Utah Sales Tax Guide
Chapter 8: Understanding Utah sales tax rules for shipping & handling
Are you an ecommerce seller based in Utah, or a seller who has nexus in the state? If so, it’s important that you understand whether you should charge sales tax on the shipping and delivery fees you charge your customers.
Here are the rules you need to know in order to stay in sales tax compliance.
Is Shipping Taxable in Utah?
Unlike most states, the Utah State Tax Commission has laws that basically leave the decision of whether or not charge sales tax on shipping and delivery charges up to sellers. The law states that if sellers pass on the cost of shipping a product to their customers, that charge is not taxable as long as it is stated separately on an invoice. In other words, as long as you separately list shipping and delivery charges on your invoices, you are not required to charge sales tax.
But the state rules require sellers to pay sales tax on charges they call “freight in.” Utah defines this term as “shipping, freight, or transportation charges billed to the seller as part of the seller’s cost of tangible personal property, product transferred electronically, or services sold.” So if you purchase merchandise for your business and are located in Utah, you will be required to pay sales tax on the delivery charges.
A Broad Definition of “Delivery”
The Utah tax code defines delivery charges as the “preparation and delivery to a location chosen by a buyer of tangible personal property, products transferred electronically or services. Delivery charges include, but are not limited to transportation, shipping, postage, handling, crating, and packing.”
If you list any charges that fall into the above categories separately on the invoice, you do not have to charge sales tax. Keep in mind that transportation of products to your business is not included in this definition, and you will have to pay sales tax on those deliveries.
Shipping Tax-Exempt Purchases
Since listing delivery charges for taxable items separately on an invoice negates the need to charge sales tax, the law extends to tax-exempt purchases. As long as delivery charges are listed separately for taxable and exempt products, there is no need to charge sales tax.
For example, says Charlie Roberts, the Public Information Officer for the State of Utah, “A prescription from a medical doctor is exempt, but then if it is not separately stated on an invoice and combined with other items, the prescription would not be exempt.” He clarifies this by explaining that, “If an exempt item is bundled with other non-exempt items, it is subject to sales tax. Shipping is subject to sales tax unless it is separately stated on an invoice.”
He also says this about shipping both taxable and exempt products in the same “bundled transaction”: “If any part of the bundled transaction is subject to tax, the entire transaction is taxed unless the exempt item and delivery charge are listed separately on the invoice. He also says sellers should keep separate records of the tax-exempt portion of the transaction in order to avoid any confusion.
What About Local Taxes?
In Utah, there are many local municipalities and the exemptions they provide are not always consistent with the States. According Roberts, “The state rules for shipping and delivery charges also apply to the local municipalities. However, municipalities may impose and collect a license fee or tax, other than taxes imposed under the Utah Sales and Use Tax Act, as allowed by law. You must include city-imposed taxes in the taxable sales you report on your Utah Sales and Use Tax Return.”
Finally, Roberts offers the following advice for Utah sellers. “Exempt sales should be reported on line two of the sales tax forms. It is common for Utah sellers to not report exempt sales on the sales tax forms.” In addition, Roberts says that if you are a seller and receive an exemption certificate from a buyer, it’s up to you to keep that information in your records.