Arizona Sales Tax Guide
Chapter 8: Understanding Arizona sales tax rules for shipping & handling
It’s not enough to think of sales tax as limited to the goods or services you’re selling. Shipping is a cost that may or may not be taxed depending on the state and the manner in which the invoice is drafted. We frequently hear from small business owners who want to know if shipping is taxable in Arizona. While the Arizona Department of Revenue has complex rules about sales tax, which it calls a Transaction Privilege Tax or TPT, when it comes to taxes on shipping, Arizona makes things easier than most.Is Shipping Taxable in Arizona?
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 Arizona Department of Revenue will require you to collect TPT on shipping and handling. We’ll outline some of those situations below. As is always the case, specific questions on shipping in Arizona and TPT should be taken directly to a tax professional familiar with Arizona tax laws.Arizona Shipping and Sales Taxes
In Arizona, shipping costs that are listed on a separate line on the invoice are not subject to transaction privilege taxes.
If shipping is included in the cost of the item, then it is subject to TPT. For example, if you sell a set of books for $100 with “free” shipping and the shipping costs you $10, you would need to charge and remit transaction privilege taxes on $100, not $90.
If you mark up your shipping charge, however, all bets are off. Shipping is only exempt from Arizona’s TPT if you charge your customers the actual cost to ship the package to them.
Handling is always taxable. If you lump shipping and handling together into one charge, that entire amount is subject to transaction privilege tax.Personal Delivery and Taxability
If you deliver an order to a customer in your own vehicle and add a delivery charge to the bill, whether that charge is subject to the transaction privilege tax is a gray area, even if you list the delivery charge separately on the invoice.
If the customer takes possession of the item at your location, delivery is probably exempt from transaction privilege taxes. If the customer pays for the order and the delivery charge upon delivery, then you probably need to collect and remit TPT on the whole amount.
An Arizona Department of Revenue (ADOR) representative suggests that, if part of your business is transportation or delivery, the gross receipts from this would fall into a different category from retail sales. If you do offer personal delivery and you charge your customers for that service, he suggested you might want to contact the ADOR with your question and get a private taxpayer relief letter spelling out the department’s position on the taxability of your delivery services.Tax-Exempt Purchases
If the order you are shipping is exempt from transaction privilege taxes, then both shipping and handling charges are also automatically tax exempt, no matter how you break it down on your invoice.Arizona Makes Sales Tax on Shipping Easy
The ADOR spokesperson sums up Arizona’s rules on the taxability of shipping charges in the state like this: If you are including a charge “beyond your direct costs“ for shipping an item to your customers, then it needs to be included in your gross receipts and is subject to the state’s transaction privilege tax. He notes that the way you charge your customers for shipping and handling is a business decision; what is right for one business may not work for another.
However you bill your customers for shipping and handling, Arizona’s straightforward rules on the taxability of shipping and handling make it easy for you to program your customer invoices so you charge the correct amount of tax. Not every state makes it this easy, however, and almost every state has different rules when it comes to sales tax on shipping. If you find yourself dazed and confused, you might find you can make your life easier with sales tax compliance software.