November 1, 2005 > Tax on shipping and handling charges too?
Tax on shipping and handling charges too?
by Betty T. Yee
You've already paid handsomely for that new living room furniture, including the sales tax on the purchase. But do you know tax may also apply to the shipping and handling charges for the delivery of that furniture?
Many California consumers are unaware of when they must pay sales tax on shipping and handling charges. What are shipping and handling charges?
Handling consists of all the steps necessary to prepare goods for shipment, such as picking, packing, labeling, and loading. Shipping consists of the transportation of the goods after they leave the seller's business.
For non-taxable purchases. If the items you purchase are not taxable, such as food items and prescription medication:
- Any related handling charges are not taxable.
- The shipping charges are not taxable.
For taxable purchases. If the items you purchase are taxable:
- The handling charges are taxable.
- The shipping charges may be taxable or exempt from tax.
For taxable item purchases, the shipping charges are exempt from tax if all of the following conditions are met:
- The shipping charge does not exceed the actual cost of shipping.
- The US Postal Service, a common carrier such as UPS or an independent contractor is used to deliver the item directly to you as the customer.
- The invoice clearly uses terms such as "shipping," "delivery," or "postage" as a charge separate from the items sold.
Confused? Here is an example: your new refrigerator is shipped directly to you by an independent contractor. The invoice shows a $750 charge for the refrigerator plus a separately stated $50 charge for shipping. Since the shipping charge is stated separately, tax applies only to the $750 cost of the refrigerator. If the invoice had shown a single charge of $800, tax would apply to the entire amount.
What if XYZ Store uses its own vehicle to deliver the refrigerator to you? Then the shipping charges are taxable. However, these charges may be exempt from tax if there is a separately stated shipping charge and a written contract of sale that is signed before delivery transferring ownership of the refrigerator to you prior to delivery.
Still confused? The BOE is available to assist with questions about sales tax. For information and publications to assist you in better understanding your sales tax obligations, visit the BOE's website at www.boe.ca.gov, or call the BOE Information Center toll-free at 1-800-400-7115.
Betty T. Yee is the Acting Member representing the State Board of Equalization First District, which includes 21 counties in northern and central California. The Board hears and decides income and business tax appeals and administers a variety of tax and fee programs. This article is one in an occasional series by Yee on state tax requirements.