ST 2007-02 - Sales and Use Tax: “Delivery Charges” a Part of
the “Price” of a Sale – Issued May, 2007
The purpose of this release is to clarify the treatment of
delivery charges which became part of the “price” of a sale
effective August 1, 2003 under R.C. 5739.01(H)(1)(a)(iv).
Questions have arisen regarding the treatment of such charges
and this release will clarify how such charges should be
treated.
Delivery
charges
Pursuant to R.C. 5739.02, the Ohio sales tax applies to all
retail sales in this state. R.C. 5739.01(B) defines “sale”
for Ohio sales tax purposes to include any transfer of title,
possession, or a right to use tangible personal property in
this state or the provision of a designated taxable service
in this state for a consideration.
R.C. 5741.02(A) levies the Ohio use tax on any storage, use
or consumption of tangible personal property or receipt of
the benefit of a taxable service in Ohio.
Pursuant to R.C. 5739.01(H)(1)(a), incorporated into the use
tax definition of price in R.C. 5741.01(G)(1), the price of a
sale means (in pertinent part):
(H)(1)(a) "Price," except as provided in divisions (H)(2) and
(3) of this section, means the total amount of consideration,
including cash, credit, property, and services, for which
tangible personal property or services are sold, leased, or
rented, valued in money, whether received in money or
otherwise, without any deduction for any of the following:
***
(iv) On and after August 1, 2003, delivery charges. As used
in this division, "delivery charges" means charges by the
vendor for preparation and delivery to a location designated
by the consumer of tangible personal property or a service,
including transportation, shipping, postage, handling,
crating, and packing * * *.
Accordingly, the “delivery charges” referred to in this
section of the Ohio Revised Code are specifically included as
part of the “price” of a sale and are not a separately
enumerated taxable service for sales and use tax purposes.
Vendors and sellers must charge tax on both the amount
associated with the property being sold and the “delivery
charges” as defined in R.C. 5739.01(H)(1)(a)(iv). It does not
matter whether the charge for the property sold is separately
stated on the invoice from the delivery charge or whether the
delivery charge is included in the line item price on the
invoice for the property.
Delivery charge
examples
(A) Vendor A, a brick and mortar department store, sells its
customer a riding lawn mower and agrees to deliver it to its
customer’s home for $50.00. The delivery charge is separately
stated on the invoice. What is the price of the sale that
should be used to calculate the tax due?
The full price of the sale is the selling price of the riding
lawn mower plus the $50.00 delivery charge. Assuming that the
customer does not have a claim for exemption, Vendor A must
charge and collect tax on the full price of the sale that
includes the $50.00 delivery charge.
(B) Vendor B operates a book store in Ohio and will, for an
additional charge of $1.00 per book, mail purchased books to
its customers’ locations. A customer comes into the store,
purchases three books and requests that they are mailed to
his Ohio address. Vendor B gives the customer a sales receipt
showing each book purchased along with the price of each book
including the additional $1.00 per book. The $1.00 is
included in the dollar value for each book and is not
separately stated on the receipt. What is the price of the
sale that should be used to calculate the tax due?
Absent a claim for exemption by the customer, the price of
the sale on which the tax is to be calculated is the total of
all the books including the $1.00 delivery charge per book.
(C) Vendor C, a home improvement store, sells a variety of
items to its customers for their home improvement projects.
Customer D has no claim for exemption from sales/use tax.
Vendor C offers to deliver the items purchased by Customer D
to the customer’s home. The cost of the delivery is on a
sliding scale based upon the total cost of the items Customer
D has purchased. Customer D purchases five separate items,
each separately stated on the invoice, that he wants
delivered to his home. Vendor C’s delivery charge for these
items according to its sliding scale is $100.00. The invoice
lists the five separate taxable items of tangible personal
property as well as the flat rate delivery charge of $100.00.
What is the price of the sale that should be used to
calculate the tax due?
In this situation Vendor C must collect tax on the total of
all items on the invoice including the charge to deliver the
items to the customer’s home.
(D) Vendor D, a retail furniture store, sells a sofa to
Customer E. Although the furniture store will deliver the
item for a separate charge of $100.00, Customer E decides to
save some money and, instead of paying Vendor D to deliver
the sofa, arranges with a friend who owns a truck to come to
the store to pick up the sofa. Customer E will pay his friend
$10.00 to make the pick up for him.
In this situation there is no tax due on the $10.00 delivery
charge. The charge is not a charge “. . . by the vendor for
preparation and delivery to a location designated by the
consumer of tangible personal property. . . ” under R.C.
5739.01(H)(1)(a)(iv).
Refunds of
sales/use tax on returned merchandise
The inclusion of “delivery charges” within the definition of
the “price” of a sale has led to changes with regard to the
calculation of the refund of tax on returned merchandise.
Ohio Adm. Code 5703-9-11(B) provides that:
(B) In no event shall a transaction be treated as a return
of merchandise or a rejection of services for purposes of
reporting sales or use tax if the vendor or seller deducts
from the customer's refund any amount for use, damage, or
wear and tear of the merchandise returned, any restocking
or handling charge, or otherwise fails to refund
to the customer or credit the customer's account with the
full purchase price and applicable tax (Emphasis
added).
Effective August 1, 2003, the full purchase price referred to
in Ohio Adm. Code 5703-9-11(B) includes the amount of
delivery charge paid by a customer to a vendor under R.C.
5739.01(H)(1)(a)(iv). Therefore, in order for a customer to
receive the sales tax back that it paid on items returned to
the vendor when the vendor charged for the delivery of the
items to the customer, the charge for the delivery must also
be refunded by the vendor to the customer or credited to the
customer’s account. If the charge for the delivery is not
refunded to the customer, the sales tax collected from the
customer will not be refunded by the Ohio Department of
Taxation.
Refund
examples
(1) Vendor A, a brick and mortar department store, sells its
customer a riding lawn mower and contracts to deliver it to
its customer’s home for a separate stated delivery charge of
$50.00 on the invoice. The sales receipt shows that tax was
paid on the full price of the sale which includes the charge
for the delivery. One week after delivery, the customer hauls
the riding lawn mower back to Vendor A for a refund. Vendor A
refunds the amount paid for the riding lawn mower back to the
customer, but does not refund the $50.00 delivery charge to
the customer. Is the customer entitled to a refund of the tax
paid on the sale?
In this situation, the customer cannot receive a refund of
the tax paid on the riding lawn mower. Since under R.C.
5739.01(H)(1)(a)(iv) the delivery charge is part of the price
of the transaction and the delivery charge was not refunded
to the customer, the customer did not receive a refund of the
full purchase price from Vendor A. Accordingly, because the
full purchase price was not refunded, pursuant to Ohio Adm.
Code 5703-9-11(B), the customer is not entitled to a refund
of the tax paid.
If the facts are changed so that Vendor A returns, or credits
to the customer’s account, the full purchase price, which
here includes the amount paid for the riding lawn mower and
the $50.00 delivery charge, then the customer would be
allowed a refund of the sales tax paid on his purchase of the
riding lawn mower.
(2) Vendor B operates a book store in Ohio and will, for an
additional charge of $1.00 per book, mail purchased books to
its customers’ locations. A customer comes into the store,
purchases three books and requests that they are mailed to
his Ohio address. Vendor B gives the customer a sales receipt
showing each book purchased along with the price of each book
including the additional $1.00 per book. The $1.00 is
included in the dollar value for each book and is not
separately stated on the receipt. The sales receipt shows
that the proper amount of tax was paid on the sale. A few
days later, the customer returns one of the books to Vendor
B. The customer’s sales receipt lists all three books
separately with the cost for each at $4.00. Vendor B refunds
the customer $3.00 for the returned book, deducting the $1.00
attributed to the shipping. Is the customer entitled to a
refund of the tax paid on the book returned to Vendor B?
Here the customer would not be entitled to a refund of the
tax paid on the book returned to Vendor B because Vendor B
did not refund the full $4.00 purchase price of the book to
the customer. To be entitled to a refund of the tax paid on
the book, Vendor B would have to refund the full $4.00
purchase price of the book to the customer.
(3) Vendor C, a home improvement store, sells a variety of
items to its customers for their home improvement projects.
Customer D has no claim for exemption from sales/use tax.
Vendor C offers to deliver the items purchased by Customer D
to the customer’s home. The cost of the delivery is based
upon the total weight of the items Customer D has purchased
that will be delivered to his home. Customer D has purchased
five separate items each separately stated on the invoice
that he wants delivered to his home. Vendor C’s delivery
charge for these items according to total weight of the items
is $100.00. The invoice lists the five separate taxable items
of tangible personal property as well as the flat rate
delivery charge of $100.00. The invoice also indicates that
the proper amount of tax was paid. A month later, Customer D
has completed his home improvement project and discovered
that he did not need one of the items purchased. He returns
the item to Vendor C. Vendor C refunds the cost of the item
to Customer D and refunds $15.00 of the $100.00 delivery
charge (the price of the delivery charge attributed to the
one returned item) to the customer. Is the customer entitled
to a refund of the tax paid on the item returned to Vendor C?
In this case, Customer D is entitled to a refund of the sales
tax paid on the purchase of the returned item. The full
purchase price (the cost of the item as well as the portion
of the delivery charge relating to the returned item) was
returned to Customer D.
For transactions where the delivery charge was based on the
total weight or value of all items purchased, in situations
where some but not all of the items are returned to the
vendor, the vendor must determine the appropriate delivery
charge that applies directly to the returned item(s). When
applying for a refund of tax paid on returned merchandise
with the Ohio Department of Taxation when some portion of the
items, but not all, are returned to the vendor, the vendor
must provide information on how it calculated the portion of
the delivery charge that was refunded to the purchaser that
applies to the returned merchandise.
(4) Vendor E sells Customer F a refrigerator and delivers it
to Customer F for a $75.00 delivery charge. Vendor E charges
Customer F sales tax on the amount of the refrigerator only
thus failing to charge the proper amount of tax on the sale.
Customer F returns the refrigerator a week later and receives
a refund of the amount paid for the refrigerator but does not
receive a refund of the $75.00 delivery charge. Is the
customer entitled to a refund of the tax paid on the
refrigerator?
The fact that Vendor E failed to properly collect the tax due
on the delivery charge does not change the answer that a
refund of sales tax will not be allowed. Although the
customer returned the item on which the tax was charged,
Vendor E still did not refund the full purchase price of the
sale (the price of the refrigerator plus the delivery
charge). Accordingly, a refund of the tax will not be
allowed.
Invoices containing both taxable and nontaxable elements
In some transactions, an invoice may contain a list of items
sold that include both taxable and nontaxable items and a
delivery charge from the vendor for the delivery of the items
to the customer. In this situation, a vendor or seller should
allocate the delivery charge in any shipment to a consumer
that includes separately stated taxable and exempt property
by using the ratios as provided in Ohio Adm. Code
5703-9-52(B).
If you have any questions regarding this matter, you should
direct your questions to one of our taxpayer service centers
or call 1-888-405-4039.
OHIO RELAY SERVICES FOR
THE HEARING OR SPEECH IMPAIRED
Phone: 1-800-750-0750