Should you collect sales tax on shipping charges in Ohio?
March 17, 2017 | Sales Tax
By Suzanne Kearns
If you’re a remote seller who does business in Ohio, chances are you’ve wondered whether or not you should collect sales tax on shipping charges.
It’s a good question. Ohio, like many other states, has very specific guidelines about how to collect sales tax on shipping charges. But before we tell you the rules, let’s talk about how the Ohio Department of Taxation defines shipping.
The definition of shipping in Ohio
In August of 2003, Ohio changed its rules and made delivery charges a part of the sales price whenever tangible personal property is sold. The Ohio Department of Taxation defines “delivery charges” as “charges by the vendor for preparation and delivery to a location designated by the consumer of tangible personal property or a service, including transportation, shipping, postage, handling, crating, and packaging.” In other words, whatever expenses you charge your customers for getting your product to them are a part of delivery charges.
However, it’s important to note that delivery charges made by a third party vendor are not subject to sales tax in Ohio.
Do I collect sales tax on shipping for taxable products?
If you’re shipping taxable products to your customers and are charging them a delivery fee, you should collect sales tax on that fee. For example, if you sell locally manufactured toys for $100 and charge a $20 shipping fee, you should collect sales on the entire $120.
Do I collect sales tax on shipping for non-taxable products?
On the other hand, if you sell products that aren’t subject to sales tax, you shouldn’t collect tax on the shipping charges either. For instance, if you ship a box of Dum Dums to a customer and the invoice includes a $10 charge for the candy and a $5 charge for shipping, you should not collect sales tax on any of it.
What if my shipment includes both taxable and non-taxable products?
Sometimes packages include a combination of products that are subject to sales tax along with products that are tax-exempt. In those instances, the Ohio Department of Taxation asks vendors to allocate the delivery charge on an invoice that includes separately stated taxable and exempt products using one of these two ratios:
- The ratio of the total sales prices of all taxable property in the shipment to the total sales prices of all property in the shipment; or
- The ratio of the total weight of the taxable property in the shipment to the total weight of the nontaxable property in the shipment.
A word about refunds and sales tax on shipping
Ohio states that shipping charges are a part of the total price of a sale, and that affects how a seller can issue refunds to buyers. According to the rules, you are only allowed to refund the sales tax if the entire tax that you collected is refunded. In order to do that, you would have to refund the shipping charge.
For example, if the buyer of the manufactured toys shipped them back to you and asked for a refund, the only way you could refund the sales tax would be to refund the entire sale, including the $20 shipping charge. If you decide not to refund the shipping charge, you won’t be allowed to refund any of the sales tax. In other words, the only way you can refund the sales tax on a return is to refund the entire amount of the sale. According to the Ohio Administrative Code, the only exceptions the state allows is if the tax was collected illegally or erroneously.
Ohio is a little tricky when it comes to charging sales tax on shipping, but if you follow the rules listed above, you’ll stay in compliance.
What are your thoughts on this topic? Share with us in the comments below.