Retail Sales and Use Tax
Shipping and handling charges; Mark-up of delivery charge
Taxability of Persons and Transactions
September 28, 2000
Re: Request for Ruling: Retail Sales and Use Tax
This will reply to your request for a ruling concerning the application of the retail sales and use tax to shipping and handling charges. I apologize for the delay in responding to your request.
****** (the "Taxpayer") manufactures and sells business apparel. The Taxpayer ships to customers via common carrier, and the shipping charges are separately stated on customer invoices. Shipping terms are F.O.B. origin. The Taxpayer asks how the sales and use tax applies to shipping charges that are "marked up" and how the tax applies to shipping versus handling charges. Shipping Versus Handling Charges
Code of Virginia § 58.1-609.5(3) provides an exemption from the sales and use tax for "[t]ransportation charges separately stated." Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 interprets this exemption. Transportation and delivery charges are defined in Title 23 VAC 10-210-6000(B) as:
charges for delivery from the seller to the purchaser, commonly known as "transportation out," and include postage or common carrier charges. Transportation and delivery charges do not include charges from a manufacturer to a retailer's place of business relative to purchases for resale, nor do they include handling charges.
Provided the Taxpayer separately states shipping charges on customer invoices, such charges are exempt from sales and use tax. Handling charges are subject to the tax. When shipping and handling charges are billed together as one charge, the entire charge is subject to sales and use tax. I have enclosed a copy of Public Document 97-79 (2/18/97) which explains the department's policy with respect to shipping versus handling charges.
Mark Up of Shipping Charges
The enclosed copies of Public Documents 96-95 (5/16/96) and 95-253 (9/11/95) address the mark up of shipping or delivery charges. The department generally recognizes the exemption for shipping charges when such charges are billed to customers at actual cost. When shipping charges are marked up to generate additional revenue, the shipping charge is considered taxable. However, the department has ruled that shipping charges that are not billed at actual cost but are intended to approximate actual shipping charges are exempt if there is no intent to generate revenues that exceed actual shipping costs.
If you have any questions concerning this ruling, please contact **** at ****.
Danny M. Payne