Is Freight Taxable in Maryland: Separately Stated Charges and Exceptions

Freight is generally not taxable in Maryland when the charge is listed as its own line on the invoice. Maryland’s 6% sales and use tax excludes separately stated delivery, freight, and transportation charges from the taxable price of a sale. Handling is a different story: it stays taxable, and combining shipping and handling on a single line pulls the whole amount back into tax.¹²

The Separately Stated Rule

Maryland Tax-General Section 11-101 defines the “taxable price” as the total value a buyer pays to complete a sale, then carves out charges for delivery, freight, or other transportation directly to the buyer. Two conditions attach to the carve-out. The charge has to appear as its own line item on the invoice, and the transportation service itself has to be one that isn’t otherwise taxable.¹ The Comptroller’s list of taxable and nontaxable services classifies delivery and freight as nontaxable.²

The practical effect: buy a $100 taxable item with $20 shipping shown separately, and the tax applies only to the $100. The $20 rides free. That holds whether the seller uses UPS, the postal service, or its own trucks.

When Shipping Becomes Taxable

Missing any of the conditions above flips freight from nontaxable to taxable. Three patterns catch sellers most often.

Shipping is bundled into the item price. The statutory exclusion requires the charge to be stated separately, so a “free shipping” offer with the cost built into a higher item price means tax gets calculated on that higher price.¹
Shipping and handling appear on a single line. Handling doesn’t qualify for the delivery exclusion, and lumping the two together contaminates the shipping portion. The full combined amount becomes taxable.
The transportation itself is a taxable service. The main example is the delivery or transmission of electricity or natural gas when the underlying energy sale is taxable. For ordinary retail goods moving by common carrier or mail, this rarely comes up.²

The exclusion also applies only to delivery directly to the buyer. A seller moving goods between its own warehouses doesn’t get it.

Handling Charges Are Taxable

Handling covers packaging, crating, preparation labor, and processing to get an item ready to ship. Maryland’s regulation on taxable price includes the cost of any labor or service rendered as part of completing the sale, and because handling is preparation rather than transportation, it doesn’t fit the freight exclusion.³

Say you sell a taxable shirt and bill $10 for handling and $15 for shipping on separate lines. Tax applies to the shirt and the $10 handling fee. The $15 shipping is not taxed. List “$25 shipping and handling” as one line, and the full $25 gets taxed along with the shirt. This is where audit adjustments most often land. Sellers who don’t bother separating the two end up collecting or owing more tax than they should.

The fix is simple. Break shipping and handling into distinct line items on every invoice. Sellers using e-commerce platforms should configure checkout to display the charges separately.

Freight on Exempt Sales and Resale Purchases

When the underlying goods are exempt from Maryland sales tax, there is nothing to tax on the freight either. Common exempt categories include certain agricultural products sold by farmers, prescription medicines and medical supplies sold to physicians or hospitals, and items purchased for resale.² Farm equipment used for raising livestock, tending soil, or harvesting crops also qualifies.⁴

For resale purchases, the buyer needs to provide a resale certificate. Maryland doesn’t prescribe a specific form, but the certificate must include the buyer’s name and address, the Maryland sales and use tax registration number, and a signed statement that the purchase is for resale or will be incorporated into a product for sale.⁵

One trap catches small retailers. For cash, check, or credit card purchases under $200, the resale exemption applies only if the seller delivers the goods directly to the buyer’s retail place of business. If the buyer picks up a $150 cash order at the seller’s location, the seller must charge tax despite a valid resale certificate.⁵

Goods Shipped Into Maryland From Out of State

Maryland’s 6% use tax applies to any tangible property or taxable service you possess and use in Maryland, regardless of where you bought it. If an out-of-state retailer ships something to your Maryland address without collecting Maryland sales tax, you owe use tax directly to the Comptroller. That includes purchases made online, by phone, or through mail-order catalogs.⁶

Maryland grants a credit for sales tax already paid to another state, up to the 6% Maryland rate. Paid 4% elsewhere? You owe Maryland the 2% difference. Paid 6% or more? You owe nothing additional.⁶

Businesses holding a sales tax license report use tax on line 7 of their sales and use tax return. Individual consumers without a license can report it on their Maryland income tax return.⁶

Goods Shipped From Maryland to Other States

Maryland sellers shipping goods to buyers in other states generally do not collect Maryland sales tax on those transactions. The tax attaches where the buyer takes possession, so a Maryland business shipping to a Virginia customer falls outside Maryland’s taxing authority. The seller needs documentation of the out-of-state delivery address to support the exemption.

Invoicing That Keeps Freight Nontaxable

Proper invoicing is the single most important thing a Maryland seller can do to handle freight tax correctly. Because the exclusion depends on separately stating the charge, sloppy invoices convert a nontaxable charge into a taxable one. Every invoice should show the item price, any handling or preparation fees, and the delivery or freight charge each on their own line.

Retain copies of resale certificates, exemption certificates for agricultural or medical purchases, and documentation of out-of-state delivery addresses. The Comptroller’s office audits sales tax returns and looks for evidence that excluded charges genuinely qualified. Penalties and interest accrue on underpaid tax, and correcting invoicing after the fact costs far more than setting it up right at the start.

1
Justia. Maryland Code Tax-General 11-101 – Definitions
2
The Comptroller of Maryland. Sales and Use Tax List of Tangible Personal Property and Services
3
Cornell Law School. Maryland Code of Regulations 03.06.01.08 – Taxable Price Defined
4
Maryland Comptroller. Business Tax Tip 11 – Sales and Use Tax Exemptions for Agriculture
5
Maryland Comptroller. Business Tax Tip 4 – Resale Certificates
6
Maryland Comptroller. Business Tax Tip 3 – Sales and Use Tax on Out of State Purchases