We sell products to distributors in multi- states.What about tax on shipping charges?

Response by Diane Yetter    June 13, 2011

Full Question: We are direct selling company shipping products from the state of Idaho to independent distributors in various states. Are we required to collect and remit sales tax on shipping charges?

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Answer:

Diane YetterIf you are registered to collect sales tax in all the states where you have independent distributors, then you would have to determine the nature of your freight charges to determine whether they are taxable. The first test is whether the projects you are selling are taxable. If they are not, then the freight charges are not taxable. If the products are taxable, then you have to determine if the shipping charges are really just "shipping" charges or are they "shipping and handling charges". Shipping charges are generally defined by the states as being the direct shipping charges and do not include any additional costs that represent handling and preparing the item being shipped. If your charges exceed the actual shipping charges, they likely are classified as shipping and handling. Virtually every state taxes shipping and handling charges. If your charges are just shipping, then the next test is whether the shipping charges are optional and if the customer has the option to either select shipping or pickup or if they have the option to select the method of shipping. If the customer has no option, then most states will again tax the shipping charge as it is considered part of the selling price. If your shipping charges are actual and optional, then you must determine if the delivery is via common carrier or your own truck. If it is in your own vehicles, then most states tax the delivery charge. Finally, the last test is to determine if the shipping terms are FOB Origin or Destination. More states tax FOB Destination as it is part of the selling price however, the states do vary more on this point. The taxability of shipping is unfortunately not very simple and does vary by state.

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