No one likes to pay tax, but it can get even more complicated when your business is charging tax on shipping and handling. What are the legal requirements for charging tax on shipping and handling? The answer to this isn’t simple. Yet, it’s an answer you need to have for your eCommerce business to stay compliant.
General Tax Guidelines
As a general rule, shipping charges are taxable if the contents of the shipment are taxable, but shipping charges are typically exempt if the shipment contents are exempt from tax.
In shipments containing both exempt and taxable goods, the charge attributed to taxable sales is taxable, while the amount attributed to exempt sales is exempt.
This sounds simple, and it would be if all states adopted the same policies regarding the taxability of shipping charges. Unfortunately, these simple guidelines only get more complicated.
Exceptions to the Rules
Most states require sales tax to be calculated on the cost of the merchandise plus the separately listed cost of shipping, though some states allow separately listed shipping and/or handling costs to be excluded from taxation.
Adding to the confusion, states like Nevada and Virginia also tax separately listed handling charges, such as fuel surcharges or special packaging.
So how do you know the requirements for your company? You should first make sure you understand your state’s tax laws. Your state may exempt certain purchases or delivery methods from being taxed.
However, if you have physical locations in more than one state, you might become more confused than you were at the start. In fact, some states just have complicated tax regulations that vary depending on the situation, so even if you only operate out of one state, if it’s one of those states, you may struggle to fully understand what the tax laws entail.
Tax Compliance Made Easy
At this point, your head is probably spinning, and you’re likely wondering why taxes have to be so complicated. The good news is, the latest sales and use tax calculations can be delivered to your shopping cart or invoicing system at the point of sale with a software system that calculates taxes automatically.
With the right system, you can automatically calculate tax rates for each state, county, and city while staying on top of changes in laws, rules, and jurisdictions. Automation makes remittance more accurate—no more under or overpaying. In addition, you can verify purchase addresses to ensure you have the correct tax rate rather than relying on ZIP Code rates which tend to be less accurate.
Best of all, taxes can be handled in house without overburdening finance and IT teams or hiring someone specifically to do taxes.
Avalara has the right solutions for your company’s tax frustrations. Our customers appreciate the simplicity, accuracy, and time saving of automated tax calculation and we know you will too.
If you are interested in learning more about Avalara and how easy sales tax compliance can be, contact us today.