|Conversation Topics: Shipping and Handling|
I got an offer in the mail the other day
to buy a travel alarm for a dollar. The one
catch was, the shipping and handling was
another five. And then I had to add sales
tax. For six bucks, I can go down the street
and buy two clocks.
So what's the story with "shipping and handling" charges? And why do I have to pay sales tax on it sometimes, and sometimes not?
If I buy a tool from my local Sears store here in New York, I am charged sales tax on that item. A tool is a taxable item in New York, and if the transaction occurs in New York City, the combined tax bill is 8.25% of the purchase price. That odd 8.25% is comprised of 4% for the governor, 4% for the mayor, and 0.25% for someone I never met called the Metropolitan Commuter Transportation District. Sears is obligated to put on the bill that the tool costs $10 and that they are charging me an additional 83 cents (who get's the extra 3/4ths of a penny will require more research) for taxes, which brings the grand total to $10.83.
Imagine that instead of going to the store, I called them on the phone and said, "I've taken my car all apart and I can't put it back together so that I can drive across town to your store until I get a $10 tool from you. Do you mind bringing one by?" Really imagine now that the friendly sales clerk said, "No problem, I'll drop it off on my way home." How much would I have to pay in sales tax?
State law, which is the one that governs most sales (or use) taxes, varies from state to state. Each state has its own list of taxable and tax exempt items (such as clothing, food, and some types of services in some states). What are the possibilities?
As he stood in my driveway, the clerk would present me with a bill for $10 for the tool, plus an amount for handling (to cover the cost of going to the display counter, finding the tool, boxing it up, and so forth) and an amount for shipping (the cost to bring it out to me). In some states shipping and handling would be lumped together, and in other states it would be itemized. Why? Because there are four scenarios: (1) the only tax I pay is the 83 cents on the $10 tool that I would have paid if I went to the store myself, and the shipping and handling are tax free; (2) & (3) I owe that 83 cents plus a tax on either the shipping or the handling; or (4) 8.25% of the whole bill, shipping and handling included. Which it is, depends on what state you are in, whether they consider shipping and/or handling a "service," and then whether they have a tax on services (some states don't).
What would have happened if I had called the Sears store in New Jersey, just across the river and (more importantly) outside my state? That answer also depends on where you live. First, in most cases, states tend to be very territorial and conversely know that what happens outside their individual borders is none of their business. Since they generally can't collect taxes from someone who never stepped foot in their state (remember, although the merchant is collecting the sales tax, it is a tax on you not him), they turn a blind eye to the transaction. However, if a company has a "presence" in both the state you live and the one you buy from, well, that's different, and it is usually treated as if you bought the item from a location in your home state, thus making it subject to sales tax. (Incidentally, on those out of state purchases, your home state usually wants to collect from you sales tax even though you bought it elsewhere, but it is difficult for the states to track most such sales -- that's why the merchants are involved in the tax collection in the first place).
Finally, what if, in a state that only charges tax on the tool, Sears decided to drop the price of the tool to a dollar and to charge an inflated nine dollars more for shipping and handling? It would be like a movie theater I found in Philadelphia a number of years back: although the going rate for movies was around $3.50 and a large popcorn about the same, they charged only 25 cents to see the movie. The popcorn, however, was (what at time was) an exorbitant $7.50 for a medium-sized container -- a scheme that allowed them to charge the movie-goer on average the same total price but keep more of the profits for themselves because they shared the ticket revenue with the film industry but kept all of the concession sales. Well, Caesar is not dumb when it comes to collecting his due. States that do not normally tax shipping and handling require that the fees be reasonable and justifiable and that any amount in excess of that is taxable.
So, my guess is that the alarm clock really does cost around a dollar but that the company selling it is really in the delivery business, and the alarm clock offer is just an excuse for them to "drop by on their way home" for a fee. As for why it's called "shipping and handling" and not "handling and shipping" (which is the correct chronological order), that is something that we may pick up on later.
Updated September 30, 2003 - go to our home or life advice page