Sales tax rates vary by state, city, and local jurisdiction. So charging the correct amount of sales tax requires knowing your customer’s address information. This seems simple, but it can become complicated when the customer’s billing and shipping addresses are different.
When a business sells tangible goods, it should generally use the customer's shipping address, not their billing address, to calculate sales tax. The shipping address is where the customer takes possession of the product, which is the point of taxation in destination-based states. The exception is if your business operates in one of the few origin-based states, where you'd charge sales tax based on your own business location instead.
Below, we’ll explain how to use your customer’s address to determine the correct sales tax rate when you sell tangible goods. However, keep in mind that this is general sales tax information and you should consult a tax expert for advice specific to your business.
What’s in this article?
- Which address should you use for destination-based sales?
- How US sales tax sourcing works
- Is shipping itself taxable?
- How Stripe Tax can help
Which address should you use for destination-based sales?
In a destination-based or interstate ecommerce transaction, the location where your customer takes possession of the product is the point of taxation. This is the shipping address. Your business would use this address to calculate sales tax, not the billing address.
How US sales tax sourcing works
Sales tax rates depend on the point of taxation, or the time and location where a transaction occurs. This varies based on your customer’s location. Physical storefronts don’t typically have to handle this issue because the point of taxation is at the store. The correct sales tax rate is the rate for the store’s location.
But for businesses that ship products to customers around the US, the point of taxation can be anywhere in the country. In these transactions, states usually require businesses to collect sales tax in one of two ways:
Origin-based sales tax collection
Destination-based sales tax collection
This concept is commonly referred to as “sales tax sourcing.” In origin-based states, sellers charge sales tax at the sale’s point of origin, or where the business receives the order.
For example, if you run your business from an origin-based state such as Illinois, then you would charge all of your Illinois customers the sales tax rate based on the location of your business. That’s where the order originated. In this example, the customer’s billing and shipping addresses aren’t relevant. However, this applies only to customers in Illinois, as interstate sales are always subject to the destination-based tax collection.
Businesses that operate from destination-based states are required to charge the sales tax rate at the customer’s “ship-to” address or where the customer is located. Most states use this type of sales tax sourcing.
Many states shifted to destination-based sourcing following the US Supreme Court’s 2018 decision in South Dakota v. Wayfair, which allowed states to require out-of-state sellers to collect sales tax based on economic activity (economic nexus) rather than physical presence alone. Since remote sellers can trigger tax obligations in states where they have no physical location, charging sales tax based on where the customer receives the goods became the practical standard for applying rates consistently to out-of-state transactions.
It's also worth noting that many sellers no longer handle this calculation themselves. Under marketplace facilitator laws, now in place in nearly every state with a sales tax, platforms (e.g., Amazon, Etsy, Shopify) calculate, collect, and remit sales tax on behalf of third-party sellers. So the platform largely handles sales tax sourcing and the question of which address to use for these sellers. But businesses with their own direct-to-consumer channels (e.g., a standalone website) still need to manage sourcing rules for those sales themselves.
Is shipping itself taxable?
Are shipping charges taxable? This varies by state so we’ve outlined how each state manages this below. (Keep in mind that legislative activity at the state level can alter these categories over time so check your state’s department of revenue for the most up-to-date information.)
|
State
|
Is shipping taxable?
|
Notes
|
|---|---|---|
| Alabama | Exempt if separately stated | Exempt when shipped via common carrier or USPS and separately stated; taxable if bundled into price. |
| Alaska | No state sales tax | Local jurisdictions might still tax shipping. |
| Arizona | Exempt if separately stated | Freight in (inbound) passed to customer is taxable. |
| Arkansas | Taxable | Exception: exempt if a common carrier, rather than you, bills the customer directly. Allocate for mixed carts of taxable and exempt items. |
| California | Exempt if separately stated | Also requires common carrier delivery and charging actual cost (not marked up). Handling and delivery by own vehicle are taxable. |
| Colorado | Exempt if separately stated | Retail delivery fee applies on top for vehicle deliveries, regardless of tax treatment. |
| Connecticut | Taxable | Taxable even when separately stated. |
| Delaware | No state sales tax | N/A |
| District of Columbia | Exempt if separately stated | Combined “shipping and handling” is taxable; shipping alone is exempt. |
| Florida | Depends | Exempt only if shipping is separately stated and buyer has a real option to avoid it (pickup or self-arranged delivery). Without a pickup option, it’s taxable, even if itemized. Allocate for mixed carts. |
| Georgia | Taxable | Taxable regardless of invoice presentation. |
| Hawaii | Taxable | General excise tax applies to gross receipts, including shipping. |
| Idaho | Exempt if separately stated | Inbound freight passed through to customer is taxable. |
| Illinois | Depends | Exempt if optional and separately stated; no pickup option makes it taxable. Allocate for mixed carts. |
| Indiana | Taxable | Taxable regardless of how it’s stated; delivery billed by an independent third party or via USPS might be exempt. |
| Iowa | Exempt if separately stated | Freight in is taxable if passed through. |
| Kansas | Taxable | Taxable whether bundled or separately stated. |
| Kentucky | Taxable | Taxable if the sale is taxable; exempt only if the underlying sale is exempt. |
| Louisiana | Depends | Exempt if separately stated, but local parish rules vary (home rule state). |
| Maine | Exempt if separately stated | Only for direct carrier or USPS shipment; handling is taxable even when separated. |
| Maryland | Exempt if separately stated | Combined “shipping and handling” is always taxable. |
| Massachusetts | Depends | Exempt if separately stated, reasonable, and reflects actual delivery cost; markup or bundled handling is taxable. |
| Michigan | Exempt if separately stated | Requires documentation of actual shipping cost; without records, the whole charge becomes taxable. |
| Minnesota | Taxable | Taxable regardless of how it’s stated. Allocate for mixed carts. |
| Mississippi | Taxable | Taxable unless the underlying good is exempt. |
| Missouri | Exempt if separately stated | Must also be optional (not required to complete the sale). |
| Montana | No state sales tax | N/A |
| Nebraska | Taxable | Exempt for USPS postage on direct mail and for delivery billed directly by a third-party carrier. |
| Nevada | Exempt if separately stated | Handling and packaging charges are taxable even when shipping is broken out. |
| New Hampshire | No state sales tax | N/A |
| New Jersey | Taxable | Taxable regardless of how it’s stated. Allocate for mixed orders. |
| New Mexico | Taxable | Gross receipts tax applies even when shipping is a separate line. |
| New York | Taxable | Taxable regardless of how it’s stated. Must allocate for mixed carts or entire charge becomes taxable. |
| North Carolina | Taxable | Taxable regardless of how it’s stated. Allocate for mixed carts. |
| North Dakota | Taxable | Exempt only if a third-party carrier bills the customer directly. |
| Ohio | Taxable | Taxable regardless of how it’s stated; exempt if billed directly by an independent third party. |
| Oklahoma | Exempt if separately stated | Taxable if included in the sale price. |
| Oregon | No state sales tax | N/A |
| Pennsylvania | Taxable | Taxable regardless of how it’s stated; exempt if billed by a third party directly to the customer. |
| Rhode Island | Taxable | Taxable regardless of how it’s stated. Allocate for mixed carts. |
| South Carolina | Taxable | Separately stating shipping doesn’t help; Free on board (FOB) origin terms might affect taxability. |
| South Dakota | Taxable | Taxable regardless of how it’s stated. Allocate for mixed carts. |
| Tennessee | Taxable | Taxable regardless of invoice presentation. |
| Texas | Taxable | Taxable if goods are taxable; exempt if goods are exempt, regardless of how it’s stated. |
| Utah | Exempt if separately stated | Freight in is taxable. |
| Vermont | Taxable | Taxable regardless of how it’s stated. Allocate by price or weight. |
| Virginia | Exempt if separately stated | Applies to shipping only—handling, or a combined “shipping and handling” line, is taxable. |
| Washington | Taxable | Taxable regardless of how it’s stated. Allocate by price or weight for mixed shipments. |
| West Virginia | Taxable | Taxable regardless of how it’s stated. |
| Wisconsin | Taxable | Taxable regardless of how it’s stated. Allocate for mixed carts. |
| Wyoming | Exempt if separately stated | N/A |
How Stripe Tax can help
Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).
Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on:
Digital goods and services in all US states and over 100 countries
Physical goods in all US states and 42 countries
Stripe Tax can help you:
Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.
Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.
Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.
Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business. US tax filings can be automated in the Stripe Dashboard, powered by TaxJar.
Learn more about Stripe Tax, or get started today.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.