009-07-22 00:14:44
Mr. Anderson,

Please "No Caps", especially when your comments are not applicable to all US states and territories which impose a sales tax.  Not all states impose a sales tax on services.  In fact, very few do.  Utah is one of the few exceptions.

Sales tax is a real hot button with the advent of online retailers.  Here’s the deal.  We do not have a national sales tax like other countries.  Sales tax and its application are up to the individual states.  Each state that assesses sales tax has its own set of rules.  Generally, sales tax is assessed on the sale of tangible property.  Some states will have different tax rates based on the products sold at retail.  For example, food and clothing could have a sales tax rate different from the general sales tax rate.  With some states facing financial difficulties, services such as plumbing and accounting may be subject to sales tax.

Sales tax on shipping and handling charges is a little more complex.  If a retailer was simply passing through the actual cost of shipping an order, this cost would NOT be subject to sales tax.  Here’s the rub.  Shipping and handling charges are a fancy way of saying…”we are selling an item inexpensively, but getting our markup via this other avenue”.  What this means is shipping and handling has nothing to do with the actual cost of shipping.  It is simply a profit center for the retailer.  Most states caught on to this and have determined shipping and handling charges are really part of the actual sales price.  Thus, shipping and handling charges net of the actual shipping cost are subject to sales tax.  Since accounting for actual shipping cost on each order is incredibly cumbersome, most retailers are charging sales tax on the entire shipping and handling charge.

This doesn’t mean the retailer is reaping a huge windfall by charging sales tax on shipping and handling fees.  All sales tax collected really should be remitted to the state in which it is obligated.  I suppose an organization as large as HSN has an accounting department which does deduct the actual cost of shipping on its sales tax returns before remitting the tax to the appropriate state.  This could be an additional profit center, but I doubt the windfall is in the billions.  

JB wrote at 2012-11-15 16:57:16
Vendors and sellers must charge tax on both the amount associated with the property being sold and the “delivery charges”. In some transactions, an invoice may contain a list of items sold that include both taxable and nontaxable items and a delivery charge from the vendor for the delivery of the items to the customer. In this situation, a vendor or seller should allocate the delivery charge in any shipment to a consumer that includes separately stated taxable and exempt property by using the ratios as provided in Ohio Adm. Code.

Check you state sales tax law.

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Neil Johnson (The Tax Dude®)


CPA to answer Federal income tax related questions for individuals, small business owners, estates and trusts. I also specialize in divorce related tax and financial planning matters. I have extensive experience in nearly all areas of income taxation relating to businesses and individuals. I also regularly serve as a strategic consultant on a wide range of non-tax related business issues. In addition, I provide aggressive, experienced and skilled representation against IRS challenges at the audit and appeals. I have successfully represented clients against the IRS on issues regarding reasonable compensation, valuation discounts, time value of money, travel and entertainment expenses, innocent spouse relief and personal liability for unpaid business taxes. PLEASE...NO MORE QUESTIONS ABOUT PER DIEMS or LIFE ESTATES!!!! There are several Q&A items on these topics.


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