USA Finding Help before April on Shipping, Freight, & Sales Tax for an Online Kansas Business:

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Hello! I am in a bit of a pickle. I started an online, single member, sole-proprietorship taxed, dropshipping, retail LLC just in 2019. Both the business and I live in Kansas. Just this month the business made its first sale to me as a test run. ;) The business charged me $29.99 for the purchase and $2.25 for taxes. Both of which sums I have paid to it.

Then, the business sent an email to its Oklahoma distributor ordering the product for $24.99. The Oklahoma distributor added a separate charge of $8.85 to the order to pay for freight. Oklahoma has this shipping tax rule: Oklahoma- Separately stated charges for the delivery of direct mail are exempt in Oklahoma, whether the contents of the package are taxable or exempt. Shipping and handling charges included in the sale price of tangible personal property are taxable.

Well, Kansas is a destination-based tax state, rather than origin-based, so we would follow Oklahoma’s shipping sales tax rules, and because the distributor separated their purchase and shipping charges I’m pretty sure my business does not have to pay sales tax on the shipping of this purchase by the distributor to the business.

Moving on, Kansas has this rule: Kansas- Generally, shipping and handling charges are considered part of the selling price in Kansas; as such, they’re taxable for taxable sales and exempt for exempt sales.

I had not been going to charge ANY shipping to my customers at all, but because of this rule I think that if you don’t separate a shipping charge from your purchase charge, then automatically part of your purchase charge becomes a shipping charge. And, since Kansas does taxes based on destination, that part of the purchase that counts as shipping will need to be charged a different shipping sales tax rate based on the different states from which the customers are purchasing.

Subsequently, I was thinking that it is advisable to create a separate shipping price and set up that shipping price so that a different sales tax rate can be applied according to the different states.

However, my distributor would like to choose the best shipping price automatically on their own so that I won’t know what the actual price of the shipping would be until after my customer has made the purchase. If I set up a flat rate shipping price to always be the same, like $5.00 for everyone, instead of the exact shipping price, perhaps I will be overcharging or undercharging the proper shipping charge, and subsequently I would be giving the wrong shipping sales tax price, and get into big trouble.

Also, I’m afraid freight has different rules from shipping … . I feel so lost. I can’t even figure out if the business needs to charge me the $8.85 freight from in the purchase above, or if it needs to add sales tax to the freight, because we’re both from Kansas. I need to find this out before the end of March so that my sales tax return can be filed correctly on the purchase.

I had thought that my business buying from the distributor and being charged freight by the distributor, was an entirely different transaction from my business selling its customer the purchase, but after all the distributor would be shipping the product to the address of the business’s customer, while billing the business, so in some ways the transaction is connected … .

I don’t know what to do. I hadn’t considered the possibility that I would be forced to charge shipping in my sale, whether it is included in the sale or separated. I am afraid, because I don’t understand the difference between freight and shipping. I would have looked this up before I made the test purchase, but I didn’t realize I had this problem then, and so I am really quickly running out of time before March is up.

What do you think? Do you also think it is true that I am forced to have a shipping price? Do you think the shipping charge needs to be exact? Do you know how one should calculate their shipping charge if it does not need to be exact?

If you aren’t able to answer these questions, do you know where I could go for answers? I have been looking online for answers, but there does not seem to be a proper place for these types of questions … . Would you please help me?

P.S. I asked a similar question in another thread, but this question has advanced, with the other added in for context. If any of you can or will help me here, I'll make sure and post on the other thread what helps, so that other people with my problem can also receive help. ;) I keep hoping I can help someone else out in these threads, but always end up being on the receiving end so far ... . I also always wonder if I post in the right sections ... .
 
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Werner Reisacher

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This should answer some of your questions. Look for "delivery, freight, and postage" on page 14. Freight and delivery are only taxable if included in the Sales Price. If freight and delivery are outsourced to third-party logistics providers who are billing you, such charges are not taxable.
From a tax point of view, it makes sense. In reality, no business that wants to stay in business is able to treat freight charges as an overhead expense without - in the long run - adding them, in one way or another, to the final sales prices.
 
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Hm, this link looks highly helpful ... , except for the fact that I am very lacking in the brains department. ;)
It seems like very much to me that I am confusing the proper definitions of what words mean when asking this question ... .

I recently received advice that I have a right to charge whatever shipping price or no shipping if I want ... . Based on this advice, my solution to the March purchase problem was to return the product and repurchase it for $29.99 with a separate price of $8.85 for the shipping ... just to be safe while I checked up on the advice, and I planned to always charge free shipping in the future to avoid TIC code issues ... .

Now that I read your reply ... , while it seems that the charges aren't taxable (which is great), because they are outsourced- it also seems to me like I am expected to charge a shipping price. Hm, this part is so fickle: "Charges to the customer for handling and delivery are taxable. The sales tax is due whether the charge is included in the sales price, stated separately, or billed separately." If there is absolutely no shipping charge to the customer (free shipping), how can the charge be included in the sales price? It's almost an oxymoron ... . But then, perhaps I truly am expected to charge what I was charged by the outsourced freight charge- maybe this is what the state automatically includes in the sales price?

I contacted the KS Department of Revenue, but they are closed. I don't expect them to leave their houses when they are not supposed to, but this seems particularly unprofessional to me that they can not answer emails, or talk on the phone ... , doesn't it? ;)
 

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