We get asked a lot by our e commerce clients, those that sell their stuff online through eBay, Etsy and other e commerce web platforms, whether they need to pay tax on shipping. They come to us because we know the answer and the answer is simple:
"Yes" and "No"
Confused? Laughing? Have I answered your question?
In Arizona we have what is called a T.P.T or Transaction Privilege Tax. The tax in essence is the cost, or "privilege" of doing business in the state. Gateway Crate and Freight for example pays a tax on the crates and packaging we build in our warehouses or on site at our customers locations.
For our customers who sell online and have us pack and ship their items, it is important for them to understand the tax implications of their sale. The bottom line answer to the question comes in the form of a line on your invoice.
Does your invoice to your customer show freight as a separate line item charge? If it does than that amount is excluded from taxes. If however you offer "Free shipping" and the amount of your item includes the shipping then yes you pay the tax on it.
This is what the Arizona Department of Revenue states in regards to this rule:
When included in the retail sales price, a shipping charge from the manufacturer or wholesaler to the retailer is considered a cost of doing business and is included in the taxable proceeds from the sale. If goods are shipped directly from the manufacturer or wholesaler to the purchaser, a charge for freight may be excluded from taxable gross proceeds if separately stated. Actual freight charged by the retailer to deliver goods to the purchaser is not taxable under the retail classification if separately stated on the invoice.
So lets look at a recent example of an eBay order we packed and shipped for a customer. The customer sold a high end pair of speakers, while negotiating with the buyer, the seller, our client, offered free shipping if the buyer paid him $3,000.
The customer paid $3,000 for the speakers. The problem with offering free shipping to the client is that at this point he cant add an extra line item for the shipping because the transaction was for "Free Shipping".
In this instance the client, or seller now owes the Department of Revenue in Arizona the Tax on $3,000. The shipment cost our client $600 to crate ship and insure the speakers. If he would have negotiated with his client to pay the shipping the Invoice would have read $2400 for the speakers and $600 shipping.
Under this scenario the customer would then be obligated to pay tax on only $2,400 not $3,000. So if you operate an online business remember its not always best to offer "Free Shipping" especially when it comes to paying your taxes to the State.
If you ever have any questions regarding shipping transactions, although we are not tax pros or accountants, we always try to steer our clients in the right direction to find the answers they need.
Gateway Optimum Transportation and Gateway Crate and Freight offer professional crating, packing and shipping services to commercial and residential customers and have a centrally located facility in Tempe, Arizona that serves the greater Phoenix metropolitan area. Give us a call at 480-966-0795 or visit www.gatewayot.com or www.gatewaycrateandfreight.com
"Yes" and "No"
Confused? Laughing? Have I answered your question?
In Arizona we have what is called a T.P.T or Transaction Privilege Tax. The tax in essence is the cost, or "privilege" of doing business in the state. Gateway Crate and Freight for example pays a tax on the crates and packaging we build in our warehouses or on site at our customers locations.
For our customers who sell online and have us pack and ship their items, it is important for them to understand the tax implications of their sale. The bottom line answer to the question comes in the form of a line on your invoice.
Does your invoice to your customer show freight as a separate line item charge? If it does than that amount is excluded from taxes. If however you offer "Free shipping" and the amount of your item includes the shipping then yes you pay the tax on it.
This is what the Arizona Department of Revenue states in regards to this rule:
When included in the retail sales price, a shipping charge from the manufacturer or wholesaler to the retailer is considered a cost of doing business and is included in the taxable proceeds from the sale. If goods are shipped directly from the manufacturer or wholesaler to the purchaser, a charge for freight may be excluded from taxable gross proceeds if separately stated. Actual freight charged by the retailer to deliver goods to the purchaser is not taxable under the retail classification if separately stated on the invoice.
So lets look at a recent example of an eBay order we packed and shipped for a customer. The customer sold a high end pair of speakers, while negotiating with the buyer, the seller, our client, offered free shipping if the buyer paid him $3,000.
The customer paid $3,000 for the speakers. The problem with offering free shipping to the client is that at this point he cant add an extra line item for the shipping because the transaction was for "Free Shipping".
In this instance the client, or seller now owes the Department of Revenue in Arizona the Tax on $3,000. The shipment cost our client $600 to crate ship and insure the speakers. If he would have negotiated with his client to pay the shipping the Invoice would have read $2400 for the speakers and $600 shipping.
Under this scenario the customer would then be obligated to pay tax on only $2,400 not $3,000. So if you operate an online business remember its not always best to offer "Free Shipping" especially when it comes to paying your taxes to the State.
If you ever have any questions regarding shipping transactions, although we are not tax pros or accountants, we always try to steer our clients in the right direction to find the answers they need.
Gateway Optimum Transportation and Gateway Crate and Freight offer professional crating, packing and shipping services to commercial and residential customers and have a centrally located facility in Tempe, Arizona that serves the greater Phoenix metropolitan area. Give us a call at 480-966-0795 or visit www.gatewayot.com or www.gatewaycrateandfreight.com
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