Is a mandatory freight charge a retailer passes on to customers subject to Missouri sales tax?

Plain-English summary

The Missouri Department of Revenue ruled that a retailer's mandatory freight charges -- passed on to customers for items the retailer had to special-order from outside its own inventory -- are subject to Missouri sales tax.

Under 12 CSR 10-103.600(1), a bundled sale of tangible personal property and a nontaxable service is fully taxable if the true object of the transaction is the transfer of tangible personal property and the two charges aren't stated separately. More specifically, 12 CSR 10-103.600(3)(A) draws a bright line: if the customer is required to pay a service charge as part of the sale price of the goods, the entire charge is taxable, full stop. If the service charge is optional and separately stated, only the goods portion is taxed. Here, the retailer required customers to pay the freight fee whenever it had to order materials from outside its inventory -- it wasn't optional or broken out as a true add-on the customer could decline -- so under the regulation's mandatory-charge rule, the whole freight fee is baked into the taxable sale price.

What this means for you

Retailers who pass through delivery or freight costs

Whether your freight/delivery charge is taxable often comes down to one question: is the customer required to pay it as part of buying the item? If yes, the charge is part of the taxable sale price regardless of how you label it on the invoice. To have a chance at treating a delivery charge as nontaxable, it generally needs to be genuinely optional and separately stated, not a mandatory pass-through cost.

Businesses that special-order inventory for customers

If you routinely order items you don't stock and pass the shipping cost on to the customer as a required fee, that fee is not a separate nontaxable service in Missouri's eyes -- it's folded into the taxable price of the goods, the same as if you'd simply built the shipping cost into your list price.

Accountants and tax professionals

Review how freight and delivery charges are billed on invoices for retail clients: mandatory, bundled charges are taxable; charges that are both optional and separately stated on the invoice have a better argument for nontaxable treatment under 12 CSR 10-103.600(3)(A).

Common questions

Q: If I list the freight charge as a separate line item on the invoice, is it automatically nontaxable?
A: Not by itself. The regulation requires the charge to be separately stated AND not required as part of the sale -- meaning the customer must have a real option to decline the freight/delivery service. A mandatory charge is taxable even if it's shown on its own line.

Q: Would this ruling be different if freight were optional and customers could arrange their own shipping?
A: Based on the regulation the Department cited, yes -- if the service charge isn't required as part of the sale price and is separately stated, the service portion would not be taxable. This ruling's facts involved a mandatory charge, so it doesn't test that scenario directly.

Q: Does this apply to all delivery and shipping charges in Missouri, not just freight on special orders?
A: The regulations cited (12 CSR 10-103.600(1) and (3)(A)) apply generally to bundled tangible-personal-property sales with a service component, not just freight -- but this specific ruling addresses only this retailer's mandatory freight-on-special-orders fact pattern.

Q: Can another retailer rely on this ruling for its own freight charges?
A: No. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years, and only while the facts and law don't change. Another retailer's billing practices (mandatory vs. optional, bundled vs. separately stated) could change the outcome.

Citations and references

Statutes and regulations:

• Section 144.020.1, RSMo (imposition of sales tax on retail sellers)
• 12 CSR 10-103.600(1) (taxability of bundled tangible personal property and nontaxable services)
• 12 CSR 10-103.600(3)(A) (taxability of mandatory vs. separately-stated service charges)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8352

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated March 13, 2025.

The facts as presented in your letter ruling request and subsequent phone call are summarized as follows:

Applicant sells tangible personal property and occasionally needs to order additional materials from outside of their inventory. Applicant is charged a fee for freight on these items, which they then add to the charge to their customer as part of the final price of the transaction.

ISSUE 1 :

Are Applicant’s charges associated with freight on delivered materials subject to sales tax?

RESPONSE 1 :

Yes. Applicant’s charges associated with freight on delivered materials is subject to tax.

Section 144.020.1, RSMo. provides “[t]ax is hereby levied and imposed upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state.”

Missouri Code of State Regulations 12 CSR 10-103.600(1) provides, in relevant part:

The sale of a service is not subject to tax unless a specific statute authorizes the taxation of the service. When a sale involves both tangible personal property and a nontaxable service, the sale of the tangible personal property will be subject to tax, and the service will not be subject to tax, if the sale of each is separate. When the sale of tangible personal property and a nontaxable service are not separable, the entire sale price is taxable if the true object of the transaction is the transfer of tangible personal property. None of the sale price is taxable if the true object of the transaction is the sale of the nontaxable service.

Missouri Code of State Regulations 12 CSR 10-103.600(3)(A) provides:

1. If the purchaser is required to pay for the service as part of the sale price of tangible personal property, the entire sale price is subject to tax.

2. If the purchaser is not required to pay the service charge as part of the sale price of the tangible personal property, the amount paid for the service is not subject to if the charge for such service is separately stated. If the charge for the service is not separately stated, the entire sale price is subject to tax.

Applicant charges its customers for the cost of freight on items they don’t have in inventory, and it is mandatory. Therefore, the charge for the cost of freight is included in the total sales price and is subject to sales tax.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.   If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.   For this reason, the interpretation set forth above should be reviewed on a regular basis.   Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Associate Counsel J. Ross Shelton, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.

Sincerely,

Trish Vincent