Are Separately Stated Delivery Charges Taxable?
Many businesses add delivery, shipping, or freight charges to customer invoices. The question is whether these charges are taxable. States fall into two main groups. Some do not tax separately stated delivery charges. Others tax the charge whenever the underlying item is taxable. Because invoices often itemize delivery charges separately, it is important to know which rule applies in the states where you operate.
Clients often share that delivery charges feel like a gray area. States apply different rules, and some rely on the taxability of the product while others look at the structure of the invoice. In general, states either exclude separately stated delivery charges or treat them as part of the taxable sales price if the item itself is taxable.
Unfortunately, there is no “One Size Fits All” answer.
States vary in how they define things and how they apply taxes. Below are excerpts from each state’s publication that are relevant to this topic. (source documents are linked at the end of the article). If you want to learn more about this topic, the Brady Martz team is ready to assist.
Iowa:
“Excluded from a transaction’s sales price are certain charges:
• Discounts
• Charges for items that are separately contracted for, itemized on a receipt, and are not representative of a taxable sale, such as delivery or installation service charges.”
Minnesota:
“If the item being sold is taxable, charges by the seller to deliver it are also taxable. Delivery charges are part of the sales price of the item, even if separately stated.”
North Carolina:
“Yes. Shipping, handling, transportation, and delivery charges imposed by the retailer that are in any way connected with the sale of taxable items purchased for storage, use, or consumption in North Carolina are subject to the North Carolina use tax.”
North Dakota:
“79.01 Charges for delivery, freight, postage, shipping, handling, crating, packing, or transportation of an item are taxable whenever the item is taxable and the charges are paid to the retailer of the item.”
South Dakota:
“A retailer’s charge for delivery and handling of taxable products is subject to the same state and municipal sales tax as the product when delivered in South Dakota. If the product is not taxable, the delivery and handling charges are not taxable.”
Texas:
“Delivery and shipping charges connected with taxable items or services sold are taxable.”
Wisconsin:
“When a retailer sells taxable products or taxable services, the retailer’s total charge, including its charge for delivery, is taxable. This is the case whether delivery is made by the seller’s vehicle, a common or contract carrier, or the United States Postal Service.”
References:
Department of Revenue (Iowa). Sales & Use Tax Guide. https://revenue.iowa.gov/taxes/tax-guidance/sales-use-excise-tax/sales-use-tax-guide
Minnesota Revenue: Delivery Charges.
Delivery Charges | Minnesota Department of Revenue
North Carolina Department of Revenue. Frequently Asked Questions About Use Tax. https://www.ncdor.gov/taxes-forms/sales-and-use-tax/use-tax/frequently-asked-questions-about-use-tax#Areshippingandhandlingchargessubjecttotheusetax-11392
North Dakota Office of State Tax Commissioner. (2005, October). Guideline – Sales Tax: Freight, Delivery And Other Transportation Charges. https://www.tax.nd.gov/sites/www/files/documents/guidelines/business/sales-use/freight-delivery-other-transportation-charges.pdf
Nebraska Department of Revenue. (2005, April 12). Regulation 1-079: Delivery Charges. https://www.revenue.nebraska.gov/sites/default/files/doc/legal/regs/1-079.pdf
South Dakota Department of Revenue. (2023, July). Delivery Charges. https://dor.sd.gov/media/4ivpeo1d/delivery-charges.pdf
Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions. https://comptroller.texas.gov/taxes/sales/faq/collection.php
Wisconsin Department of Revenue. Sales and Use Tax Treatment — Transportation Charges. https://www.revenue.wi.gov/Pages/FAQS/pcs-topics.aspx#t5
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