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California online shoppers pay sales tax on shipping and handling

November 03, 2012|By Marc Lifsher
  • Leacroft Green sorts shipments at an Amazon.com fulfillment center in Goodyear, Ariz. Amazon is now collecting sales tax from California customers on shipping and handling charges.
Leacroft Green sorts shipments at an Amazon.com fulfillment center in… (Ross D. Franklin/AP )

SACRAMENTO -- Most Internet shoppers in California know that, since Sept. 15, Amazon.com and other e-merchants, have been required to collect sales taxes for online purchases.

But, what many are just finding out is that Amazon and some competitors also are collecting California's 7.25% base rate plus any local government add-on sales taxes on combined "shipping and handling" charges.

According to California's sales tax collection agency, the Board of Equalization, sales tax should be collected when a seller "makes a combined charge for 'shipping and handling' or 'postage and handling,' " if the invoice does not show the actual cost of the individual delivery.

Shipping charges are not taxable if the goods are carried by a trucking company or the U.S. Postal Service;  the invoice clearly lists shipping or postage as a separate charge; and the cost of shipping billed is not greater than the actual cost of delivery to the customer, the board explains.

When a charge includes more than the exact cost of transporting an item -- say with a combined shipping and handling charge -- the extra revenues and the taxes paid on them can be beneficial both to Amazon's bottom line and the state treasury.

The extra hit on consumers could amount to a few pennies when buying a DVD to a few dollars on an $800 flat-screen television.

Larry Winter, a Culver City heating and air conditioning executive, said he learned about the sales tax on shipping and handling when he recently bought a $9.99 DVD from Amazon. After studying the bill, he realized he'd paid sales tax on shipping and handling.

"The sales tax on freight is a profit center for them," he said. "It adds up when you figure how many packages they do. It's a huge number."

Amazon in its "sales tax requirements" section of its website makes it clear to buyers that the levy applies to more than the price of the product in many of the states where it does business.

"The total selling price of an item will generally include item-level shipping and handling charges, item-level discounts, gift-wrap charges ... " Amazon explained.

A company spokesman declined to elaborate on how shipping and handling charges are calculated.

Amazon is not alone in collecting California sales tax on total shipping and handling charges.

"According to California state law, we are required to charge sales tax on the total order, including shipping and handling," Los Angeles-based Yellow Mountain Imports said on its website.

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