Are shipping, delivery, and freight charges taxable?

Transportation charges (shipping, freight, delivery) are included in the definitions of “cost price” and “sales price”. As a result, transportation charges paid to the seller for delivery of tangible personal property and digital products purchased from the seller are subject to state and local sales and use taxes. Cost price and sales price relate to sales/purchases of tangible personal property and digital products but are not applicable to leases, rentals, or services.

If the underlying transaction is excluded (i.e., sale for resale) or exempt (i.e., MM&E) from sales and use tax, the transportation charges are also excluded/exempt because they are part of the cost/sales price of the transaction.

If a purchaser contracts with a third-party for delivery, the charges paid to the third-party by the purchaser are not subject to sales and use tax. Additionally, if a seller contracts with a third-party for deliver, the charges paid by the seller to the third-party are not subject to sales and use tax. However, if those charges are passed on to the purchaser by the seller, the charges paid by the purchaser are considered part of the sales/cost price and subject to sales tax.

For leases and rentals, sales tax is due on the gross proceeds derived from the lease or rental. Transportation charges are not considered part of the gross proceeds. Therefore, separately stated transportation charges associated with the delivery of leased or rented property is not subject to sales and use tax.