Alabama Sales Tax Guide
Chapter 8: Understanding Alabama sales tax rules for shipping & handling
Our world of buying and selling is one that crosses borders and requires sophisticated shipping systems. We are often asked whether shipping is taxable in Alabama. For those businesses that have sales tax nexus in Alabama, sales tax does not need to be charged on the shipping costs you pass on to your Alabama customers — with a few exceptions.Is Shipping Taxable in Alabama?
Like most states (and most everything in the world of sales and use tax), the answer is…it depends. There are a number of factors that impact whether the Alabama Department of Revenue will require you to collect sales tax on shipping and handling. We’ll outline some of those situations below. As is always the case, specific questions on shipping in Alabama and sales tax should be taken directly to a tax professional familiar with Alabama tax laws.Third-party Shipping and Sales Tax
If you ship packages to your customers via US mail or a common carrier (UPS, FedEx, etc.), you don’t have to charge and remit sales tax on the shipping portion of your invoice as long as shipping is broken out on the invoice as a separate item. If you include shipping in the cost of the item, then you will need to charge sales tax on the entire invoice; you can’t deduct the portion that goes to pay for your shipping costs.Personal Delivery and Taxability
If you hop in your car, drive to the ship-to location and drop off a package for your customer, you may charge for delivery and you will have to add sales tax to this charge. Alabama is not alone in this. Many states treat personal delivery differently from third party shipping when it comes to sales tax.Shipping Tax Exempt Purchases — If You Have Any
Alabama charges sales taxes on most items — even clothing and food, which many states consider to be exempt from sales tax. If you are involved in farming (livestock, fungicides, and seeds are on the list of agricultural items exempted from the state’s sales tax) or building ships, trains, or aircraft, your goods may be tax exempt. You should check with the Alabama Department of Revenue to be certain.
If you sell tax-exempt goods or your sales are to an entity exempt from tax (including local governments and charities), any shipping and handling you charge to your customer may also be tax exempt, even if you don’t break it out on a separate line on the invoice.Don’t Mix Shipping and Handling in Alabama
Some sellers find it easier to charge a flat rate for shipping and handling that covers more than the actual cost of shipping. For example, if your per-item shipping costs range from $7.20 to $7.60, you might decide to just charge a flat $8.00. In Alabama, this approach will require you to charge and remit sales taxes on the entire $8.00.
Shipping costs can be exempted from sales taxes in Alabama if they are billed on a separate line and charged at cost. If you add a handling charge to your orders, you should bill for it separately and charge sales tax on that amount.Freight In, Freight Out
A spokesperson for the Alabama Department of Revenue pointed out the difference between freight in (the cost of having goods or raw materials shipped to you, the seller) and freight out (the cost to ship goods to the final consumer).
Alabama considers the cost to ship items to you a cost of doing business and part of your overhead. Even if you charge your customers separately for this (and, really, why would you?), you still have to assess sales tax on that amount. To keep life simple, set a price that covers your freight in costs and everybody is happy.Separate Your Shipping for Alabama Sales Tax Ease
To keep your sales tax life clean and simple in Alabama, put shipping on a separate line on your invoices and charge your customers at cost for shipping (this gets easier every day with the shipping software built into online shopping platforms like Amazon, Shopify, or Etsy). Charge sales tax on the items you ship (unless they are tax exempt), but not on shipping.