Although some freight charges do not involve actual sales, you might pay state sales tax on it. The rules of taxable freight charges depend mostly on status of the goods being shipped and how the seller ships the goods. Your business may need to consult a tax professional to keep up with sales tax laws because of ever changing sales tax statutes.
Most states charge sales tax for freight on at least some purchases, according to Sales Tax Advisors. However, not all freight, shipping or handling charges are taxable. Some states only charge a sales tax on shipping when the goods shipped are taxed. For instance, if the states exempt food from sales tax, the freight charges would not be taxable on the food. If you purchase a television and cannot acquire a sales tax exemption, the freight charges could be taxable.
The taxation of freight and shipping charges varies all over the U.S. Some states have small changes in rules that can have a huge impact on shipping costs. For instance, California and Alabama do not tax freight if it occurs through a common carrier, such as the post office, while New York charges tax on shipping unless you use post office counter services. Some states only require the business to list freight charges separately. Freight charges from Internet sales usually do not incur sales tax, because most Internet sales are tax-exempt.
Sales Tax Evasion
It is critical that each business review sales tax laws for its state, because not taxing a customer for taxable freight charges typically meets the requirement for sales tax evasion. Sales tax evasion can become a felony, but usually it involves fines and penalties, which can become huge due to the large scale of some companies and the number of sales.
In general, it is best to keep freight, shipping and handling charges separate from the sale price of the item. Also, do not use company vehicles for freight. Even in states that have several exemptions for freight tax, using a company vehicle entangles freight costs with the price of the item, which usually makes it taxable. Consider using business tax software to calculate shipping charges. Sales tax software developers keep up with state laws and the programs automatically calculate tax, which can be especially helpful when you sell to customers all over the U.S. However, it is ultimately up to you to keep proper records and charge the right amount of sales tax.