Do Shipping Terms Impact My Business’ Taxes?

The seller can charge more for freight due to the legal stipulation in the purchase agreement of the good. When the grocery store purchased the produce, it entered into a legal agreement in which the shipping terms for the grocery store were stipulated. There are two main shipping term distinctions that typically impact the taxability of freight:

• The first is Free On Board (FOB) origin. In this example, the title and legal ownership of the freight were transferred as soon as those three tons of produce were purchased. In the case of FOB origin shipping terms, freight is typically exempt from tax in many states. Sellers tend to have FOB origin shipping terms because those terms defer liability to the buyer.
• The other shipping term, FOB destination, entails that title is not transferred until the buyer receives the goods. Freight is usually taxable in the case of FOB destination.

To learn more about the seller’s shipping terms, check out our e-book on the 5 Factors for Freight Taxability.