Overview
Mississippi’s Supreme Court recently delivered some clarity for anyone juggling out-of-state purchases, use tax compliance, and delivery logistics. In a recent case, the Court addressed a classic “gray area”: Does a taxpayer owe use tax on shipping costs when that taxpayer, as the purchaser, separately hires the freight company?[1] The Court answered, in short, that use tax is not owed if the freight is a separate transaction and not bundled with the sale by the vendor.[2]
Case Recap: How Tennessee Gas Challenged the Assessment
When Tennessee Gas Pipeline Co., LLC (“Tennessee Gas”) needed supplies shipped into Mississippi, they bought the supplies and, crucially, arranged their own freight through a third-party transportation company. They paid the proper use tax on the purchased goods. But when the Mississippi Department of Revenue audited, the Department said the company should have included the cost of those separately arranged freight charges in its use tax base.
The issue escalated from administrative appeal all the way to the state Supreme Court. Throughout the entire process, the company’s position was consistent: The law does not authorize a tax on third-party shipping paid outside the purchase transaction.[3] Both the Board of Tax Appeals and the Chancery Court agreed with Tennessee Gas, and now, so has the Supreme Court.
Building Blocks: The Meaning of “Purchase Price,” “Sales Price,” “Sale,” and “Purchase”
This dispute was, at heart, about what counts as part of the “purchase price” subject to use tax. Mississippi’s use tax statutes define the purchase price to include freight charges to the point of use.[4] That sounds broad—but the statute stops short of specifically saying that all freight costs are taxable, regardless of who gets paid. This ambiguity is the primary issue addressed by the Court in the instant case.
Specifically, Miss. Code Ann. § 27-67-3(f) provides that:
“Purchase price” or “sales price” means the total amount for which tangible personal property or specified digital product is purchased or sold, valued in money, including installation and service charges, and freight charges to the point of use within this state, without any deduction for cost of property or products sold, expenses or losses, or taxes of any kind except those exempt by the sales tax law. “Purchase price” or “sales price” shall not include cash discounts allowed and taken or merchandise returned by customers when the total sales price is refunded either in cash or by credit, and shall not include amounts allowed for a trade-in of similar property or products. “Purchase price” or “sales price” does not include finance charges, carrying charges or any other addition to the selling price as a result of deferred payments by the purchaser.
Miss. Code Ann. § 27-67-3(e) further provides that:
“Sale” or “purchase” means the exchange of properties for money or other consideration, and the barter of properties or products. Every closed transaction by which title to, or possession of, tangible personal property or specified digital products passes shall constitute a taxable event. A transaction whereby the possession of property or products is transferred but the seller retains title as security for payment of the selling price shall be deemed a sale.
Similarly, Miss. Code Ann. § 27-67-5(a) provides, relevant part, that:
The use tax hereby imposed and levied shall be collected at the same rates as imposed under Section 27-65-20, and Sections 27-65-17, 27-65-18, 27-65-19, 27-65-24, 27-65-25 and 27-65-26 computed on the purchase or sales price, or value, as defined in this article.
Thus, the issue of ambiguity came up in the argument by the Mississippi Department of Revenue that technically, purchase price or sales price includes “[…] freight charges to the point of use within this state,” arguing that it had authority under Miss. Code Ann. § 27-67-5 to impose use tax for the freight charges paid by Tennessee Gas to the independent third-party shipper.
Ultimately, the Court compared the use tax provisions to the sale tax provisions under Mississippi statutory law and noted close similarities in the definitions of sale and purchase under the respective sales and use tax provisions. Specifically, each included definitions pertaining to the “sale” or “purchase” and identified such in the context of a “closed transaction.”[5] The Court latched onto the concept of the “closed transaction,” while ended up proving to be dispositive in the case at hand.
Just as important is the definition of a “sale” or “closed transaction.” If a taxpayer finishes buying your equipment and then—in a separately bargained-for, separately paid transaction—hires an outside carrier, the Court reasoned the taxpayer has not “folded” the cost of shipping into the purchase price. There is a line in the sand between the sale of goods and unrelated, stand-alone shipping services.[6]
This split between bundled and unbundled charges is hardly unique to Mississippi. Many states look closely at “when and by whom” the shipping charge is incurred. If the seller invoices for delivery—whether it’s itemized—most states (including Mississippi) treat the full payment as the taxable base.[7]
The Supreme Court’s Rationale: Clear Lines, Not “Gotcha” Interpretations
The Supreme Court carefully approached the statutory analysis. It acknowledged that tax statutes get interpreted strictly against the government.[8] Unless the text clearly allows for the tax, the taxpayer wins.
The Department tried to close the statutory gap with agency “fact sheets” and broad appeals to their regulatory goals. The justices were not persuaded.[9] Ultimately, the Court did not address that issue of deference because the “closed transaction” analysis and separateness of the seller of goods and the freight service provider were dispositive.
The Court ultimately drew a practical, friendly distinction:
- If the seller sells and also provides or arranges the delivery, that’s one sale—the whole charge is taxed.
- If the buyer, goes out and independently secure delivery after the sale, now the buyer has two separate transactions—and only the goods are taxed.
Why This Matters: Audit Risks and Practical Planning
For Mississippi businesses, here are the practical lessons:
- Audit defense: If you’ve paid separately for third-party shipping, you’ve now got strong authority to push back if the Department tries to add those charges to your use tax base. Documentation will be key (ex. bills of lading, separate invoices, contracts, and payment records).
- Structuring purchases: When purchasing high-value equipment, materials, or supplies, think through logistics. If you want to avoid use tax on freight, consider arranging shipping services independently, rather than letting the seller coordinate or invoice for everything in one lump sum.[10]
- Bundled transactions: If the seller is handling the shipment, or bundling it in your invoice—even if “freight” is listed separately—you may likely be subject to use tax on the total.
- Consistency with other states: Mississippi’s holding aligns with states like Florida and Illinois, which also focus on who is providing the delivery and when title/risk passes. As always, check local rules if dealing with multi-state procurements.
Best Practices Moving Forward: Guidance for Taxpayers
Given the clarity from Tennessee Gas, here are concrete steps clients and their advisors can take:
- Separate your transactions. To segregate delivery costs from taxable purchases, make sure the delivery contract is truly independent of the sale contract—separate negotiation, separate paperwork, and payment to a third party.
- Keep records. Maintain invoices, contracts, shipping receipts, and carrier agreements—anything that establishes who arranged the shipment and how it was paid.
- Review old audits and ongoing exposures. If you’ve previously paid use tax on freight charges paid to independent carriers, you may have grounds to challenge those assessments or seek refunds.
- Stay alert for changes. The Mississippi legislature or Department of Revenue could attempt to clarify the law in response to this decision, so regular monitoring of developments (including proposed regulations or new statutes) remains good practice.
[1] Mississippi Dep’t of Revenue v. Tennessee Gas Pipeline Co., LLC, 2025 WL 1259276 (Miss. 2025)
[2] ESA would like to point out that Tennessee Gas was represented by John Floyd Fletcher, a great attorney from the firm Jones Walker.
[3] See Miss. Code Ann. § 27-67-3(f) and Miss. Code Ann. § 27-67-5(a).
[4] Miss. Code Ann. § 27-67-3(f).
[5] See Miss. Code Ann. § 27-67-5(e), above pertaining to use tax, and Miss. Code Ann. § 27-65-3(f) pertaining to sales tax.
[6] See Miss. Code Ann. § 27-67-3(f) and Miss. Code Ann. § 27-67-5(a).
[7] As an example, see Fla. Admin. Code Ann. R. 12A-1.045 (2025) which was referenced in a footnote of the concurring opinion.
[8] See Castigliola v. Miss. Dep’t of Revenue, 162 So. 3d 795, 799 (Miss. 2015) (citing Stone v. Rogers, 186 Miss. 53, 189 So. 810, 812 (1939))
[9] The case notes that the Board of Tax Appeals determined that the Department’s Fact Sheet regarding the taxability of delivery charges was not an “officially adopted publication” and thereby was not subject to deference by the Board pursuant to Miss. Code Ann. § 27-77-5.
[10] Consider as well the implications of this structure. In the aggregated transaction, the seller will likely be retaining ultimate risk of loss (pending terms of sale) versus risk of loss passing to shipper or buyer in the unbundled scenario.
