United States Freight Tax Laws - North (2024)

CIRCULATED TO ALL MEMBERS AND BROKERS

The Association has no expertise in US tax laws. This circular is intended as a brief summary of the key points relating to US Freight Tax Laws and a clarification of the Associations position should any fines be levied on Members for failure to file appropriate tax returns. The Association urges Members to obtain independent tax advice should they require assistance in filing their tax return or applying for an exemption.

The United States Reform Act of 1986 imposes on foreign corporations owning or operating a ship calling at any US port on or after January 1, 1987 tax on their US source gross transportation income (“USGTI”). Fifty percent of all transportation income attributable to transport which begins or ends in the USA will be considered US source gross transportation income and as such, will be taxed at a rate of four percent (i.e. two percent on the total income). Transportation income for the purposes of this tax includes bareboat, voyage and time charter hire, if the ship under charter transports cargo or passengers to or from the United States. It will also apply to income derived from carriage of passengers and cargo. The tax therefore applies to shipowners, charterers and pool participants.

Exemptions from US Tax

  • Many shipowners and operators will be able to claim an exemption from the tax either because the country in which they are organised has a bilateral income tax treaty with the United States or because they qualify for an exemption under section 883 of the US tax code. It is our understanding that a company will be eligible to claim an exemption from tax under section 883 if it is incorporated in a foreign country that provides a reciprocal exemption from tax on such income to US corporations (a “Qualified Foreign Country”) and it satisfies one of the three stock ownership tests described below:
  • More than fifty percent of the company stock, in terms of value, is beneficially owned by individuals resident in a Qualified Foreign Country. To qualify on this ground, a company must disclose the identity of the beneficial owner and its country of residence. Beneficial ownership is determined by “looking through” any intervening entities in the chain of ownership until the ultimate beneficial owner can be identified. In order to reside in a Qualified Foreign Country, an individual must be fully subject to tax in the country of his/her ordinary residence/place of business and have his/her tax home in a Qualified Foreign Country for at least 183 days in the relevant calendar year.
  • The company’s stock is primarily and regularly traded on an established securities market located in a Qualified Foreign Country.
  • If the company is a Controlled Foreign Corporation within the meaning of the code.

Determining whether an owner qualifies for an exemption may involve a construction of the tax laws of the country in which the owner/operator is domiciled, bilateral tax treaties or diplomatic notes exchanged with the United States.

Filing Requirements

It is also our understanding that in order to qualify for exemption under section 883, a foreign corporation which operates on a calendar year basis should have filed a US Federal Income Tax Return (Form 1120F) claiming exemption no later than 15 June 2006. We believe the filing date will remain 15 June for future tax years and if the foreign corporation operates on a fiscal year basis, it must file the tax return by the fifteenth day of the sixth month following the end of their fiscal year. A request for a six month time extension of this deadline may have been made by filing an application for extension (IRS form 7004) by 15 June 2006 or by the fifteenth day of the sixth month following the end of their fiscal year if the company operates on a fiscal year basis.

The Association’s Position

Fines levied on Members for failure to file US tax returns will not be covered by the Association, in common with other International Group Clubs, as these will be treated as administrative matters distinct from the core insured liabilities of vessel operation. Moreover, the managers do not have the necessary expertise to provide tax advice to Members in respect of the application of these regulations.

As mentioned above we would encourage Members to obtain independent tax advice should they require assistance in filing their tax return or applying for an exemption.

J STOKOE

Claims Executive – North Insurance Management Limited

As Managers on behalf of the North of England P&I Association Limited

United States Freight Tax Laws - North (2024)

FAQs

Is freight taxable in the ND? ›

Charges for shipping, handling, delivery, freight, and postage are generally taxable in North Dakota. If the sale is tax exempt, the shipping charges are generally exempt as well.

What is the freight tax in the US? ›

Fifty percent of all transportation income attributable to transport which begins or ends in the USA will be considered US source gross transportation income and as such, will be taxed at a rate of four percent (i.e. two percent on the total income).

Which states do not tax freight? ›

States Guide on Sales Tax on Shipping
STATEIS SHIPPING TAXABLE?
CaliforniaNo
ColoradoNo
ConnecticutYes
DelawareNot applicable
47 more rows
Feb 14, 2024

Is freight taxable in NC? ›

North Carolina does apply sales tax to shipping costs. The rule of thumb is that if what you're selling is subject to tax, then the shipping charges are also subject to tax. (And vice versa is true: If the item being shipped is not subject to sales tax, neither are the shipping charges.)

Is freight always taxable? ›

Delivery–related charge is not taxable when:

You ship directly to the purchaser by common carrier, contract carrier, or US Mail; Your invoice clearly lists delivery, shipping, freight, or postage as a separate charge; The charge is not greater than your actual cost for delivery to customer.

What does North Dakota tax? ›

North Dakota has a 5.00 percent state sales tax rate, a max local sales tax rate of 3.50 percent, and an average combined state and local sales tax rate of 6.97 percent.

Why does Amazon charge tax on shipping? ›

According to California's sales tax collection agency, the Board of Equalization, sales tax should be collected when a seller “makes a combined charge for 'shipping and handling' or 'postage and handling,' ” if the invoice does not show the actual cost of the individual delivery.

Is freight taxable in Colorado? ›

Delivery and freight charges are generally not subject to sales tax, so long as the charges are both separable from the purchase and separately stated on the customer invoice.

Is freight taxable in Idaho? ›

Idaho: Shipping and handling charges are supposed to be separately stated in Idaho, and separately stated charges for delivery to the buyer are exempt in Idaho. Fees charged for shipping goods to the retailer are subject to Idaho sales tax even if separately stated.

Is freight taxable in Tennessee? ›

Tennessee sales tax usually applies to charges for shipping, handling, delivery, freight, and postage. The general rule of thumb is: If the sale is taxable, delivery-related charges are taxable; if a sale is fully exempt, delivery-related charges are as well.

What is taxable in North Carolina? ›

Every person engaged in business in North Carolina is required to collect and pay sales or use tax on retail sales or leases of tangible personal property and certain digital property not specifically exempt by law.

Is freight taxable in Minnesota? ›

Typically, freight companies, messenger, or delivery services are not required to collect sales tax on their delivery charges. Delivery charges are taxable when billed by the seller as part of the sales price of a taxable item.

Are freight charges considered revenue? ›

Freight cost revenues are revenues that result from the freight cost amounts that you charge your customers or suppliers with for transportation. For example, if you hired a carrier to transport goods to your customer, you can charge your customer for freight costs.

Is freight tax deductible? ›

Key takeaways. Shipping expenses are tax-deductible for businesses as long as they're related to your business activities. Some states charge sales tax on shipping and handling costs.

Is freight subject to sales tax in Minnesota? ›

Typically, freight companies, messenger, or delivery services are not required to collect sales tax on their delivery charges. Delivery charges are taxable when billed by the seller as part of the sales price of a taxable item.

Is sales tax charged on items shipped out of state? ›

Interstate and Foreign Commerce

Sales tax generally does not apply to your transaction when you sell a product and ship it directly to the purchaser at an out-of-state location, for use outside California.

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