About collecting tax on freight
Learn what freight is and about the rules on collecting tax on freight.
Freight, including shipping and handling charges, must be specified in your ShipCompliant order data to meet tax compliance requirements.
To be considered freight, freight charges should only include costs related to packaging and transporting the product to the customer. In other words, freight charges shouldn't be higher than the actual cost of shipping and handling. What was charged to you by your carrier and your logistic service is the most you should charge the customer.
Freight charges should be separately listed from the cost of wine or other merchandise on your invoices. If you advertise as shipping included, if you include handling service fees with the freight cost, or if you charge the customer more than what you paid to ship the order, you should not consider this amount to be freight. Instead, associate the shipping included amount with a new product in your account, created with a General Merchandise product type.
Taxing or not taxing freight
Freight may or may not be subject to sales tax, depending on several factors:
- The type of products being shipped. Freight charges will often be either taxable or exempt based on the taxability of the goods included in the shipment. There are, however, some states where freight charges are never subject to sales tax.
- The state being shipped into. In tha case of states where freight is either always or never taxable, ShipCompliant will indicate the proper taxability.
There are some states where the taxability of freight depends on whether the freight charges are an inseparable part of the cost to the consumer, and therefore taxable, or when they are a separate charge, and therefore exempt. The general factors that determine the separability of freight include:
- Providing for a pick-up option for customers (even if the customer is several states away from the pick-up location).
- Separately listing all freight charges on invoices.
- Charging no more than the actual cost of transportation and handling for freight, as assessed by the carrier or other logistics services.
For these states, where the taxability of freight can vary, there is an option for customers to select whether or not they meet the special criteria listed earlier, and whether or not tax should be assessed on freight costs. Select or deselect the boxes under Collect Tax On Freight on the Tax Preferences page, depending on your preferences.
If you ship into these states, determine whether your sales practices would require you to assess sales tax on freight charges. In these states, Collect Tax On Freight defaults to do not collect; select the checkbox if you would like to include freight charges when calculating sales taxes in that state.
Your tax preference settings will affect the way that your reports are calculated. For example, freight charges are either included or not included in taxable revenue, depending on your Collect Tax On Freight settings.