more-arw search

Q&A Forum

Sales Tax in California - tax on goods and Shipping and Handling

Rick Bigelow's Profile

I am reviewing the sales tax processing at a small wholesaler. The Sales Taxes are currently paid on the difference between what UPS charges the company and what the company charges customers.  The shipping on invoices is denoted as Shipping and Handling.  Currently the company cost of handling is not included in the shipping differences. Should it be?  Why would the company be charged tax on a difference that does not include a cost component of handling, or is the state looking at this purely as another form of revenue?

Answers

Brian Johnson
Title: Controller/CFO
Company: Cosmi Software / Cosmi Finance LLC
(Controller/CFO, Cosmi Software / Cosmi Finance LLC) |

Rick:

This is from the California Board of Equalization website:

Are delivery and handling charges taxable?

Delivery charges.

You have the property delivered directly to your customer using a common carrier, the U.S. Mail, or an independent contractor. Tax does not apply to the delivery charges under these conditions if the charges are clearly stated as a separate entry on the invoice or other bill of sale. If the delivery charges are not stated separately, they are taxable.

Example.

You sell a refrigerator and have it delivered by an independent contract carrier. On the invoice, you show a $750 charge for the refrigerator plus a separately stated $50 charge for delivery (the amount charged you by the carrier). Since the delivery charge is stated separately, tax applies only to the charge of the refrigerator ($750). If the invoice had shown a single charge of $800, tax would apply to the entire amount.

Note: If you charge more for delivery than your actual costs, the added amount is subject to tax. In the example above, if you had charged your customer $60 for delivery, but your actual delivery cost was $50 (the amount charged by the independent contract carrier), tax would apply to the additional $10 charge.

Handling charges.

Handling charges are generally taxable.

Combined charges. If you charge a single amount for delivery and handling (for example, the invoice shows a single amount for "postage and handling" or "shipping and handling"), the portion of the charge that represents handling is generally taxable, while the portion that represents delivery may or may not be taxable.

Note: It is important to use terms such as "delivery," "shipping," or "postage" on the invoice to represent delivery charges. A separately stated charge that says only "handling", for example, is not considered a delivery charge and the entire handling charge is taxable--even if postage or shipment charges are indicated on the package.

2425 views
Topics

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.