Can a mail-order company use an average industry shipping rate to calculate its exempt, separately stated shipping charges for periods before September 1, 1991, and does the shipping exemption still apply after that date?

Subject

Whether the average rate of $1.04 shipping charges per package used by Petitioner's corporate clients in determining exempt shipping charges falls within an industry prevailing rate for mail order house shipping charges, and whether the shipping charges are excluded from sales tax for periods occurring prior to September 1, 1991.

What this means for you

An accountant asked on behalf of mail-order clients whether the clients could use an average rate of $1.04 per package -- rather than each order's actual shipping cost -- to calculate the shipping charges excluded from sales tax, since the clients had recorded only combined daily totals for merchandise, shipping, and tax without tracking each order's individual shipping charge.

The Department declined to answer whether $1.04 matched any "industry prevailing rate" -- an Advisory Opinion only applies the law to a specific, described set of facts, and isn't a vehicle for resolving open factual questions like that. More importantly, there was never any rule allowing an estimated or average rate to stand in for the actual, separately stated shipping charge on each bill; the pre-1991 exclusion required the transportation cost to be genuinely separately stated and computable from the bill itself. And the exclusion doesn't survive today anyway: the law was amended effective September 1, 1991 to remove the shipping exclusion altogether, so shipping charges on taxable tangible personal property sold on or after that date are subject to sales tax even when separately stated.

Q&A

Q: Can we use an average or estimated shipping rate instead of tracking actual shipping charges per order to claim the transportation exclusion?
A: No, per this opinion -- there's no provision allowing an average industry rate to substitute for the actual, separately stated transportation charge computable from the bill.

Q: Were separately stated shipping charges excluded from New York sales tax before September 1, 1991?
A: Yes, per this opinion, as long as the transportation cost was for delivering the property to the purchaser and was separately stated on (or computable from) the bill rendered to the purchaser.

Q: Are shipping charges on taxable merchandise excluded from sales tax today?
A: No. This opinion notes that the law was amended effective September 1, 1991 to remove that exclusion, so shipping charges on taxable tangible personal property sold on or after that date are subject to sales tax.

Q: Can our mail-order business rely on this opinion for our own shipping-charge practices?
A: No. This advisory opinion binds the Department only as to the petitioner and the facts described here; another taxpayer cannot rely on it.

Citations

• Tax Law § 1101(b)(3) (pre-September 1, 1991 version) -- excluded from "receipt" the cost of transportation of tangible personal property sold at retail where separately stated on the bill; that exclusionary language was removed from the statute effective September 1, 1991.
• Sales and Use Tax Regulations § 526.5(g) -- required transportation charges to be separately stated and computable from the bill to qualify for the (former) exclusion.
• Tax Law § 171, subd. 24; 20 NYCRR § 901.1(a) -- an Advisory Opinion applies the law to a specified set of facts and does not resolve disputed factual questions.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_60s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (60) S
Sales Tax
November 22, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930823B

On August 23, 1993 a Petition for Advisory Opinion was received from Jack Wong c/o Grant
Thornton, 7 Hanover Square, New York N.Y. 10004.
The issues raised by Petitioner, Jack Wong c/o Grant Thornton, are:
1.
Whether the average rate of $1.04 shipping charges per package used by Petitioner's
corporate clients in determining exempt shipping charges falls within an industry prevailing rate for
mail order house shipping charges.
2.
Whether the shipping charges are excluded from sales tax for periods occurring prior
to September 1, 1991.
Petitioner's corporate clients are engaged in the mail order business. Promotional materials
are sent to customers on a regular and systematic basis. The promotional materials include order
forms and return envelopes. The order forms, when completed by customers, show separate amounts
for each category of merchandise ordered, a separate amount for shipping charges which are
generally based on the weight and value of the merchandise ordered, and include sales tax rates
whereby the customer computes the amount of sales tax payable.
Petitioner's clients recorded their income based on daily receipts which were the combined
receipts for merchandise sold, shipping charges and sales taxes. No separate record was kept
indicating the specific shipping charge for each individual order.
Prior to September 1, 1993 Section 1101(b)(3) of the Tax Law stated, in part:
Receipt.
The amount of the sale price of any property and the
charge for any service taxable under this article ... and excluding the
cost of transportation of tangible personal property sold at retail
where such cost is separately stated....on the bill rendered to the
purchaser.
Section 526.5(g) of the Sales and Use Tax Regulations states, in part:
Transportation.
(1)
The cost of transportation of tangible personal
property, sold at retail, which is separately stated...on the bill rendered to the
purchaser is excluded from the receipts subject to tax.
(2) To qualify for the exclusion transportation costs must be for the delivery of the
tangible personal property to the purchaser ....
(3)

Transportation charges shall be deemed to be separately stated if they can be
computed from information appearing on the bill.

-2­
TSB-A-93 (60) S
Sales Tax
November 22, 1993
Since an Advisory Opinion merely sets forth the applicability of pertinent statutory and
regulatory provisions to a "specified set of facts", Tax Law, section 171, subd. twenty-fourth; 20
NYCRR 901.1(a), it is not within the scope of an Advisory Opinion to determine questions of fact
such as whether or not a rate of $1.04 shipping charges per package used by Petitioner's corporate
clients falls within an industry prevailing rate for mail order house shipping charges.
Transportation charges which were separately stated on bills presented to customers for sales
of tangible personal property occurring prior to September 1, 1991 would qualify for the exclusion
from tax provided under Section 1101(b)(3) of the Tax Law and Section 526.5(g) of the Regulations.
There was no provision in the statute or regulations permitting the use of an average industry
prevailing rate to determine the amount of the exempt shipping charges.
It is noted that Section 1101(b)(3) of the Tax Law was amended, effective September 1,
1991, to exclude the language "and excluding the cost of transportation of tangible personal property
sold at retail where such cost is separately stated in the written contract, if any, and on the bill
rendered to the purchaser.".Accordingly, any shipping charges for taxable tangible personal property
are considered to be subject to sales and use tax where the sale of such tangible personal property
occurred on or after September 1, 1991.

DATED: November 22, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory 0pinions
are limited to the facts set forth therein.