Should Your Online Store Be Charging Tax On Shipping And Handling?
June 2nd, 2008
A client of mine recently hired a bookkeeper to do her state and local taxes and was surprised to find out that she should be collecting sales tax on shipping and handling.
I wanted to write this article to provide help for other online retailers who may be asking the same question, because the answer was a bit hard to find.
If you’re in Washington State, here’s the link to the law: WAC 458-20-110. Shipping is considered a “Delivery Charge”.
It states:
Gross proceeds of sales and selling price include all consideration paid by the buyer, without any deduction for costs of doing business such as material, labor, and transportation costs, including delivery charges. Thus, delivery charges by the seller are a component of these tax measures.
And also:
Delivery charges by the seller making a retail sale are a component of the selling price. If the sale of the tangible personal property or service is exempt from retail sales tax, such as certain “food and food ingredients,” retail sales tax does not apply to the selling price, including delivery charges, associated with that sale. Similarly, if the product is sold at wholesale, retail sales tax does not apply to the delivery charges of that sale.
Now, again, this law only applies to the State of Washington. And you only charge Sales Tax if you are a business in Washington and selling to a customer in Washington and if the item you’re selling is subject to Sales Tax. If you’re in a different state, you should look up the appropriate law or consult with a local tax person.
Note: This article is not a substitute for professional tax advice. Please consult with a local tax expert to get the right answer for your online business.
Jill--------------
J. Olkoski
Aldebaran Web Design, Seattle
Jill Olkoski has a BS in Engineering, a BS in Computer Science and an MA in Clinical Psychology. She delights in using her advanced technical and psychological skills to help small business owners develop cost-effective and successful websites.
December 10th, 2008 at 1:52 am
Thanks for this info. I was wondering why Best Buy was charging me tax on shipping & wondered if this was legal. Well only in Washington. I guess I should thank my legislature. Grrrr….
December 10th, 2008 at 10:13 am
Hi Daniette,
Yes – but many states are similar. Being in Washington, I get charged tax whenever I buy from Amazon.com, since they’re in Washington too. But on the flip side, the purchases arrive super quick – so maybe it’s not all bad.
March 30th, 2009 at 3:06 pm
Wow, thanks for posting this.
I personally think it’s bogus that Washington (and other states) charge sales tax on the delivery of items. You would think that with the number of online businesses based in this state, specifically in the Seattle area, they would try to make it easier to conduct business within the state. I also think it’s unfair to charge a sales tax on digital purchases since I don’t have the right to transfer the license of those items in a resale capacity (for example, with music downloads).
September 11th, 2009 at 10:54 am
Sale Tax is for tangible items, products or goods that you buy to own.
Use Tax is for business or consumers who buy intrastate tangible item(s), product(s) or goods and don’t pay taxes on the tangible item(s), product(s) or goods they bought at wholesale, then using these intrastate tangible item(s), product(s) or goods within the state for their own use.
Services Tax is a tax that a business pays (not the consumer) on services they provide. Examples of services are: Warranties, Cell phone services, telephone service, labor, installations, repairs, and etc. Now this don’t mean that businesses will adhere to this. Some businesses will charge the sales tax in order to avoid paying a higher B&O tax and no service tax at all. This is not legal, but they still do it and get away with it. Some Big Companies like AT&T, Sprint, Qwest, DELL, Hewlett Packard, and others charge sales tax on services. These services include telephone service, cell phone services, and warranties.
About 20 years ago I purchased two car warranties and was charged sales tax on these warranties. Well, someone filed a class action lawsuit about this practice. It went to court in Thurston County and after it was all said and done with, the court found it was unconstitutional to charge sales tax on services. The State of Washington and the businesses that charged the sales tax ended up having paying back everyone back that filed a claim and had paid sales taxes on their warranties.
The attorneys who sued made out like bandits, the State of Washington paid out millions in legal cost not to mention the sales taxes they had to give back, the business where held accountable for service and B&O taxes that they did not remit to the State of Washington, and the consumer well they gained back a fraction of their taxes. I was paid the sales tax back on only one of my warranties
October 14th, 2009 at 11:16 am
I’m paying wholesale for Mary Kay products, but being charged tax on the retail price. Is that right?
October 14th, 2009 at 11:25 am
From what I understand, if you buy something wholesale with the intent of reselling, there’s some form or notification that allows your purchase to be without tax. In that case, there is no tax because it would be paid by the person you sell it to. But if you’re buying it for your own use, and not for resale, then I’m not quite sure what the rules are. It would make sense to me that in you might pay full retail tax, because that’s what would be collected if it were sold. But then again, I really don’t know, because I don’t buy anything wholesale for resale. It certainly could be a mistake. I’d do more Googling.
December 5th, 2009 at 12:13 pm
The sad part is that the consumer doesn’t know when a tax on shipping is legitimate or not. If the “tax” collected on a shipping charge is not ultimately forwarded to the state tax board and is instead retained by the seller, then in legal terms, the seller has been unjustly enriched.
In some states, shipping charges are generally not taxable, but “handling” charges are. Sometimes, sellers will not charge any handling charge, and nevertheless collect “tax” on shipping. One has to wonder whether that “tax” revenue ever makes it to the tax board, or whether it goes into the pockets of the sellers.
One example of when a seller may have an incentive to pocket “tax” money is on some auction sites in which the actual item might sell for literally a penny, with let’s say a $2 shipping charge. Even when the seller does not charge handling, there is an incentive to “tax” the full $2.01, instead of taxing only the $0.01, and to then keep the extra “tax” collected above the tax on the sales price.