Sales tax compliance for eCommerce businesses can be confusing, and shipping costs throw another complication into the mix.
Each state has its own stance on whether shipping costs are taxable.
As a business, you must collect the correct tax from your customers to avoid becoming liable. This is a rough guide, but it’s important to speak to an expert about your individual circumstances.
Luckily, we understand the intricacies of each state’s shipping tax rules, so feel free to reach out.
Do You Pay Sales Tax on Shipping in the US?
It varies depending on your jurisdiction. Shipping charges are typically considered taxable when included in the price of taxable goods. But if a business’s shipping charges are separately stated, they may be exempt from sales tax.
As an eCommerce seller, you need to check the rules in your state and every state you have sales tax nexus in.
Which States Charge Tax on Shipping?
At the time of writing, there are 26 states that consider shipping costs taxable. Whether or not you charge shipping separately, you need to collect tax on it.
Arkansas (AR)
Connecticut (CT)
District of Columbia (DC)
Georgia (GA)
Hawaii (HI)
Indiana (IN)
Kentucky (KY)
Minnesota (MN)
Mississippi (MS)
Nebraska (NE)
New Jersey (NJ)
New Mexico (NM)
New York (NY)
North Carolina (NC)
North Dakota (ND)
Ohio (OH)
Pennsylvania (PA)
Rhode Island (RI)
South Carolina (SC)
South Dakota (SD)
Tennessee (TN)
Texas (TX)
Vermont (VT)
Washington (WA)
West Virginia (WV)
Wisconsin (WI)
The following 20 states currently do not charge sales tax on shipping. Some of these states have specific rules relating to handling charges and other criteria, so it’s important to check the details. Also, note that the shipping cost must be a separate cost (not included in the product price).
Alabama (AL)
Arizona (AZ)
California (CA)
Colorado (CO)
Florida (FL)
Idaho (ID)
Illinois (IL)
Iowa (IA)
Kansas (KS)
Louisiana (LA)
Maine (ME)
Maryland (MD)
Massachusetts (MA)
Michigan (MI)
Missouri (MO)
Nevada (NV)
Oklahoma (OK)
Utah (UT)
Virginia (VA)
Wyoming (WY)
Note: In cases where we say shipping is NOT taxable, this may only apply when the seller makes the product available for pickup or gives another option where they don’t have to pay for shipping.
US Map: States Where Shipping Costs are Taxable
*Some states have different rules in certain circumstances. Always check with a tax professional.
What if You Offer Free Delivery?
Offering free delivery can complicate sales tax calculations for eCommerce businesses.
- In states where shipping charges are taxable, you may have to pay sales tax on the total price – product + hidden (free) shipping cost.
- In states where shipping charges are not taxable, they need to be listed separately, so if you absorb the delivery cost, your customers won’t benefit from the exemption.
“Make sure to properly document and account for shipping costs so you can prove compliance with your state’s regulations.”
– Gareth Kobrin, Sales Tax Specialist
The Bottom Line
Do you pay tax on shipping? It's complicated! Any eCommerce business dealing with shipping costs and using a common carrier should do the following:
- Check the regulations of every state you have sales tax nexus in.
- Keep up to date with any changes in your jurisdictions.
- Keep comprehensive records, listing shipping costs separately to product costs where applicable.
- Speak to an ECommerce sales tax expert about your specific circumstances.
Contact Yonda Tax for Tailored ECommerce Sales Tax Support
We specialize in providing tailored sales tax solutions for eCommerce businesses using Shopify, BigCommerce and many other platforms.
Contact us today for personalized eCommerce sales tax support and embrace the ease of automated filings!