Does a retailer have to charge Kansas tax on the shipping and handling it bills to customers?

Plain-English summary

A retailer asked whether it must charge Kansas tax on the shipping and handling it bills its Kansas customers. The Department said yes — shipping and handling are taxable for both Kansas sales tax and Kansas use tax, as a matter of statutory definition.

Sales tax: it's built into "selling price" and "gross receipts." The tax base for Kansas sales tax is "gross receipts," and the statutes define those terms to sweep in freight. "'[G]ross receipts'" means "the total selling price . . . from sales at retail" (K.S.A. 79-3602(h)), and "'[s]elling price' is defined as: 'the total cost to the consumer exclusive of discounts allowed and credited, but including freight and transportation charges from the retailer to the consumer'" (K.S.A. 79-3602(g)). The Department underscored the point: "the tax base for Kansas sales tax includes: 'freight and transportation charges from the retailer to the consumer.'" The imposition itself is K.S.A. 79-3603(a) (tax on the gross receipts from retail sales of tangible personal property).

Use tax: the regulation is explicit. For use tax, "[t]he actual cost of transportation from the place where the article was purchased to the person using the same in this state is taxable as part of the consideration and purchase price. Transportation costs means freight, express, parcel post, or other hauling charges[, and] shall include charges for crating, packaging and preparing tangible personal property for shipment" (K.A.R. 92-20-4). The Department noted this regulation survived a constitutional challenge in J.G. Masonry, Inc. v. Department of Revenue, 235 Kan. 497, 680 P.2d 291 (1984), and still governs.

Bottom line: you cannot separately state shipping and handling to make it tax-free in Kansas. Whether the transaction is taxed as a Kansas sale or as a use, the freight and handling the retailer bills are part of the taxable amount.

What this means for you

Retailers billing Kansas customers

Include shipping and handling in the amount you tax. Separately stating the freight does not exempt it — by statute, the taxable selling price and gross receipts include freight and transportation charges from the retailer to the consumer. Charge Kansas sales tax on the combined total of goods plus shipping and handling.

Out-of-state and use-tax situations

The same result applies on the use-tax side. K.A.R. 92-20-4 folds transportation costs — including crating, packaging, and handling to prepare goods for shipment — into the taxable purchase price. So freight does not escape tax merely because the transaction is subject to compensating (use) tax rather than sales tax.

The rule is a definition, not a discretion

Because freight is written into the statutory definitions of "selling price" and "gross receipts," this is not a case-by-case judgment call. Build shipping and handling into your taxable base as a default.

Common questions

Q: Are shipping and handling charges taxable in Kansas?
A: Yes. The Department ruled they are part of the taxable base for both sales and use tax. For sales tax, "selling price" and "gross receipts" include freight (K.S.A. 79-3602(g), (h)); for use tax, K.A.R. 92-20-4 includes transportation and handling in the purchase price.

Q: Can I avoid tax by listing shipping separately?
A: No. The charges are taxable because the statutory definition of the tax base includes freight and transportation charges from the retailer to the consumer, whether or not they are separately stated.

Q: Does this apply to use (compensating) tax too?
A: Yes. K.A.R. 92-20-4 makes the actual cost of transportation — plus crating, packaging, and handling — part of the taxable consideration and purchase price for Kansas use tax.

Citations and references

• K.S.A. 79-3603(a) — imposes Kansas retailers' sales tax on the gross receipts received from the sale of tangible personal property at retail in the state; the imposition the definitions of "gross receipts" and "selling price" measure.
• K.S.A. 79-3602(h) — defines "gross receipts" as the total selling price or amount received from sales at retail, establishing the sales-tax base.
• K.S.A. 79-3602(g) — defines "selling price" as the total cost to the consumer, including freight and transportation charges from the retailer to the consumer, so shipping is part of the taxable amount.
• K.A.R. 92-20-4 — Kansas use-tax regulation making the actual cost of transportation (freight, express, parcel post, other hauling) plus crating, packaging, and handling part of the taxable consideration and purchase price; upheld in J.G. Masonry, Inc. v. Department of Revenue, 235 Kan. 497, 680 P.2d 291 (1984).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2000-034

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 3, 2000

XXXX
XXXX
XXXX

RE: Your letter of June 2, 2000

Dear XXXX:

I have been asked to answer your letter that we received last month. In it, you ask if you are required to tax shipping and handling charges when you bill your Kansas customers. Please be advised that you are. Shipping and handling charges are subject to Kansas sales and use tax as a matter of statutory definition.

The Kansas retailers’ sales tax act makes shipping and handling taxable by including them in the controlling definitions for “gross receipts” and “selling price.” These terms establish the tax base for sales tax. The tax base for goods being sold is the total amount that is billed for the goods. This amount is then multiplied by the sales tax rate to yield, as the product, the sales tax that is due or owing. The terms “tax base” and “measure of tax” are often used interchangeably. In Kansas, the tax base for sales tax is “gross receipts.” see K.S.A. 79-3603(a) through (ggg)(“there shall be collected and paid a tax at the rate of 4.9% . . . upon: (a) the gross receipts received from the sale of tangible personal property at retail within this state.”); K.S.A. 79-3602(h).

The statutes define “gross receipts” to mean: “the total selling price or the amount received as defined in this act, in moneys, credits, property or other consideration valued in money from sales at retail within this state. . . .” K.S.A. 79-3602(h)(emphasis provided). “Selling price” is defined as: “the total cost to the consumer exclusive of discounts allowed and credited, but including freight and transportation charges from the retailer to the consumer.” K.S.A. 79-3602(g)(emphasis provided). Thus, the tax base for Kansas sales tax includes: “freight and transportation charges from the retailer to the consumer.”

Shipping and handling charges from the retailer to the consumer are also part of the tax base for Kansas use tax. One of our use tax regulations explains: “The actual cost of transportation from the place where the article was purchased to the person using the same in this state is taxable as part of the consideration and purchase price. Transportation costs means freight, express, parcel post, or other hauling charges. It shall include charges for crating, packaging and preparing tangible personal property for shipment.” K.A.R. 92-20-4. This regulation withstood a constitutional challenge in J.G. Masonry, Inc. v. Department of Revenue, 235 Kansas 497, 503-8, 680 P.2d 291 (1984), and continues to explain the application of the Kansas use tax law to shipping and handling charges.

I hope that my letter adequately explains the law in this area. If you need to discuss this letter or anything else, please call me at (785) 296-3081. This is a private letter ruling and is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 07/24/2000 Date Modified: 10/10/2001

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