There has been recent confusion surrounding delivery charges (freight out) regarding whether a seller is required to charge sales tax. After a recent 2016 Missouri Supreme Court decision on Alberici Constructors, Inc., the Missouri Department of Revenue sent out notices to business owners about the topics of the case and reminded people that delivery charges “may be subject to sales tax”.
These notices were sent because the Department is now required to notify the public if a decision modifies the taxability of an item, and a reasonable person would not have expected the decision based on prior law. The notice stirred up a host of questions as it seems unclear as to the modification to the law.
The Missouri Department of Revenue’s notice does not state that the decision in Alberici Constructors modifies the taxability of an item, but merely warns taxpayers that the decision may require collecting/remitting tax on delivery charges if the charges are intended to be part of the sale.
If delivery charges are “intended” to be part of the sale, then delivery charges are taxable – this has always been the case.
Part of the Sale
There are a number of factors that are relevant to determining whether delivery is intended to be part of the sale, including:
- When title passes from the seller to the purchaser – when ownership of the tangible personal property passes to the customer
- Whether delivery charges are separately stated – separately stating does not alone exempt the charge from tax, however, if you don’t separately state the charge then it’s presumably included in the sale price and is subject to sale tax. Separately stating the charge is a relevant factor, but it is not the determining factor
- Who controls the cost and means of delivery – if your customer arranges the delivery/freight/shipping and gets billed directly, then the charge does not come into play for the seller
- Who assumes the risk of loss during delivery
- Whether the seller derives a financial benefit from delivery – for example, if the seller is not using their own vehicles to deliver and pays a 3rd party, and then marks up the charge on their invoice, it would be subject to sales tax
Missouri Statute/Section 144.010.1(4) defines “gross receipts” as the total amount of the sale price of the sales at retail including any services other than charges incident to the extension of credit that are a part of such sales made by the businesses herein referred to, capable of being valued in money, whether received in money or otherwise…
Missouri Statute 144.605(8) defines “sale price” as the consideration including the charges for services, except charges incident to the extension of credit, paid or given, or contracted to be paid or given, by the purchaser to the vendor for the tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and any amount for which credit is given to the purchaser by the vendor, without any deduction there from on account of the cost of the property sold, the cost of materials used, labor or service cost, losses or any other expenses whatsoever…
These taxing statutes have not changed as a result of the Alberici decision.
In determining whether a delivery charge is a part of the sale transaction, the intention of the parties is the guiding factor – which is what the Alberici Constructors case discussed.
If you have questions about whether or not delivery charges are subject to sales tax for your business, please contact Anders.All Insights