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Guide to merchandise and goods

Merchandise, telegrams, telephone service, freight, storage, and similar items

Payments of bills for merchandise, telegrams, telephone, freight, storage and similar charges are not Form 1099-MISC reportable according to the IRS. However, the IRS does not define these terms very clearly. So we will look to other IRS private letter rulings and revenue procedures that provide additional information about each of these items. In the last section, Merchant Category Codes, we provide some general examples. For additional guidance see IRS regulation section 1.6041-3(c).

Merchandise = goods

Merchandise typically refers to tangible (can be physically touched), movable goods and commodities held for sale. The IRS in a private letter ruling stated that the word “merchandise” is commonly defined and understood to include goods and commodities held for sale. The IRS also referenced Black’s Law Dictionary that defines “merchandise” as “a movable object involved in trade or traffic; that which is passed from one person to another by purchase and sale.” The Merchant Category Codes section below provides some general examples of “merchandise” payments. For additional guidance see IRS private letter ruling 14682-14, page 5.

Telephone service

Telephone service includes both landline, voice over IP and mobile services. Items similar to telephone service include cable, satellite, radio, computer network services and utilities. The Merchant Category Codes section below provides some general examples of exempt “telephone” payments.

Freight

The IRS has repeatedly interpreted the word “freight” in this section to mean a method of service for transporting goods or the cost of such transportation in multiple private letter rulings. Payments for transporting goods, whether incidental or integral to a taxpayer’s business, are therefore not reportable on Form 1099-MISC. The freight exception is to be read broadly and consistently with the common meaning of “freight”. However, note if you hire an independent contractor to simply drive your vehicle this would not be considered freight. The Merchant Category Codes section below provides some additional insight into examples of exempt “freight” payments. For additional reference see Private Letter Ruling-151002f.

Merchant category codes – A helpful resource

In 2004 the IRS issued Rev. Proc. 2004-43 that provided an optional procedure companies could use to determine what credit card transactions were reportable on Form 1099-MISC using the merchant category. This revenue procedure is now obsolete as credit card transactions are now reported directly by credit card companies. However, the procedure is still helpful as it provides general insight into the IRS view of whether they see the business category as either primarily merchandise or primarily service.

You must still look closely at the primary goods or services purchased since the MCC procedure is no longer available. For example, if you take your car into a dealership for service, the primary purchase is auto repair, a service. The entire amount would be 1099-MISC reportable as a service even if the cost of parts was more than the cost of the labor. The repair shop did not hold itself out as a dealer in parts, and the customer did not specify the kind of parts to be installed. The parts were incidental to the obligation to repair the car. See IRS Rev Rev. Rul. 81-232. However, if you visit a dealership to purchase a vehicle, the primary purchase is a tangible good and is not reportable.

If you purchase a standard meal from a restaurant the primary purchase is food, a tangible good, and is not reportable. The service provided is incidental to the food purchase. If you have your meal catered, the primary purchase is a service and is reportable. The food provided is incidental to the service. Remember in all cases, if you pay by a credit card, the goods or services are not reportable as the credit card merchant is responsible for reporting. For additional references see IRS Sections 6041 and 6041a.

This list below is taken from Rev. Proc. 2004-43 and shows the merchant categories that the IRS specified as generally not reportable at a high level on Form 1099-MISC.

Freight and similar charges

4214 Motor Freight Carriers and Trucking – Local and Long Distance, and Local Delivery Services
4011 Railroads
4784 Tolls/Bridge Fees

Telephone Service and similar charges

4899 Cable, Satellite, and Other Pay Television and Radio
4812 Telecommunication Equipment and Telephone Sales
4814 Telecommunication Services
4816 Computer Network Services
4900 Utilities

Storage and similar charges

4214 Moving and Storage Companies
4225 Public Warehousing and Storage – Farm Products, Refrigerated Goods, Household Goods, and Storage

Telegraph and similar charges

4821 Telegraph Services
4829 Wires, Money Orders

Merchandise and similar charges

5937 Antique Reproductions
5932 Antique Shops
5971 Art Dealers and Galleries
5970 Artist’s Supply and Craft Shops
5531 Auto and Home Supply Stores
6011 Automated Cash Disburse
5542 Automated Fuel Dispensers
5533 Automotive Parts and Accessories Stores
5532 Automotive Tire Stores
5462 Bakeries
5940 Bicycle Shops
5551 Boat Dealers
5942 Book Stores
5192 Books, Periodicals, and Newspapers
5946 Camera and Photographic Supply Stores
5441 Candy, Nut, and Confectionery Stores
5511 Car and Truck Dealers (New & Used) Sales, Service, Repairs Parts and Leasing
5521 Car and Truck Dealers (Used Only) Sales, Service, Repairs Parts and Leasing
5169 Chemicals and Allied Products (Not Elsewhere Classified)
5641 Children’s and Infant’s Wear Stores
5993 Cigar Stores and Stands
5046 Commercial Equipment (Not Elsewhere Classified)
5139 Commercial Footwear
5734 Computer Software Stores
5045 Computers, Peripherals, and Software
5039 Construction Materials (Not Elsewhere Classified)
5977 Cosmetic Stores
5451 Dairy Products Stores
5311 Department Stores
5964 Direct Marketing – Catalog Merchant
5965 Direct Marketing – Combination Catalog and Retail Merchant
5968 Direct Marketing – Subscription
5310 Discount Stores
5714 Drapery, Window Covering, and Upholstery Stores
5813 Drinking Places
5912 Drug Stores and Pharmacies
5122 Drugs, Drug Proprietaries, and Druggist Sundries
5099 Durable Goods (Not Elsewhere Classified)
5309 Duty Free Stores
5812 Eating Places, Restaurants
5997 Electric Razor Stores
5065 Electrical Parts and Equipment
5732 Electronics Stores
5651 Family Clothing Stores
5814 Fast Food Restaurants
5718 Fireplace, Fireplace Screens, and Accessories Stores
5713 Floor Covering Stores
5992 Florists
5193 Florists Supplies, Nursery Stock, and Flowers
5422 Freezer and Locker Meat Provisioners
5983 Fuel Dealers (Non-Automotive)
5712 Furniture, Home Furnishings, and Equipment Stores, Except Appliances
5681 Furriers and Fur Shops
5947 Gift, Card, Novelty, and Souvenir Shops
5231 Glass, Paint, and Wallpaper Stores
5950 Glassware, Crystal Stores
5411 Grocery Stores, Supermarkets
5251 Hardware Stores
5072 Hardware, Equipment, and Supplies
5975 Hearing Aids Sales and Supplies
5945 Hobby, Toy, and Game Shops
5200 Home Supply Warehouse Stores
5722 Household Appliance Stores
5085 Industrial Supplies (Not Elsewhere Classified)
6399 Insurance – Default
6300 Insurance Underwriting, Premiums
5944 Jewelry Stores, Watches, Clocks, and Silverware Stores
5948 Luggage and Leather Goods Stores
5211 Lumber, Building Materials Stores
6010 Manual Cash Disburse
5047 Medical, Dental, Ophthalmic, and Hospital Equipment and Supplies
5611 Men’s and Boy’s Clothing and Accessories Stores
5691 Men’s, Women’s Clothing Stores
5051 Metal Service Centers
5699 Miscellaneous Apparel and Accessory Shops
5599 Miscellaneous Auto Dealers
5499 Miscellaneous Food Stores – Convenience Stores and Specialty Markets
5399 Miscellaneous General Merchandise
5719 Miscellaneous Home Furnishing Specialty Stores
5999 Miscellaneous Specialty Retail
5271 Mobile Home Dealers
5592 Motor Homes Dealers
5013 Motor Vehicle Supplies and New Parts
5571 Motorcycle Shops and Dealers
5561 Motorcycle Shops, Dealers
5733 Music Stores-Musical Instruments, Pianos, and Sheet Music
5994 News Dealers and Newsstands
5199 Nondurable Goods (Not Elsewhere Classified)
6051 Non-Financial Institutions – Foreign Currency, Money Orders (not wire transfer) and Travelers Cheques
5261 Nurseries, Lawn and Garden Supply Stores
5021 Office and Commercial Furniture
5976 Orthopedic Goods – Prosthetic Devices (not customized)
5921 Package Stores-Beer, Wine, and Liquor
5198 Paints, Varnishes, and Supplies
5933 Pawn Shops
5995 Pet Shops, Pet Food, and Supplies
5172 Petroleum and Petroleum Products
5044 Photographic, Photocopy, Microfilm Equipment, and Supplies
5131 Piece Goods, Notions, and Other Dry Goods
5074 Plumbing, Heating Equipment, and Supplies
5094 Precious Stones and Metals, Watches and Jewelry
5735 Record Stores
5973 Religious Goods Stores
5541 Service Stations
5949 Sewing, Needlework, Fabric, and Piece Goods Stores
5661 Shoe Stores
5598 Snowmobile Dealers
5941 Sporting Goods Stores
5655 Sports and Riding Apparel Stores
5972 Stamp and Coin Stores
5111 Stationary, Office Supplies, Printing and Writing Paper
5943 Stationery Stores, Office, and School Supply Stores
5996 Swimming Pools Sales
5998 Tent and Awning Shops
5978 Typewriter Stores
5137 Uniforms, Commercial Clothing
5931 Used Merchandise and Secondhand Stores
5331 Variety Stores
7993 Video Amusement Game Supplies
5300 Wholesale Clubs
5698 Wig and Toupee Stores
5631 Women’s Accessory and Specialty Shops
5621 Women’s Ready-To-Wear Stores