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Freight and Transportation Charges Paid by Purchaser Not Taxable in Alabama


Retail

Alabama has held that freight and transportation charges incurred by a taxpayer in shipping its products to customers that were ultimately paid for by the customers are not subject to Alabama sales tax. The taxpayer outsourced most customer orders to vendors and suppliersusing a drop shipment fulfillment method. In the transactions in question, the goods were delivered by common carrier, and the taxpayer was invoiced for the freight charges by its suppliers. The taxpayer passed those charges on to its customers for reimbursement using separately stated line items on the customer invoices. The Alabama Tax Tribunal looked to the definition of "sales" for state sales tax purposes and concluded that the Alabama Legislature intended to exclude transportation charges from taxable gross proceeds if the charges were separately stated to the purchaser and the purchaser ultimately bore or incurred the financial burden for the charges. The Tribunal stated that it was undisputed that the taxpayer separately billed the transportation charges to its customers. While the taxpayer's suppliers directly paid the freight charges to the common carriers, the taxpayer's customers indirectly paid the charges because the suppliers billed the taxpayer for the charges, and the taxpayer passed those charges onto its customers. Since the taxpayer’s customers reimbursed the taxpayer, the customers ultimately bore the economic burden for the deliveries. The Tribunal concluded that the phrase "paid by the purchaser" in the Alabama tax code should be construed to include both instances when the purchaser directly pays the transportation charges and instances when the purchaser indirectly pays for the deliveries. Since the purchaser reimbursed the seller for the transportation charges, and thus bore the ultimate economic burden for the charges, the charges were in substance "paid by the purchaser" within the purview and intent of the Alabama tax code.(Mike Kilgo & Associates, Inc. v. Alabama Department of Revenue, Alabama Tax Tribunal, No. S. 14-1060, January 13, 2016)

(05/11/2016)
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