Do you charge tax on shipping? This seems like a simple question to answer. It's not. The rules vary by state, based on what's being shipped, how charges are listed on the invoice, and sometimes who's delivering the items.
When determining if shipping is taxable, sellers must follow local rules in the state where buyers receive goods. Since some states always tax shipping, some never tax it, and some tax it sometimes, sellers must navigate a complex array of local rules to avoid penalties.
This guide explains the factors that affect whether shipping is taxable, as well as what the individual state rules are. It also offers tips on how companies can make following these rules easier.
What determines whether shipping is taxable?
In states where shipping is sometimes taxable, a variety of factors determine when the tax applies, including the following:
1) Whether the underlying goods are taxable
While states charge sales tax on most goods, some items are exempt. Groceries, prescription drugs, and certain clothing are examples of commonly exempt items.
In almost all states, when exempt items are purchased and shipped, shipping costs aren't taxable.
However, when the goods being shipped are taxable, almost all states charge tax either all of the time or if sellers don't fulfill certain requirements to make shipping costs non-taxable.
This makes compliance difficult, with sellers forced to decide when shipments are taxable based on what is in the box.
2) Whether the charge is separately stated
In many states, shipping isn't taxable if the cost is separately stated or appears as a distinct line on an invoice.
However, if sellers use bundled pricing, either by grouping shipping and handling or by including the price of shipping in the product itself, shipping costs can become taxable.
Because so many states allow you to avoid tax on shipping just by listing it separately on an invoice, following this invoice convention is always a best practice for sellers.
3) Mixed shipments (taxable and exempt goods together)
Mixed shipments include shipments where some goods being shipped are exempt from tax, and some are taxable. Determining whether to tax shipping costs when sending mixed shipments is always complicated in any state where shipping of non-exempt goods is taxable.
If both taxable and exempt goods are shipped together, sellers may be required to tax the entire shipment or to charge tax only on the percentage of the delivery costs allocated to the taxable property.
In Arkansas and multiple other states, sellers determine what percentage of the shipping cost to tax based on either:
- The price of the taxable vs. non-taxable goods: If taxable products account for $80 of $100 in goods being shipped, customers pay tax on 80% of the shipping costs
- The weight of the taxable property vs the total weight of the shipment: The package weighs 100 pounds, and the taxable items weigh 80 pounds, so the customer is taxed on 80% of the shipping costs.
Minnesota, New York, and New Jersey are all examples of states that apply proportional allocation rules. However, there are nuances. New York, for example, taxes the entire shipment unless the charge for shipping is allocated on the bill between taxable and nontaxable products.
4) Delivery method
Finally, a small number of states apply different rules for the taxability of shipments based on whether you use your own vehicle to deliver or use a common carrier such as USPS, FedEx, or UPS.
For example, in California, delivery charges are taxable when sellers use their own vehicle to deliver taxable items to customers, unless the title to the merchandise transfers to the buyer before delivery.
When states distinguish between delivery methods, most make shipping taxable when items aren't delivered by common carriers (like FedEx or UPS).
Is shipping taxable? How states break down
The table below shows the rules for charging sales tax on shipping or delivery costs in states throughout the U.S.
These rules typically apply to the sale of taxable goods.
With very few exceptions, if only exempt items are being sent, shipping usually isn't taxed. And if the shipment includes exempt and taxable items, generally either the whole shipment is taxed, or a proportional allocation is required.
States that always tax shipping
Only Hawaii charges tax on shipping, even for exempt goods. As the Hawaii Department of Revenue explains, the state does not charge a standard sales tax. It charges a General Excise Tax on gross income of almost all business activities.
In all other states, if all of the goods being shipped are exempt, there is no tax on shipping.
However, a number of states charge tax on all taxable shipments with essentially no way to avoid it, even by separately stating the shipping charges.
States that virtually always charge tax on the shipment of taxable goods include:
- Arkansas
- Connecticut
- Georgia
- Hawaii (which also charges tax on the shipment of exempt goods)
- Indiana
- Kentucky
- Louisiana
- Minnesota
- Mississippi
- Nebraska
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Vermont
- Washington
- West Virginia
- Wisconsin
It's important to note that the rules evolve over time.
For example, Kansas previously treated shipping as part of the purchase price, making it taxable by default. But the rules changed in 2023, and now delivery charges are exempt from tax if separately stated on the invoice. This resulted in Kansas being removed from this list.
By contrast, Louisiana was added to the list due to a 2025 expansion of the definition of sales price to include transportation costs. Now, if sellers contract for third-party delivery, the delivery is taxable if the costs are passed on to the buyer, even if shipping charges are stated separately.
How do mixed sales work in states that always tax shipping?
It's also worth noting that in most of the states that always tax shipping, when transactions include both taxable and non-taxable items, sellers can charge the tax on a proportional basis. This means it applies only to the shipment costs for taxable items, not to exempt ones.
However, if taxable and non-taxable items are bundled, or if a single delivery charge applies to the entire transaction, the tax generally must be paid on the full shipping price.
In Kentucky, for example, if a single delivery charge covers a transaction that includes the sale of taxable and non-taxable products, the entire delivery is taxable. A similar rule applies in New York.
States that never tax shipping
The only states that never charge tax on shipping are the five states with no sales tax:
In all other states, shipping is taxed on taxable goods unless you meet specific requirements, such as separately stating the shipping costs on an invoice.
States where it depends
All of the remaining states charge tax on shipping, sometimes. States that fall into this category include:
- Alabama
- Arizona
- California
- Colorado
- Florida
- Idaho
- Illinois
- Iowa
- Kansas
- Maine
- Maryland
- Massachusetts
- Michigan
- Missouri
- Nevada
- Oklahoma
- Virginia
- Washington D.C.
- Wyoming
The most common factor that determines if shipping is taxable in these states is whether the shipping costs are stated separately. If they are, then sellers usually will not have to charge tax on shipping costs.
Some states impose additional requirements beyond just listing charges separately, though. In Florida, for example, Rule 12A-1.045 of Florida's Administrative Code says the buyer must have a way to avoid delivery, like picking up the item, in order for shipments to be exempt from tax.
Some of these states also make delivery charges taxable, even if they are separately stated, if sellers use their own vehicles to deliver items instead of arranging delivery by a common carrier.
That's the case in California and Maine, while South Carolina's Revenue Ruling #19-9 establishes very complicated rules if a seller delivers in their own vehicle.
What this means for online sellers
As you can see, the rules for when you charge sales tax on shipping can become very complicated—especially when you realize that you need to understand the requirements in every state where you have nexus and must collect sales tax.
Here's what online sellers need to know about sales tax:
The risk of getting it wrong
Failure to charge the correct sales tax can result in serious consequences, including back taxes, interest, and penalties of up to 25% of the unpaid tax liability. You also risk an audit. Unfortunately, these penalties apply even if the error you make relates to tax on shipping.
Many sellers don't research the rules for taxation of shipping costs in all the states where they have economic nexus or physical nexus, as this issue isn't on their radar. This could mean sellers charge the incorrect tax for thousands of transactions without realizing it, creating significant tax liabilities.
Best practices for handling sales tax on shipping
To reduce the risks of errors related to charging sales tax on shipping:
- List shipping costs separately on all invoices, as this is a key factor in many states in determining if shipping is exempt from tax.
- Track which products are taxable in states where you have nexus, as you typically do not have to charge tax if you are shipping only exempt items
- Research the rules in all states where you have nexus to understand when you must charge tax on shipping costs
- When you ship orders with exempt and non-exempt items, determine if the state allows for proportional allocation and allocate tax accordingly
- Follow destination-based rules, not origin-based rules, as this is usually what's required. In other words, you usually must follow the tax rules on shipping costs that apply in the state where you are sending the item, not in the state where the item is coming from.
These best practices can reduce the risk of becoming responsible for a large unpaid sales tax bill due to mistakes in collecting taxes on shipping charges.
If you use a dropshipping model, the rules for who collects tax on shipping get even more complex. See our guide on dropshipping and sales tax to learn more.
Why manual tracking doesn't scale
Unfortunately, it is not practical to monitor the sales tax rules in dozens of states. In fact, once your company has established nexus in even just 10 states, it becomes both challenging and legally risky to try to manually keep track of the rules in all of them.
Automated compliance tools eliminate this obligation. With the right tools, the correct rules are always applied to determine when tax is charged on shipping and at what rates. This saves you time and significantly reduces your risk of errors that lead to audits and penalties.
>> Read More: Ecommerce Sales Tax Guide
How Numeral can help you handle sales tax on shipping
Numeral makes sales tax compliance effortless. Numeral's real-time tax calculation engine:
- Accounts for each state's rules on whether shipping charges are taxable
- Determines if the underlying goods are taxable
- Applies tax at the correct tax rates to both the items you're selling and to taxable shipping costs.
When you partner with Numeral, you don't have to manually research whether Alabama, Arkansas, Washington, or any other state charges tax on shipping, or which has rules on things like which shipping vehicles can be used. Numeral will apply the correct rule in all circumstances.
Numeral doesn't just charge the correct tax in every transaction, either. We offer free nexus tracking, provide auto-registration and auto-filing service when you establish nexus, and file and remit payments on your behalf across 13,000+ jurisdictions in 70+ countries.
US-based tax experts on our team also review every return before submission, and we back up our work with the Numeral Guarantee. This means we'll cover penalties and interest if our error leads to a late filing or an audit.
To find out more about how we can help you manage sales tax in five minutes a month, book a demo today.
Sales tax on shipping FAQs
Do you always pay sales tax on shipping?
You don't always pay tax on shipping. Some states require sellers to always charge tax when shipping taxable goods. Others don't require tax on shipping costs, even if goods are taxable, as long as requirements are met, like shipping charges being listed separately on an invoice.
Is shipping and handling taxable?
Shipping and handling charges are sometimes taxable. Whether tax is owed on these costs depends on the state, whether the items being sent are taxable or exempt, and in some cases, how invoices are presented and what vehicle is used to deliver the items.
Is shipping taxable if the product is exempt?
If a product is exempt, shipping is not generally taxable. There are very limited exceptions to this rule, though. Virtually all shipments are taxed in Hawaii. And if there's one bundled delivery charge for taxable and non-taxable items, the entire cost of shipping is usually taxed.
How do I know if I'm collecting shipping tax correctly?
You must research the rules that apply to tax on shipping costs to determine if you're collecting shipping tax correctly. Typically, the applicable rules are the ones in the location where the item is being sent.
The rules could determine if shipping costs are taxable based on many factors, including the type of goods being sent and whether shipping charges are separately stated in invoices.
What's the difference between shipping and handling for sales tax purposes?
Handling is the preparation of goods for shipment. Shipping is the transport of goods. In some states, there are different rules for when handling is taxed versus when shipping is taxed.
Is sales tax based on the shipping address or the billing address?
Sales tax is usually based on the shipping address where the item is being delivered.
Do I collect sales tax on shipping for out-of-state orders?
If you have nexus in a state where you're sending orders, or are registered to collect sales tax in that state, you must collect sales tax on taxable items that you send to that state. You establish nexus when you have a sufficient amount of physical or economic connections with a state.
Does shipping taxability change if I use my own vehicle vs. a carrier like UPS or FedEx?
In some states, the rules for taxability of shipping charges vary if you use your own vehicle versus a common carrier. This is the case in Alabama and California, among other states.
It is important to understand the local rules for when to charge taxes on shipments to avoid collecting an incorrect amount of tax from customers.
