Separately stated delivery charges: taxable?
- Aug 9, 2016 | Gail Cole
There’s nothing complicated about delivery charges or shipping and handling fees — unless you have to decide whether or not to apply sales and use tax to them.
The taxability of certain delivery charges was so hotly contested by a Missouri-based business and the Missouri Department of Revenue that the case made its way to the Missouri Supreme Court. The appellant, Alberici Constructors, claimed it was not liable for use tax on charges for the delivery of a crane to a job site in Missouri. The Missouri Department of Revenue insisted it was.
The company argued that the $15,000 delivery charges should be exempt because 1) the rental agreement allowed the option of a third-party carrier, and 2) the delivery charge was separately stated.
It’s a compelling argument, but one that was rejected by the court. The opinion states, “Taxability does not depend on whether the parties intended the charge for the service to be part of the sales price; taxability depends on whether the parties intended the provision of the service to be part of the sales transaction.”
Intention is everything
Since intention is intangible, the court has “identified a number of factors relevant to the determination of whether a delivery service was intended to be a part of the sale.” These include:
- When title passes from the seller to the buyer
- Whether delivery charges are separately stated
- Who controls the cost and means of delivery
- Who assumes the risk of loss during the delivery
- Whether the seller derives financial benefit from the delivery
As always with sales tax, it’s up to the taxpayer to prove that contested charges are exempt. In this case, the taxpayer was unable to do so. Check out the opinion for more details about the case.
But this issue is not unique to Alberici Constructors. The Missouri Department of Revenue therefore reminds taxpayers to review how tax is applied to their delivery, handling, and shipping charges. When in doubt, consider the following:
- Shipping and handling charges that are not part of the sale of tangible personal property (TPP) are not subject to tax, even if they are separately stated.
- Shipping and handling charges that are part of the sale of TPP are subject to tax, even if they are separately stated.
The department encourages taxpayers with lingering concerns to contact them with their questions. Additional information.
Avalara AvaTax tax automation software reliably and accurately calculates, validates, and remits sales and use tax, even on tricky delivery charges. Learn more.
photo credit: Delivery, Kanto Japan 1960's via photopin (license)
