Is Shipping Taxable in Indiana? Rules, Exemptions, and Mistakes

Shipping is taxable in Indiana in most cases. The state’s 7% sales tax applies to delivery, handling, crating, and transportation charges because Indiana law folds them into the total sale price rather than treating them as a separate service. Two narrow exceptions can pull shipping out of the taxable amount, and the tax status of the underlying product matters too.

The Default Rule

Indiana defines “gross retail income” as the total consideration a seller receives in a retail transaction, and the statute specifically says there is no deduction for delivery charges.¹ Shipping, handling, crating, packing, and transportation costs all fold into the taxable amount, whether or not the seller lists them as a separate line on the invoice. A company that invoices $100 for brochures and adds a $10 shipping fee owes sales tax on the full $110.²

It doesn’t matter what the seller calls the charge, how it appears on the receipt, or whether a third-party carrier handles the actual shipping. If the cost is incurred on behalf of the seller as part of a retail transaction, it’s taxable.²

When Shipping Is Not Taxable

Separately Stated USPS Postage

Postage charges that are separately stated on the invoice, bill of sale, or similar document are excluded from gross retail income.¹ “Postage” here means charges paid to the U.S. Postal Service, not generic shipping fees. If a seller ships via USPS and breaks out the exact postage cost as its own line item, that portion escapes sales tax. Bundle the postage into a general “shipping and handling” charge and the exemption doesn’t apply. Sellers using flat-rate USPS labels often miss this by never itemizing the postage separately from their handling fee.

Delivery Arranged After the Sale Is Complete

The second exception covers situations where the buyer has already taken ownership of the goods before arranging delivery. If the sale is legally finalized and then the customer separately hires someone to transport the product, that delivery fee is a standalone service rather than part of the retail transaction.² Someone who buys furniture at a showroom, pays in full, takes title on the spot, and then calls a delivery company the next week doesn’t owe tax on that delivery.

Under Indiana law, a transfer of property is considered to have occurred after the item is delivered to the purchaser.¹ For most e-commerce and mail-order purchases, the sale isn’t complete until the package arrives, so the shipping charge is baked into the taxable transaction. The after-sale exemption realistically only applies when a buyer physically takes possession at the seller’s location and then pays for transport separately.

When the Product Itself Is Exempt

If the item being shipped is exempt from Indiana sales tax, the delivery charge for that item is also exempt. A wholesaler selling pens to a retailer with a valid exemption certificate doesn’t owe sales tax on the delivery fee either, because the underlying sale is exempt.² The same principle applies to other exempt purchases like certain medical equipment or items bought for resale.

Mixed shipments containing both taxable and exempt items require the seller to split the delivery charge proportionally. Tax applies only to the share of shipping attributable to the taxable goods. Indiana’s guidance illustrates this with a manufacturer buying $1,000 in repair parts where 90% qualify for the manufacturing exemption: if the delivery fee is $100, only $10 of that fee, the 10% attributable to the taxable parts, gets taxed.² The Department of Revenue uses price ratios in its examples, though the bulletin doesn’t require a single allocation method.

Installation Charges Are Not Delivery

Sellers sometimes bundle delivery and installation into one line item, but Indiana treats them differently. Installation charges that are separately stated on the invoice are not included in gross retail income and are therefore not subject to sales tax. The statute draws a line between charges for getting the product to the buyer (delivery, which is taxable) and charges for setting it up once it arrives (installation, which can be exempt when itemized separately).¹ If you sell appliances and charge for both delivery and installation, breaking those into two line items on the invoice means only the delivery portion is taxable. Lumping them into a single charge makes the whole amount subject to tax.

What Happens If You Get It Wrong

Failing to collect sales tax on taxable delivery charges carries the same consequences as any other sales tax underpayment. Indiana imposes a 10% penalty on the amount of tax not timely remitted.³ Interest accrues on top of that at a rate the Department of Revenue updates periodically.⁴

The 10% penalty can be waived if you demonstrate the failure was due to reasonable cause rather than willful neglect.³ Misunderstanding how delivery charges are taxed is the kind of honest mistake sellers raise in waiver requests, though the Department isn’t obligated to grant one. Intentionally evading sales tax is a different matter and triggers a 100% penalty on the unpaid amount in place of the standard 10%.

Where sellers most commonly stumble is on mixed shipments and the postage exception. Applying tax to the full shipping charge on a mixed order, or failing to separately state USPS postage, costs either the seller or the customer money. Keeping invoices properly itemized and documenting your proration is the simplest way to stay on the right side of both rules.

1
Indiana General Assembly. Indiana Code 6-2.5-1-5 – Gross Retail Income
2
Indiana Department of Revenue. Sales Tax Information Bulletin 92 – Delivery Charges, Installation Charges, and Other Elements of Gross Retail Income
3
Indiana General Assembly. Indiana Code 6-8.1-10-2.1 – Liability for Penalty
4
Indiana Department of Revenue. Fines, Fees and Penalties