Do You Pay Sales Tax on Shipping? How To Manage Shipping Tax

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Reaching new customers across the country can be a rewarding part of business growth. At the same time, you need to master sales tax compliance in states with different requirements. 

One common question for sellers is: Do you pay sales tax on shipping? Although sales tax laws vary, understanding sales tax rules is crucial as your business expands, enters new markets, and sells in different jurisdictions. In states where shipping is taxable, you need to add the shipping fees to the item price and then apply the sales tax percentage to that total.

Learn more about the intricacies and rules governing shipping taxes and how you can ensure you comply with local regulations.

Do you pay sales tax on shipping

Whether or not you pay sales tax on shipping depends on a variety of factors: 

• The product itself

• The delivery method

• The state your business is based in

• The state to which you’re shipping the product 

In more than half of US states, shipping is generally taxable. 

Factors that impact sales tax on shipping

• Product taxability
• Delivery method
• Mixed shipments and proportional taxing
• Handling vs. shipping
• Retail delivery fee
• Nexus thresholds
• Dropshipping and third-party fulfillment

Here are the factors that impact whether and how much shipping tax you have to pay:

Product taxability

Sales tax generally follows the product. If the item is tax exempt—such as certain groceries in some states or medical supplies—the shipping is almost always exempt as well.

Delivery method

The use of a seller-owned or leased fleet versus a common carrier (like USPS, FedEx, or UPS) can drastically change how the tax laws apply. Many states view delivery in your own business vehicle as a taxable service because it’s considered part of the business’s primary operation. Delivery via a third-party carrier is more likely to be exempt if the charges are listed separately.

Mixed shipments and proportional taxing

What happens when a customer buys a taxable t-shirt and tax-exempt groceries? In states that tax shipping, you must determine the taxable portion of the delivery fee, typically based on either weight or cost:

• If the taxable item makes up 50% of the weight, then 50% of the shipping is taxed.

• If the taxable item makes up 50% of the total cost, 50% of the shipping is taxed.

Failing to prorate correctly can lead to over-collection. States generally view overcharging sales tax on shipping as a tax code violation. A pattern of over-collection is a red flag that can trigger a state tax audit.

Handling vs. shipping

In the eyes of most state tax laws, shipping and handling are not the same.

• Shipping is the cost of the carrier, or the postage.

• Handling is labor—the person in the warehouse packing the box. 

Labor is typically taxable as a service in almost every state. If you combine them into a single shipping and handling line item, many states will tax the entire amount because it contains a taxable service element.

Retail delivery fee

A new complication is the retail delivery fee. Started in Colorado and now adopted in various forms by other states, this is a flat fee (e.g., 29¢ per order) applied to any delivery made by a motor vehicle. Unlike sales tax, this fee is often mandatory if the transaction contains at least one taxable item. This is applicable for otherwise tax-exempt customers like non-profit service organizations and medical facilities. However, the fee is generally not triggered if the entire order consists of exempt goods, such as prescription drugs, certain medical devices, or infant supplies. 

Nexus thresholds

You need to collect sales tax if you have a physical or economic nexus in the shipping address state. Many states have a nexus threshold of $100,000 in gross sales, meaning that if you sell more than that within the state, tax is imposed. In some states, the threshold is higher. However, some states also consider the threshold as 200 or more transactions, even if they don’t amount to $100,000 in sales. In some states, such as New York, the threshold is 100 transactions.

Dropshipping and third-party fulfillment

If you use a third-party fulfillment center, you might have a nexus. For example, goods sitting in a warehouse in Pennsylvania create a physical nexus there, even if you lack any presence in the state. You must handle sales tax for those customers according to Pennsylvania’s rules.

States where shipping is generally taxable

In many jurisdictions, shipping and handling are viewed by the state’s tax authority as a necessary component of getting the product into the consumer’s hands, making it part of the total sales price. For out-of-state sellers, this means the sales tax charged must include the delivery fee if the item is a taxable sale. Even if you use a private carrier and list the costs as billed separately, these states almost always impose sales tax on shipping.

In states like New York and Texas, the understanding is that the consumer isn’t just buying the item—they are buying the delivered item. Because the sale isn’t complete until it reaches the shipping address, the entire purchase price, including freight, is subject to local sales tax. Here’s how various states treat tax on shipping:

• Arkansas. Delivery is typically taxable if the items are taxable, while shipment of exempt items is not taxed.

• Connecticut. Shipping and delivery charges follow the taxability of the product. If the item is subject to sales tax, the shipping and delivery fees are also taxable—regardless of whether they are separately listed on the invoice or if you use a third-party carrier. If the item is tax-exempt, the shipping is exempt. 

• District of Columbia. Shipping is taxable regardless of itemization if the goods are taxable.

• Georgia. If you deliver goods using a seller-owned or leased vehicle, the delivery charges are almost always taxable when associated with a taxable sale. Even if the shipping fee is itemized separately on the invoice, the state considers these seller-imposed delivery charges part of the total sales price. 

• Hawaii. Hawaii doesn’t have a traditional sales tax. Instead, it imposes a general excise tax (GET), which is a tax on a business’s total gross income. Because the tax applies to nearly all business activity, shipping and handling fees are considered part of your taxable gross receipts and are almost always subject to GET, regardless of how they are listed on the invoice.

• Indiana. Indiana shipping rules state that shipping is part of a business’s gross retail income and is subject to tax.

• Kansas. Covers shipping, freight, and delivery under the taxable umbrella.

• Kentucky. Kentucky delivery charges and shipping are subject to tax, even if they are billed separately on the invoice. If the product is exempt, the delivery fee typically is too.

• Louisiana. Louisiana laws were updated in 2025 to include transportation charges in the taxable sales price. If the item being shipped is taxable, the shipping and delivery fees are subject to both state and local sales tax, even if they are separately listed on the invoice.

• Michigan. Delivery charges and shipping are generally taxable if the product is taxable and not listed separately.

• Minnesota. Minnesota shipping is taxable if the item is taxable. The only exception is if the delivery occurs after the transfer of title, which refers to the moment legal ownership passes to the buyer. For this to happen, the buyer would have to physically take possession at the seller’s location. 

• Mississippi. Taxable unless the customer arranges their own third-party pickup.

• Nebraska. Shipping is taxable in Nebraska if the shipped item is taxable.

• New Jersey. Taxable if the shipped item is taxable, and mixed orders of taxable and exempt items usually result in the entire shipping fee being taxed.

• New Mexico. Under the gross receipts tax, shipping and delivery are typically considered a taxable component of the sale.

• New York. Shipping and handling are taxable even if itemized on the invoice.

• North Carolina. North Carolina shipping and handling are taxable when part of a taxable sale.

• North Dakota. Shipping is taxable unless the buyer contracts with the carrier themselves.

• Ohio. Ohio law includes delivery charges in the sales price. This means shipping and handling are taxable whenever the item is taxable, even if you list shipping as a separate line item on the invoice. 

• Pennsylvania. If the product is taxable, the delivery is taxable.

• Rhode Island. Shipping is taxable if the article is taxable, regardless of invoice presentation.

• South Carolina. Shipping is taxed as part of a taxable transaction.

• South Dakota. Shipping is generally taxable, and the state uses proportional taxing for shipments containing both taxable and exempt sales.

• Tennessee. Delivery charges—including shipping, freight, and handling—are legally considered part of the sales price and are taxable. If the customer takes possession of the item at your business, the shipping charge is removed from the transaction and is not taxable.

• Texas. Shipping is considered a taxable service if the goods are taxable, while there’s no shipping tax on exempt items.

• Vermont. If the item is taxable, the delivery is too. There’s no tax on exempt items, and tax is due on the taxable portion of a mixed shipment of taxable and exempt goods.

• Washington. Shipping is considered part of the selling price and is taxable, even if the charge is listed on the invoice or delivered by the seller.

• West Virginia. West Virginia shipping is taxable on taxable goods; there’s no tax on shipping tax-exempt goods.

• Wisconsin. Shipping and delivery charges are generally part of the taxable sales price. Mixed shipments are generally proportionally taxed, although the entire shipment is taxed if there’s no breakdown.

States where shipping is generally not taxable

In certain states, you can save your customers money by not charging tax on the delivery portion. However, this usually requires a strict paper trail. In these states, if you fail to show the actual cost of shipping or if you bundle it with handling fees, you might trigger a tax requirement.

The most common requirement in these states is that the shipping fees must be separately stated. In states where shipping is exempt, failing to list those charges separately creates a compliance risk. If your checkout page shows one lump sum for the order total, you may be over-collecting sales tax, applying the tax rate to a delivery fee that shouldn’t be taxed. More importantly, retaining that excess tax rather than remitting it to the state or refunding the customer can lead to penalties or audits, as tax authorities view unremitted collections as a tax code violation.

The following states don’t impose tax on shipping if sellers abide by certain rules:

• Alabama. Exempt if shipping is separately stated and delivered by a common carrier.

• Arizona. Exempt if listed separately on the invoice.

• California. Shipping is exempt if it reflects actual cost, is via a common carrier, and is listed as a separate invoice line item. If you charge $10 but it only costs you $8 to ship, the $2 excess is taxable.

• Colorado. Although shipping is generally exempt if separately listed, merchants must handle any retail delivery fee (a flat per-order fee), which is separate from sales tax. Businesses can choose to charge the fee to the customer as a separate line item or pay the fee themselves on the customer’s behalf. Regardless of who pays, the merchant is responsible for remitting the total to the state. Note that sellers with less than $500,000 in annual sales in the state are exempt from this fee.

• Florida. Shipping is exempt if it is a separate charge and the customer has the option to pick up the item or arrange a third-party pickup.

• Idaho. Shipping is exempt if separately stated on the invoice; freight-in (shipping to a merchant) is taxable.

• Illinois. As long as shipping is a separate line item on the receipt, it’s exempt. 

• Iowa. Shipping is only exempt if separately stated and if the customer has another way to collect the item, like in-person pickup. If the only way to get the product is to pay for shipping, Iowa often considers that shipping fee part of the sale and taxes it.

• Maine. Separately stated delivery charges are generally not subject to sales tax.

• Maryland. Separately stated shipping is generally exempt.

• Massachusetts. Freight and delivery charges are not taxed if they occur after the sale. 

• Missouri. Focuses on whether the delivery is intended as part of the sale. Usually, separately stated shipping is exempt.

• Nevada. Shipping is exempt if separately stated on the invoice.

• Oklahoma. Separately stated shipping charges are exempt.

• Utah. Shipping is exempt if separately stated.

• Virginia. Separately stated shipping and delivery charges are exempt.

• Wyoming. Shipping is exempt if the charge is separately stated. If not itemized, the shipping charges are taxable.

States with no statewide sales tax

Some states don’t have a statewide sales tax, meaning you typically don’t need to collect sales tax on shipping or on the products themselves for residents of these states. However, merchants based in these tax-free states must still collect and remit sales tax when shipping to the taxable states listed above, provided they have met the nexus thresholds in those destination states.

• Alaska. No sales tax, but more than 100 municipalities (like Juneau and Kenai) have a local sales tax that may apply to shipping.

• Delaware. No sales tax, but it imposes a gross receipts tax (GRT) on nearly all business income. Unlike a sales tax, which is paid by the consumer, the GRT is a tax on the total revenue of the business. Legally, this is an internal business expense and cannot be passed to the customer as a separate tax charge on an invoice.

• Montana. No statewide sales tax, although shipping is generally taxable, with an exception for exempt items. 

• New Hampshire. No state or local sales tax on goods or shipping. Businesses based in the state must navigate the business enterprise tax (BET) and business profits tax (BPT). These are taxes levied on a company’s total compensation, interest, and dividends rather than on individual retail sales.

• Oregon. Often considered the most straightforward state for ecommerce because it has no statewide sales tax or local sales taxes.

Managing shipping and sales tax with Shopify

Navigating more than 11,000 local tax jurisdictions in the US is impossible to do manually. The Shopify Tax system simplifies this by using your customer’s location to determine the correct amount of tax in real-time. Shopify Tax automatically collects based on the most up-to-date tax rules, including:

• Categorizing products as taxable goods or exempt

• Applying the correct local sales tax for the destination

• Calculating the tax on shipping based on each state’s specific tax laws

For entrepreneurs, this means you can focus on managing your business while the platform ensures you meet your tax obligations.