Tax calculation preferences explained

Choosing your tax preferences

• In ShipCompliant, go to Tools, then click Tax Preferences.
  
  
  
  
• You can select tax preferences for every state in the United States. The tax preference options that appear in the dropdowns for each state vary depending on the state's tax rules and requirements.
  • For example, Delaware does not have sales tax, so No Tax is the only option for onsite and offsite orders.
• The default onsite and offsite preference for each state is the most common selection, and is marked with an asterisk (*). The defaults may change slightly depending on if you have the Nexus checkbox selected for the state.
  
  

If you are unsure of your tax preferences, review any documents you’ve received from the states, or call the state for further guidance.

• Click Apply Tax Preferences to save your updates.
  
  

Tax preference selection options

• No Tax: self-explanatory.
• Base State Rate: includes the state-wide taxes that apply to your product types.
• Local Taxes: includes the state tax and standard local taxes (fully managed by the state).
• Economic Nexus: includes the state tax, standard local tax, and state-administered local jurisdiction taxes. This excludes any tax administered by local jurisdictions (where taxpayers must register with and pay the jurisdiction directly).
• Premises: available only for the state where your business is located.
  • This rate can be applied to either offsite, onsite, or both.
  • Pickup orders will also use the premises rate when specified. Read more about pickup orders in this article.
  • The shipping address for the order must be an in-state address to be applied.
  • To apply the premises rate:
    • Visit the Tax Preferences page and enter your premises rate at the top of the page.
      
      
      
      
    • Select Premises from the dropdown next to the state where your business is located (indicated by under the nexus column).
      
      
      
      

• Single Local Use Rate: One state (Texas) offers remote sellers the ability to collect and pay tax at a single rate (as opposed to a variable rate for each local jurisdiction).
• Voluntary collection: One state (Louisiana) offers a special voluntary collection (and remittance) rate for remote sellers who don’t meet the economic nexus requirements to remit state and variable local taxes.

Collecting tax on freight

Defining freight

Freight, including shipping and handling charges, must be specified in your ShipCompliant order data to meet tax compliance requirements.

• To be considered freight: 
  • Freight charges should only include costs related to packaging and transporting the product to the customer.
    • In other words, freight charges shouldn’t be higher than the actual cost of shipping and handling. What was charged to you by your carrier and your logistic service is the most you should charge the customer.
  • Freight charges should be separately listed from the cost of wine or other merchandise on your invoices.
    • If you advertise as shipping included, if you include handling service fees with the freight cost, or if you charge the customer more than what you paid to ship the order:
      • You should not consider this amount to be freight.
      • Instead, associate the shipping included amount with a new product in your account, created with a General Merchandise product type.
        • Watch this short video about ShipCompliant products for help with adding a new product such as General Merchandise.

Taxing or not taxing freight

Freight may or may not be subject to sales tax, depending on several factors:

• The type of product(s) being shipped.
  • Freight charges will often be either taxable or exempt based on the taxability of the goods included in the shipment.
  • There are, however, some states where freight charges are never subject to sales tax.
• The state being shipped into.
  • For the states where freight is either always or never taxable, ShipCompliant will indicate the proper taxability.
  • There are some states where the taxability of freight depends on whether the freight charges are an inseparable part of the cost to the consumer, and therefore taxable, or when they are a separate charge, and therefore exempt.
    • The general factors that determine the separability of freight include:
      • Providing for a pick-up option for customers (even if the customer is several states away from the pick-up location).        
      • Separately listing all freight charges on invoices.        
      • Charging no more than the actual cost of transportation and handling for freight, as assessed by the carrier or other logistics services.
    • For these states (where the taxability of freight can vary), there’s an option for users to select whether or not they meet the special criteria listed earlier, and whether or not tax should be assessed on freight costs.
      • Select or deselect the boxes under Collect Tax On Freight on the Tax Preferences page, depending on your preferences.
        
        
        
        
    • If you ship into these states, determine whether your sales practices would require you to assess sales tax on freight charges.
      • In these states, Collect Tax On Freight defaults to do not collect; select the checkbox if you’d like to include freight charges when calculating sales taxes in that state.

Your tax preference settings will affect the way that your reports are calculated. For example, freight charges are either included or not included in taxable revenue, depending on your Collect Tax On Freight settings.

Calculating tax for third party integrations

With few exceptions, if your eCommerce or POS system is an integrated partner of ShipCompliant, your tax preferences dictate the rates used to calculate tax in real time at the time of purchase, as long as shipping is active/enabled for that state.

ShipCompliant will return specific tax calculations for all API calls based on product (wine, food, freight, etc.) and location.

You can check the rates that will be returned via these integrations by using the tax rate lookup tool to search rates by address. You can also view multiple rates at once by searching for just the zip code or state.