Kentucky Sales Tax Guide
Chapter 8: Understanding Kentucky sales tax rules for shipping & handling
Kentucky doesn’t require outside businesses to charge sales tax unless they have nexus in the state. If you don’t have nexus in Kentucky, you won’t have to worry about sales tax on any sale you make in the state.
However, if your business is located in Kentucky, you have a warehouse or distribution center in the state, or you have an agent working in the state on your behalf, you’ll need to learn as much as possible about sales tax in Kentucky.
One area that can cause confusion in Kentucky is whether shipping charges are taxable. Like many other states, Kentucky allows businesses to state shipping charges separately on an invoice to eliminate that portion of the bill from sales tax. In other words, the purchases will be totaled and taxed, with the shipping charge added separately, without tax. But there are several details Kentucky businesses should know before making sales in the state.Handling and Delivery Exceptions
The Kentucky Department of Revenue points out that handling is always taxable, as is delivery. If shipping and handling is combined as one sum, that entire sum must be taxed. Businesses selling products in Kentucky should therefore separate handling out to make sure shipping and delivery remain tax-free.
Unlike shipping, delivery charges are taxed. This rule can also be confusing, since Kentucky once required businesses to charge tax on the delivery of the product only if the seller was the one making the delivery. Under the old law, a business could use a common carrier to deliver a product and forego paying sales tax on the delivery.
However, in 2004, the law changed, requiring tax to be paid on seller-arranged delivery of taxable products to buyers in Kentucky, regardless of how the delivery is made. Kentucky’s tax authorities now sees delivery charges as part of the sales price when the buyer is the one arranging the delivery.Ongoing Issues
Despite the fact that the 2004 law change is clearly outlined in the state’s tax laws, the Kentucky Department of Revenue regularly sees retailers who are confused by it. As Ricky Haven, director of the division of sales and use tax in the state, points out, tax must be paid on delivery regardless of how it’s made.
“Some retailers fail to properly reflect the freight and delivery charge as subject to sales tax on their point-of-sale system and sales invoices,” Haven says.Other Complications
Shipping and delivery to out-of-state customers isn’t taxed. However, one exception to this rule is if the customer takes possession of the item in Kentucky before taking it out of state. In Kentucky, a sale does not qualify as “interstate commerce” if the purchaser or his representative receives physical possession of the property while in Kentucky, even if the product is later delivered out of state. In that case, it would be taxed.
In Kentucky, no sales tax is required on delivery or shipping of tax-exempt items in the state, but if a sale includes a combination of nontaxable and taxable items, the entire delivery charge must be taxed. The state has no provision for separating nontaxable and taxable items and only charging tax on delivery for those items that are taxable.
It’s important that a business with presence in the state learn the ins and outs of Kentucky’s sales tax laws before combining items for shipping them to one of the state’s residents.
While Kentucky’s sales tax laws can sometimes be confusing, businesses can eliminate sales tax on shipping if the charge is itemized on the invoice. However, tax still must be paid for handling, as well as delivery in many cases. As long as a business has nexus in Kentucky, that business will likely charge tax on delivery and handling for any shipment within state borders.