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Is Shipping and Handling Taxable?

As a meticulous ecommerce seller, you’re doing all you can to track sales, apply appropriate sales tax, submit your quarterly tax reports, and render tax when tax it's due.

It seems straightforward but determining what "appropriate sales tax" is in every scenario can be complicated. Is every aspect of each transaction taxable, including shipping and handling?

The answer depends on your nexus and the location of the buyer, but also the way shipping and handling is applied. Is it included in the price or charged separately? It also depends on how the delivery is made. Not knowing how to analyze each transaction--and therefore failing to meet your sales tax obligations--can be costly.

What is "Shipping and Handling"?

Sales tax expert Jerry Peisner says that shipping and handling generally refers to the process of packaging and shipping a product. These two elements are generally referenced as one price to a buyer.

However, some vendors bill their customer separate amounts for each element of packaging and shipping, even getting as specific as itemizing insurance and postage. 

Most states include shipping and handling as part of the sales price and require the charges to be taxed. These charges may also appear on an invoice as "delivery" or "freight."

Do Your Research

So, how do you know if you should pay tax on these charges? Peisner, a principal of Peisner Johnson & Company, L.L.P. in Plano, Texas, says determining whether these charges are taxable requires some research. For example, some states say shipping and handling are always taxable, while others say they are not taxable if they are itemized separately.

“To know whether or not these charges are taxable, the seller would have to research the issue for each state in which it is permitted to collect tax,” explains Peisner. Or you can rely on a sales tax professional or a robust sales tax management product that automatically calculates sales tax on each transaction.

If you're unsure whether or not to collect tax on a shipping and handling fee, Peisner suggests that you err on the side of caution to avoid creating a large tax exposure--not a good scenario if you're selected for audit.

You'll Probably Have to Pay

Most states require taxes to be collected on shipping and handling even if the charges are itemized separately from the selling price of the product. Peisner illustrates the point with this sales tax scenario based on a 7 percent tax rate:

Order Details

Item #


















Shipping & Handling








Sales Tax @ 7%






“Tax would be calculated on $145.00 in my example to include shipping and handling,” he explains. The 7 percent rate depends on the location of your buyer.

Keep in mind, however, that in many states, certain goods are exempt from tax, including food, gifts cards, and coupons. Other states don’t charge sales tax at all, and some states, like California, have many exceptions.

To avoid liability in any state where you sell, make sure you know the applicable sales tax rates and how each aspect of a transaction is taxed. 

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