August 27, 2015
You’ve loaded up the company truck–or the back of your old trusty station wagon–and are ready to hit the road and deliver your products to some eager customers. That can be a wise move on your part because doing so may save you the cost associated with using common carriers. However, delivering your own goods doesn’t exempt you from paying sales tax on the delivery charges you collect from customers.
In fact, if you have nexus in a state , sell a taxable product, and charge your customers any kind of delivery fee, you usually must collect sales tax on those fees. Unless you are willing to deliver products for free–and eat the cost of gas, vehicle maintenance, drivers, insurance, packaging, and more–you better collect sales tax.
Sales Tax Laws Vary By State
Unfortunately, you can’t just charge a delivery flat fee and apply a single sales tax rate to the charge. The laws that govern what is taxable vary from state to state, so not every state requires you to collect sales tax on delivery charges. To complicate matters, the terminology or classifications applied to delivery charges–Shipping, Shipping and Handling, Delivery, Postage, and Freight –don’t always have the same meaning or guidelines, so you need to be aware of the laws of each state in which you have nexus .
Additionally, how you invoice the charges can affect how you apply sales tax to your orders. If you lump the delivery charges in with the cost of the merchandise, you must charge customers a sales tax on the full
amount in states where you have nexus. However, if you list delivery fees separately on your invoice, you should only collect sales tax on the cost of the merchandise, not on the delivery fees, in states that don’t require you to tax delivery fees.
Sales tax on shipping and handling is important enough to state and local tax authorities that most have published details on how businesses should deal with it. The California BOE, for example, offers Publication 100 which features a quick reference guide to sales tax on shipping and delivery charges in the state. As another example, Washington state offers a more trimmed down guide to shipping tax .
Rates Differ By Jurisdiction
Figuring out when to charge sales tax on delivery charges is really just the tip of the iceberg. Even if you know where you have nexus and which states mandate that you collect sales tax on delivery charges, you still have to tangle with jurisdictions. Tax rates can vary within a given state, so you could feasibly be required to apply 10 or more different sales tax rates to different orders within the same state. Those rates fluctuate, too.
Keeping track of all the rates is challenging, for sure, but it is a necessary evil to ensure that you are collecting accurate sales taxes on customers across the nation.
While it’s mandatory that you have to collect sales tax to avoid costly fines and penalties, you don’t have to go it alone. Avalara can drastically help you reduce the time you spend tracking, calculating, and reporting your sales taxes.