Massachusetts Rules Freight Insurance Charges Are Taxable

Friday, April 19th, 2013

 
 
Share
Link
Massachusetts
General

The Massachusetts Department of Revenue (DOR) recently ruled that separately stated freight insurance charges are not transportation charges; rather, they are part of the gross receipts of sales of tangible personal property and are subject to sales tax. Mass. Ltr. Rul. 13-4 (Dept. of Revenue Mar. 27, 2013).

The business that requested the ruling is a supplier that routinely ships goods to customers via common carrier and automatically adds separately stated charges for freight insurance to those sales. While customers have the option of choosing a common carrier they prefer and waiving the insurance, most customers default to the options arranged for by the supplier. The supplier requested the ruling to determine whether the separately stated freight insurance charges are subject to sales tax.

In Massachusetts, transportation charges are excluded from the taxable "sales price" of tangible personal property when (1) the charges are separately stated and (2) the transportation occurs after the sale of the property is made. Mass. Gen. Laws ch. 64H sec. 1 ("Sales price"). In other words, separately stated charges for transporting tangible personal property after it has been sold are not subject to tax. So, to determine whether the separately stated freight insurance charges are subject to sales tax, the DOR had to determine whether the freight insurance charges are, in fact, transportation charges.

Citing an earlier directive, the DOR explained that its current policy is that any transportation charge that meets all three of following requirements is not subject to tax: (1) It reflects a cost of preparing and moving the goods to a location designated by a retail customer; (2) it is separately stated on the invoice to the customer (not merely on the internal books and records of the vendor), and (3) it is set in good faith and reasonably reflects the actual costs incurred by the vendor. Mass. Directive 04-5 (Dept. of Revenue July 7, 2004). The DOR further explained that "transportation charges" are defined as charges by the seller of tangible personal property for the preparation and delivery of goods to a location designated by the purchaser. According to the DOR, "transportation charges include 'postage,' 'freight,' 'shipping,' 'handling,' 'transportation,' 'shipping and handling,' crating, packing or the like."

The DOR distinguished freight insurance--which protects against the financial loss resulting from damage or loss--from charges for activities that are necessary to prepare the goods for safe shipment and move the goods to the location selected by a buyer. Consequently, the DOR rejected the supplier's claim that freight insurance qualifies as a transportation cost that could be excluded from the "sales price" subject to Massachusetts sales tax.


About TTR

Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.

TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

Marketplace Facilitators of Software Products to be...

Friday, March 15th, 2019 -The Commissioner of Taxation and Finance in New York released an advisory opinion that determined third partie...

Arkansas Rules on Taxability of Repairs and Labor Related...

Wednesday, March 13th, 2019 -The Arkansas Department of Finance and Administration recently released an administrative decision addressing ...

Studio Room Rental for Photography Sessions is Subject to...

Wednesday, March 6th, 2019 -The Missouri Department of Revenue (DOR) has released a letter ruling addressing the taxability of studio room...

Unprocessed Sand Not Taxable in Texas

Monday, March 4th, 2019 -The Texas Comptroller recently released a private letter ruling that found the mining and selling of unprocess...

California to Require Additional Registration and...

Friday, March 1st, 2019 -California recently released a special notice for out-of-state retailers who are required to register with the...

Guided Hunting and Fishing Trips are Taxable in Washington

Wednesday, February 27th, 2019 -The Washington Department of Revenue recently published guidance stating that guided hunting and fishing trips...