Applying sales tax to your products is only part of sales tax compliance, unfortunately. When it comes to shipping and delivery fees, you need to know which states require you to charge sales tax to stay compliant.
So to make things a bit easier, we’ve compiled this guide to help you through the start of sales tax on shipping.
Understanding sales tax on shipping
eCommerce sales tax compliance can be complex, and shipping adds an additional layer of intricacy. While sales tax is typically applied to products, some states and countries require you to charge sales tax on shipping and delivery fees as well. This ensures that the tax base covers the entire transaction, including the transportation of the purchased goods.
When should you charge sales tax on shipping?
Determining when to charge sales tax on shipping depends on several factors, the least of which is your sales tax nexus. Even if your state doesn’t require sales tax on shipping, selling to out-of-state customers may trigger a nexus and necessitate charging sales tax on shipping.
So it’s crucial to familiarize yourself with the specific rules and regulations of each state where you have customers.
States in which shipping is taxable … sometimes
The question is, what states require tax on shipping? But the answer is far from simple.
To help illustrate the complexities of delivery sales tax, we’ve compiled a list of some of the states where sales tax compliance is far from straightforward.
In most states, shipping and delivery charges are taxable if the purchase price is taxable or where other states exempt delivery charges as long as they are listed separately and not as part of the sale price.
For example, in Arkansas and Connecticut, freight, shipping, and transportation are all seen as part of the sale, which means that sales tax is only applicable when the goods sold are taxable as well. This means that tax applies proportionally for mixed shipments. And in Idaho, delivery fees are exempt as long as they are stated separately. (However, delivery charges to retailers are taxable.)
But counter to the proportional sales tax application in Arkansas, shipments that contain both taxable and exempt products are normally subject to Illinois sales tax in their entirety.
In Alabama again, delivery charges are only taxable when the delivery is made by a vehicle that is owned or leased by the seller. If the United States Postal Service (USPS) or a common carrier takes care of delivery, transportation charges are exempt from sales tax as long as they are billed as a separate item.
These are minor differentiating factors that could have a major impact on your sales tax compliance. And that’s only if your sale stays within the USA.
Should you charge sales tax on items shipped internationally?
Shipping internationally introduces a whole new set of complexities when it comes to calculating sales tax.
Whether you need to charge sales tax on items shipped internationally depends on various factors:
- Destination Country’s Tax Regulations: Different countries have their own tax regulations regarding imported goods. Some countries may require you to charge sales tax on shipping, while others may not. It’s essential to research and understand the tax laws of the destination country to ensure compliance.
- Import Duties: In addition to sales tax, imported goods may be subject to import duties or customs fees. These charges are typically separate from sales tax and are collected by the customs authorities of the destination country. Consult with a tax professional or customs expert to determine the specific duties and fees applicable to your shipments.
- Value Threshold for Taxable Shipments: Many countries have a value threshold for taxable shipments. If the total value of the goods being shipped falls below this threshold, sales tax may not be applicable. However, once the value exceeds the threshold, sales tax may be required. It’s crucial to be aware of these thresholds and ensure proper calculations based on the destination country’s regulations.
It’s a whole new ballgame that requires you not only to comply with your own state regulations and the sales tax regulations of the state your shipping from but also the intricate tax regulations of the destination country.
So once you’ve digested all of this and still want to sell outside of your state (and as a growing business, of course that’s the conclusion you’d reach), how do you stay compliant in this labyrinth?
How to ensure your sales tax on shipping never leaves you exposed
Navigating the intricacies of sales tax on shipping can be challenging, especially if you’re an eCommerce brand that has the whole world as an audience.
But the complexities of eCommerce sales tax shouldn’t keep you back from expanding your opportunities. So to stay compliant and minimize the risk of exposure, it’s crucial that you leverage automated sales tax software.
That’s where Complyt comes in.
Complyt helps you calculate, charge, and remit sales taxes automatically wherever you ship your goods to, ensuring that you stay compliant with the latest regulation changes without having to update prices manually. The platform also keeps your documentation up to date every step of the way to ensure your due diligence and auditing are airtight.
Simplify your sales tax compliance with Complyt. Book a demo today.