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How Do You Avoid Tax on Freight, Delivery & Handling?
Tax on freight generally follows the transaction the freight relates to. If the goods you sell are exempt and you charge your customer for freight or delivery charges or handling charges, then these charges are exempt.
If you sell taxable goods to your customer and also charge the customer for freight, delivery or handling charges, then the charges are considered to be a necessary part or element of the sale and thus are taxable. It should be noted that freight is generally a nontaxable service. It only becomes taxable when you pay for the service and then charge your customer for it as part of the sale. Many states provide conditions under which you may do this and still exempt the tax on the freight charges. So how do you legally avoid tax on freight when your sale is taxable? Generally, you must consider the following conditions:
Please note that handling charges, markups, and delivery charges using your own vehicles are almost always taxable even when you follow the steps prescribed above. These rules are state specific. As such, each state looks at these conditions differently. Some choose to ignore them altogether and tax all freight charged by you to your customer. Do your research carefully to avoid tax on freight and possible penalties later when charges are found to be taxable.
Feel free to call or e-mail us to discuss any tax issues you may have.
Sales Tax Advisors, Inc.
|Last modified on Sat Oct 18 2014 16:40:21 MST.|
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