Should I Charge Tax on Shipping Charges in Texas?
- Dec 14, 2016 | Suzanne Kearns
It’s pretty difficult to stay up-to-date on the general sales tax rules for each state, but it can get even trickier when it comes down to the minutiae. For instance, each state has specific rules about when sellers should charge sales tax on shipping charges. Texas is no different.
Let’s take a look at what the Lone Star State has to say on the matter so you’ll know exactly when to collect tax on shipping--and when you shouldn’t.
Not all states define the term “shipping” the same way. Texas defines “transportation and delivery charges” as any term “used by common or contract carriers to describe transportation, such as freight, shipping, delivery, or postage.” In other words, the way you ship products to consumers likely falls under the definition.
The Texas Comptroller says that if an item is taxable, then charges to ship that item are too. That’s because the state considers shipping charges to be “services or expenses connected to the sale.” The state law says that you should collect sales tax regardless of whether the charge is stated separately on the invoice or if it’s included in the total sales price. And it doesn’t matter whether the charge is billed before or after the sale.
That means if you sell a pair of cowboy boots for $100 and charged the customer $20 to ship them a week later, you would charge sales tax on the ticket total of $120.
But don’t let the simplicity of the law lull you into complacency: Sales tax laws just wouldn't seem right without some exceptions. In fact, there are three instances where you should not charge sales tax on shipping in Texas.
- If a customer asks you to ship an item via a third party carrier, the carrier should not charge sales tax on the shipping charges as long as its only role is to ship the item.
- If a customer asks you to ship an item to a third party recipient designated by them, you should not charge sales tax on the postage when you invoice the buyer. This charge should be listed separately on the invoice.
- If the items you sell are tax-exempt, you should not charge sales tax on the shipping charges.