Are shipping charges taxable?


I purchase products and resell them, adding services that relate to computers and technology. For example, I might purchase a laptop, install custom software and settings according to my customer's industry.

In the course of such a transaction, I incur expenses for the product, its shipping, and sometimes tax (I am not set up as a non-taxable reseller in this example).

When I bill my customer, I've been struggling with the "correct" way to handle the shipping charges. I charge tax on the product, which is not marked up. I charge tax on my time as a service. Finally, I add the shipping costs as a non-taxable item to the invoice.

Is this the accepted way to handle shipping charges?

Background: I am more of a programmer than a businessperson. I use Quickbooks online and have a very small customer base.

Tax Accounting Shipping

asked Sep 29 '11 at 11:40
J Yelton
113 points

1 Answer


Is this the accepted way to handle shipping charges?

It depends on which shipping charges you are referring to. This is how I would do it:

  1. You purchase a laptop online from ABC Corp. Let's assume the price of the laptop is $1000 and you pay a $15 shipping charge to the online seller (ABC Corp). Let's also assume that your state has a 5% sales tax. The total cost to you is $1065 = [($1000 x 5%) + $15]. This is your Cost of goods sold (COGS). The sales tax you pay the seller is tax the seller is collecting on your behalf, which he must then send to the government. This is not revenue that he gets to keep.
  2. You receive the laptop, service it per your customer's specifications, and prepare it for delivery to the customer. Let's assume your labor to service the laptop comes to $500. Let's also assume that your customer is not local, so you are shipping the laptop to him, and it will cost $15 to ship the laptop. You will bill the customer $1658.25 = [(($1065 for the laptop + $500 for service) X 5% tax) + $15 for shipping]. This is assuming that 1) your state charges sales tax on services, as you stated in your question, and 2) you don't markup the cost of the laptop, as you stated in your question.

Note, that you can charge the customer whatever you want for the laptop. You can charge them what it cost you, more, or less. I would at a minimum include your shipping costs and taxes in the price of the laptop.

To summarize: Include the shipping costs associated with the initial purchase of the laptop in the price to the customer. This means you will tax that shipping charge. If you have to ship the laptop to your customer, add that shipping charge as a separate line item in the bill, and do not tax it.

I hope that makes sense.

answered Oct 1 '11 at 09:05
Zuly Gonzalez
9,194 points

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