An Online Seller's Guide to Sales Tax and Shipping in the U.S.Mar 13, 2017 by Mark Faggiano, TaxJar
By now you’ve probably wrapped your hands around the concept of sales tax in your online business. And if you haven’t, no worries! Just check out 5 Steps to Sales Tax Compliance for Ecwid Merchants.
But one thing that can throw
Before I go any further, let’s look at a
Taxable shipping example:
Laura operates her
e-commercebusiness in Michigan, a state where shipping is taxable. She sells a $80 pair of sunglasses to a buyer in Ypsilanti, Michigan where the sales tax rate is 6%. She also charges $2 for shipping. In this case, the entire $82 would be taxable at the 6% rate. So Laura’s customer would be charged a total of $86.92 for the purchase. (That’s $82 plus $4.92 in sales tax.)
Using the same example, let’s say Laura is based in Iowa, where shipping is not taxable. She sells the same $80 pair of sunglasses and charges the same $2 on shipping. The sales tax rate is still 6%. But since shipping is not taxable, she only charges the 6% sales tax rate on the $80 price of the sunglasses. In this case, Laura’s customer would be charged a total of $86.80 for the purchase. That’s $80 for the sunglasses, plus $4.80 in sales tax, plus the $2 for the shipping charge.
Long story short, in some states online sellers are required to charge sales tax on shipping charges and in other states, they are not.
Sales Tax and Shipping Basics for Online Sellers
Important to note: Use this post as a general guideline. Your specific situation may vary considerably. If you have questions about how sales tax on shipping applies to your particular business, we suggest contacting either your state’s department of revenue or a sales tax expert.
The most important rule of thumb to remember about sales tax in the U.S. is that every state is different.
As an online seller, you may have sales tax nexus (i.e. you’re required to charge sales tax) in two states. While your business and products may be identical in both states, you may have to abide by very different sales tax laws. Keep that in mind as your read on!
Sales tax laws were written with brick and mortar businesses in mind. If you look at a
Shipping is not taxable if clearly stated on the invoice in many states. In other words, if you lump the sale price of the item and shipping charges all together in one line item, then shipping is taxable. But if you let your buyer know how much of the sale went to shipping charges then those charges aren’t taxable.
In some states, some categories of products are not taxable. For example, clothing is not taxable in Pennsylvania and groceries are not taxable in Ohio. As a general rule, if you ship a
However, if you are shipping a mixed shipment — say a
I know that’s a little confusing, so here’s an example:
You ship a $10
non-taxablepack of cricket flour and a $20 taxable book to a buyer. You charge the customer $3 for shipping. To divvy up how much sales tax collected, you can determine based on price that it cost you $2 to ship the book and $1 to ship the cricket flour. Since only the book is taxable, you’d only charge sales tax on the $2 shipping charges for the book. (Complicated, I know!)
Avoid dealing with shipping taxability by offering free shipping. You generally do not have to worry about sales tax on shipping charges if you offer free shipping to your customers. You would, of course, still be required to charge sales tax on any taxable products you sell.
You can find a list of states where shipping is taxable and
TaxJar is a service that makes sales tax reporting and filing simple for more than 7,000 online sellers. Try a
Stay up to date!
Get free e-commerce tips, news and inspiring ideas delivered directly to your inbox