How does shipping differ from the standard taxability of products and services?
The taxability of a product or service is either taxable or non-taxable. Shipping, however, can be one of three scenarios:
- Not taxable
- Taxable
- Taxable ONLY IF the product shipped is taxable
- Almost all jurisdictions fall under this category
Other factors can also affect the taxability of shipping, such as:
- When does the buyer take responsibility for the goods? (FOB Origin vs FOB Destination)
- Is the shipping charge mandatory or optional?
- Is the shipping charge just for shipping, or does it include handling?
- How are the goods shipped? Via common carrier or the vendor’s own vehicle?
Because of the complexity, the CereTax engine uses a separate content model to address the taxability of shipping.
Where there are multiple items, Taxable and Non-Taxable, on an invoice, all shipping costs are allocated to the items on an invoice. For example, an invoice has the following:
- 1 taxable item for $40
- 1 non-taxable item for $60
- 1 shipping charge for $10
The $10 shipping charge will be allocated proportionally to the 2 lines on the invoice:
- 40%
- In states that tax shipping outright, the $4 will be taxable
- In states that do NOT tax shipping, this $4 allocation will be non-taxable
- In states that tax shipping only if the product shipped is taxable, the allocation will increase the tax base of the item shipped by $4 and the result will be that the $4 is taxable
- 60%
- In states that tax shipping outright, the $6 will be taxable
- In states that do NOT tax shipping, this $6 allocation will be non-taxable
- In states that tax shipping only if the product shipped is taxable, the allocation will increase the tax base of the item shipped by $6 and the result will be that the $6 is NOT taxable
The example provided here is an illustration of how CereTax handles the taxability of shipping. Keep in mind there could be other factors not directly related to how the product is shipped that can affect how shipping is calculated. For example, some states have a threshold for clothing before tax is calculated. Shipping costs add to the price and can result in a transaction being taxable because the item price exceeds the threshold once shipping is included.
For additional guidance reviewing shipping charges, please see article Utilizing the Transactions Screen, section Transaction Navigation and Troubleshooting.
US Taxability Matrix for Shipping and Shipping & Handling
As of February 1, 2025
US Taxability Matrix for Insurance & Handling
As of February 1, 2025
Canada Taxability Matrix for Shipping and Shipping & Handling
As of February 1, 2025
Canada Taxability Matrix for Insurance & Handling
As of February 1, 2025
