Do I charge tax on shipping costs in California
It does sometimes seem like the people who write sales tax regulations take delight in creating mind-boggling complexity, especially for ecommerce sellers who may have nexus in more than one state. There is a certain logic to whether you should charge tax on shipping costs in California, however, that’s easy to follow once you have all the facts.
When you don't charge sales tax on shipping in California
If you pass on the actual cost of shipping to your customer and you list that charge on a separate line on your invoice, shipping is not taxable in California. Keep good records of your shipping expenses as backup if you are ever unfortunate enough to be audited.
Witty turns of phrase may charm your customers, but they will leave the California Board of Equalization cold. The state taxing body strongly recommends using clear language to designate the shipping line on your invoices: “shipping, delivery, freight, or postage.”
When you do charge sales tax on shipping in California
Handling charges are taxable in California and so is shipping if you put the two together into a “shipping and handling” line on your invoice. Separate these two charges if you want your shipping charges to stay tax-free.
If you charge your customers a flat rate for shipping, then the difference between your flat charge and the true cost of shipping is taxable for each order. So, really, just don’t do this. It will give you a headache for sure.
Delivery charges for orders you haul to your customers with your own vehicle may be subject to sales tax if the order is paid for on receipt at the customer’s address. If the customer has taken possession at your location (i.e., prepaid), the delivery charges are not subject to sales tax.
If you are feeling dazed and confused about now, here’s a guide to when to charge sales tax on shipping costs in California in a nutshell: good record keeping and clear invoicing can help you avoid the need to charge sales tax on your California shipments, in most instances.
Sales tax risk assessment
Did you sell online this year? Find out if you’re on the hook for sales tax with our free risk assessment.
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.