Sales Tax Questions » Taxability

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Question: An IL Co delivers appliances and carpet products to customers with separately contracted for delivery charges, and receives carpet from out-of-state vendors with separately contracted for delivery charges. Due to higher fuel costs our company split out a separate fuel surcharge from our delivery cost to our customer that we could adjust if gas prices went up. Our vendors did the same. We are now being told by Illinois that we should charge sales tax on the fuel surcharge portion of our invoices, and we should pay use tax on the vendor fuel surcharge. Question: Must we charge sales tax on the fuel surcharge portion of our delivery costs to our customers and must we pay use tax on the fuel surcharge portion of our carpet vendor invoices?

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Response:

The ORIGINAL/COMPLETE question was as follows:

Most states consider separate charges that are mandatory such as fuel surcharges to be handling charges and even if delivery charges are exempt, handling charges are usually exempt. The recovery of your overhead costs as a separate statement on your customer invoice does not impact the taxability. Sales price includes all costs necessary to make the sale and includes overhead costs. Therefore, most state does impose sales tax on separately stated mandatory service charges as long as the associated item is taxable.

Diane L. Yetter
President
YETTER-tax meets technology
Sales Tax Institute
(312) 701-1800

Sales Tax Questions answered by Diane Yetter.

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