Taxability Chart: Sales Tax on Shipping Charges by State
Sales tax on shipping charges is a tricky issue for tax professionals because states’ treatment of the tax varies widely. In Illinois, this issue was the subject of a class action lawsuit against the retailer Walmart. As Mike Fleming points out in his recent article, when the Illinois Supreme Court ruled in favor of Walmart in 2009, a situation was created that sparked many qui tam, or whistleblower, lawsuits over the taxation of shipping charges.
Where are Shipping Charges Taxable?
Some states tax shipping charges without condition, including New York and Texas, but almost half of the states do not tax shipping charges depending on certain conditions.
Let’s look at Illinois again. Illinois does not charge sales tax on shipping if charges are separately contracted and stated. That distinction is the crux of the Walmart’s defense in the class action lawsuit.
Other states do not tax shipping charges if additional, and sometimes critical, conditions apply. Massachusetts’ exclusions apply if several conditions are met:
- Charges reflect the costs of preparing and delivering goods to a location designated by the buyer,
- Charges are separately stated on the invoice, and
- Charges are set in good faith and reasonably reflect the actual costs incurred by the vendor.
In Maine, sales tax on shipping charges are excluded if they are separately stated, the shipment is made direct to the purchaser, and a common carrier is used.
We Have a Chart for That
We have developed a helpful chart that highlights the states’ treatment of sales and use tax on shipping charges for your reference. Your situation may very likely involve some particular facts and circumstances that would yield a different result. This chart is a good starting point, but should not be your only research source.
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