Idaho businesses often encounter orders containing both taxable and non-taxable items, necessitating precise allocation of sales tax on shipping charges. Proper allocation ensures compliance with state tax laws and avoids potential penalties. Here’s how businesses should approach this:

1. Determine the Nature of Items:

Identify which items in the order are taxable and which are exempt. Taxable items typically include tangible personal property like electronics and furniture, while non-taxable items may include groceries and prescription medications.

1. Allocate Shipping Charges:

For orders with mixed taxable and non-taxable items, allocate the shipping charges proportionally based on the value of taxable versus non-taxable items. For example, if 70% of the order’s value is taxable, apply 70% of the shipping charge to taxable items.

1. Calculate Taxable Shipping Amount:

Multiply the allocated taxable portion of the shipping charge by the applicable sales tax rate (6% state rate plus any local rates) to determine the taxable shipping tax.

1. Apply the Correct Sales Tax:

Charge sales tax only on the taxable portion of the shipping charge. Ensure that the non-taxable portion remains exempt, reflecting the nature of the items it covers.

Example Scenario: A customer purchases $100 worth of taxable electronics and $50 worth of non-taxable groceries, with a $15 shipping charge. If 67% ($100 out of $150) of the order is taxable, allocate $10.05 (67% of $15) to taxable shipping and $4.95 to non-taxable shipping. Apply sales tax only to the $10.05 portion.

Best Practices:

• Use Tax Software: Implement tax automation tools that can accurately allocate and calculate sales tax on shipping charges based on item categorization.

• Maintain Clear Records: Keep detailed records of all transactions, including how shipping charges are allocated, to support tax filings and audits.

• Stay Informed: Regularly consult Idaho State Tax Commission guidelines and seek advice from tax professionals to ensure compliance with evolving tax laws.