Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2016
Sales and Use Tax Annotations
557.0000 TRANSPORTATION CHARGES—Regulation 1628
557.0003 Actual and Average Shipping Costs. A taxpayer operates a catalog mail order business in California selling to customers in every state. When an order is received at the taxpayer's California location, the merchandise is shipped directly to the customer by common carrier from a central warehouse located outside California. A delivery charge, based uniformly on merchandise price and not on destination, is added to the purchase price and is separately stated. The catalog and order blanks do not state when title to the goods passes to the purchaser.
The taxpayer does not charge its California customers for California sales or use tax on the separately stated delivery charges that it has added on to the purchase price of the goods sold. Instead, it has reported and paid tax measured by the difference between the total delivery charges billed to its California customers and the total amount charged by the carrier for such shipments for the same reporting period.
The taxpayer may not average out its transportation sales for the reporting period and pay tax only on the difference between the total amount billed to its customers and the total amount of its transportation cost for the reporting period. For example, if the taxpayer charges $10.00 for transportation on $100.00 sale, the transportation charges for these sales are excluded as follows:
(1) Merchandise price $100.00 plus $10.00 transportation charge. The actual cost of the transportation billed to the retailer is $12.00. Only the $10.00 is excludable.
(2) Merchandise price $100.00 plus $10.00 transportation charge. The actual cost of the transportation is $3.00. Only the $3.00 actual cost is excludable as a nontaxable transportation charge.
The result of these two transactions is that the total sales the taxpayer should report on line 1 of the sales and use tax returns should be $220.00. The taxpayer is entitled to take a deduction of $13.00 transportation charges. 8/16/95.