Are services subject to sales tax?
A state by state comparison of services subject to sales tax
While it is politically unpopular to raise sales tax rates, many states have found it possible to supplement lagging revenues by expanding the tax base – they make more types of goods and services subject to sales tax.
Whereas services used to be considered mostly tax exempt, that is no longer a safe assumption. States frequently tax services that are performed on tangible personal property such as contractor work or maintenance. Ongoing services such as repair contracts and extended warranties are also commonly subject to sales tax. The list of services subject to sales tax is ever expanding. Today, data processing, credit reporting, internet access and parking and storage are also services subject to sales tax in many states.
If you look at the chart for “general” services subject to sales tax it appears that most states tax services “generally”, but that doesn’t give you a complete picture. If you look at a less broad subset of services, in this case, janitorial services, you will see that the majority of states exempt it from sales tax (with multiple caveats.)
The take-away is that you will need to thoroughly understand what services your company performs and how they relate to the sale of any tangible property in each state in order to fully understand the sales tax implications. If you sell taxable services, you must register as a dealer to collect and report sales tax according to each state’s published rules.
Lucinda Rowlands has been the general manager at Zip2Tax since 2010. She has extensively researched sales and use tax regulations in order to help small businesses navigate complicated tax rules.