Iowa Sales Tax Guide
Chapter 8: Understanding Iowa sales tax rules for shipping & handling
In Iowa, the laws pertaining to shipping, handling, and freight taxability are fairly straightforward. The key: Sales tax is not charged on shipping and handling in Iowa if you invoice these charges separately.State Fees Separately
State such fees as their own line items on the bill and they become tax exempt. On your invoice, it must clearly state the amount, the tax on that amount, and the shipping and handling on a separate line. When stated separately, sales tax won’t be charged on shipping and handling either on the local or state level.
Be warned: Increasing product prices to make up for offering free shipping and handling will likely mean your customers will pay more in taxes than if you charged shipping and handling separately.Tax on Delivery
Delivery charges in Iowa are exempt from sales tax as long as they are stated separately on the invoice. Those delivery charges must also be reasonable in amount and directly related to the cost of transportation. This rule is to prevent a business from sneaking in an exorbitant extra fee as a delivery charge to avoid paying sales tax on that portion of the bill. This non-taxed status applies whether the product is delivered by common carrier or through a company’s own vehicle.
The Iowa Department of Revenue (DOR) uses “delivery charge” specifically to mean the cost of preparing and delivering property to a destination that is specified by the purchaser. If a business adds a fuel surcharge to the delivery charge, that charge is usually connected to the distance traveled, whether through a per-mile or range-based charge. If a fuel surcharge is added uniformly, without being based on distance in some manner, it will not be exempt in Iowa.Things to Avoid
Terry O’Neill, taxpayer service specialist for the Iowa DOR, sees one major mistake many businesses make. He emphasizes that ‘freight in’ is not included in the exemptions on businesses’ deliveries.
“The exemption for delivery is for delivery from the seller to the purchaser,” O’Neill says. “Please note that ‘freight in,’ a charge for the seller to obtain merchandise to sell to their customer, is not an exempt delivery change if it is passed on to the customer.”
For those delivering or shipping goods within Iowa, there are many exemptions that could save money. In many cases, shipping and delivery are exempt from sales tax as long as the cost is stated separately on the invoice and can reasonably be seen as being the total cost of shipping, preparation, and delivery.