Information Release

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:

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(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.

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