Is it Legal to Charge Tax on Shipping & Handling?

States from California to Texas to Tennessee charge sales tax on some aspect of shipping or handling. State legislatures make the state tax laws, and each state has different regulations controlling business sales taxes. If you operate a business in a state that requires sales tax collection on the purchase plus shipping and handling, charging state sales tax is legal and expected. You collect the tax for the state and forward the taxes to the state comptroller or revenue department.

States expect sellers to charge taxes on sales made to state residents. If you make sales through the mail, on the Internet or over the telephone, most states expect you to collect sales tax on the sale and forward the tax to the appropriate taxing authority in your state. Some states expect collection of sales tax on the shipping charge; other states tax handling. California may have the most complex regulations; California exempts shipping from sales tax if you keep records of individual shipping amounts and the actual charge does not exceed the cost. Handling is taxable in California and in many other states.

If you purchase from a seller who lives in your state, you pay sales tax if your state has a sales tax. If you purchase from a large retailer that has a presence in your state, you also pay sales tax if your state has a sales tax. Five states have no state sales tax: Alaska, Oregon, Montana, New Hampshire and Delaware. Whether you pay sales tax on the shipping and handling depends on the state law. States are trending toward charging sales tax more liberally as state budgets seek new revenues.

States that charge sales tax only on total merchandise price include Iowa, Idaho, Massachusetts, Minnesota, New Jersey, Oklahoma, Utah and Wyoming. States that charge sales tax on merchandise plus handling are Alabama, Arizona, California, Louisiana, Maryland, Maine, Virginia and Vermont.

Some states charge sales tax on the merchandise plus shipping and handling. This is the largest group and includes Arkansas, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Mississippi, North Carolina, North Dakota, Nebraska, New Mexico, Nevada, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Washington and Wisconsin.

If you purchase nontaxable items in some states, the shipping and handling charge is equally nontaxable. Pennsylvania does not tax shipping if the purchased item is not taxable; Kentucky’s law is similar. As an example, some states do not tax food or drug products. Some services are exempt from state sales tax. Bibles are exempt from sales tax in a few states, although Georgia and South Carolina have both changed the sales tax laws for Bibles.