Your eCommerce business is doing well and you’re making sales. One problem you’re encountering is figuring out whether or not you should charge sales tax on shipping charges. Each state has different rules and regulations when it comes to charging sales tax on shipping, and some of them make your life more difficult than others. One such state is California.
Note to TaxJar users: After consulting with our accounting advisors we have opted to treat California shipping as non-taxable. If your business requires you to treat shipping differently we are working on a feature that will allow you to change your shipping taxability in a state. Stay tuned!
Sales Tax on Shipping in California? It Depends On Quite a Bit
While the sales tax on shipping costs is very complicated in California, they at least have provided a helpful (if not simple) table on the California Department of Tax and Fee Administration website:
If the sale IS taxable, then shipping may be nontaxable, partially taxable, or fully taxable.
Non-Taxable: To achieve this, you must meet three criteria. First, you must ship directly to the purchaser by common carrier, contract carrier, or US mail. Second, your invoice clearly lists shipping, handling, delivery, etc. charges separately. Lastly, the charge is not greater than your actual cost for delivery to customer.
Partially Taxable: If you meet all the criteria EXCEPT the last, your shipping cost may be partially taxable. The portion of the delivery charge that is greater than the actual delivery cost is the part that is taxable.
Ex: You charge a $3.99 flat rate to your customers to ship all of your products, but the USPS only charges you $3.03 to ship a particular item. The $0.96 that you charged your customer over and above the actual price you paid to ship the item will be taxable.
Another time this could happen is if you combine the shipping & handling costs – the handling will be taxable, though shipping might not be.
Fully Taxable: There are several ways you can find yourself fully taxed for shipping in California:
– You don’t keep adequate records and can’t prove actual shipping cost.
– You deliver merchandise with your own vehicle
– You make a separate charge for fuel or handling.
– You include a delivery charge in the unit price (i.e. the delivery charge is not separately stated).
– You include the “freight-in” cost, or cost of shipping merchandise to your business.
If you hit any of these points, you most likely will have to collect sales tax on shipping.
Summary of Sales Tax on Shipping in California
In summary, California is extremely complicated when it comes to shipping and sales tax. Your best bet is to hit the three criteria for not being taxed: ship directly to the purchaser, clearly list your shipping cost separately, and don’t overcharge for shipping. Anything else and you’re going to get hit with at least a partial tax on shipping, if not a tax on the full price of shipping.
Have questions or comments about taxable shipping in California? Leave a comment below and start the discussion!