SALT Report 2001 – In their latest issue of Taxing Issues, the Wyoming Department of Revenue discussed the taxability of freight charges and third-party drop shipments.
In Wyoming, there are two kinds of freight charges; in-bound freight and outbound freight. Inbound freight charges are charges that a vendor incurs to get a product on its shelves. These charges are not taxable on the invoice that the vendor receives along with the shipment; however these charges generally become a component of the final sales price that the customer pays when they purchase the product.
The sales price includes several factors such as the seller’s cost, materials, labor or service costs, as well as any charges to transport the items to the seller. Because these are expenses a vendor includes in the final sales price, the in-bound freight charges are subject to sales tax.
Outbound freight charges are those incurred by a customer to get a product shipped to the address of their choice. These out-bound charges are exempt from Wyoming sales tax provided the charges are separately stated from any taxable items on the invoice.
Third-Party Drop Shipments
Wyoming views third-party drop shipment as a series of individual transactions. The first transaction occurs when a supplier sells an item to a vendor for resale, but the supplier ships the item to the vendor’s customer directly. The tax liability follows the transaction. The first transaction is between the supplier and the vendor. This transaction would be considered a purchase for resale which is exempt from sales tax, so long as the Wyoming vendor issues a Streamlined Exemption Certificate. However, if the vendor is not located in Wyoming, the vendor should issue their home state’s exemption certificate to the supplier.
The second transaction is between the vendor and the Wyoming customer. This is the transaction that creates the tax liability. If the vendor is a licensed Wyoming vendor, the vendor would collect sales tax from their customer unless the customer can claim an exemption. If the vendor is not a licensed Wyoming vendor then the vendor would not be able to legally collect the tax. In this situation, the Wyoming customer would be responsible to pay the tax directly to the Department.
However, if the vendor is a licensed Wyoming vendor and their customer takes receipt of a product outside Wyoming, the Wyoming vendor would not collect any Wyoming tax, as this sale transpired outside of the state’s taxing jurisdiction.
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