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.

Services subject to sales tax

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.)

taxability of janitorial services

**Chimney cleaning exempt ***Janitorial or maintenance services performed on a casual-sale basis are not taxable. Janitorial services for the disabled may be exempt ****Nonresidential cleaning services, including janitorial services on a contract or fee basis, are taxable. Residential claning services are exempt. *****furnishing of cleaning services, including cleaning and renovation of furniture, capets and rugs is taxable. However the cleaning and restoration of misc. items other than furniture and structural claning are exempt provided certain conditions are met and the charge for each is separately stated. #Cleaning of a commercial or industrial building is taxable. Cleaning for individuals is exempt. ##Interior cleaning and maintenance service agreements of 30 days or more are taxable. ###Cleaning real property, such as windows, walls, and carpeting is exempt. Cleaning personal property, including furniture, rugs and draperies is taxable. ####However, cleaning personal property is taxable. ^Janitorial services does not include cleaning the exterior walls of buildings, septic tanks, special clean up jobs reqired by construction, fires, floods, etc., painting, papering, repairing, furnace or chimney cleaning, snow removal, sandblasting, or the cleaning of plant or industrial machinery or fixtures. ^^Routine and repetitive janitorial services exempt. Specialized cleaning of tangible personal property taxable, specialized cleaning of real property exempt. ^^^Generally, services for repair, alteration, or improvement of tangible personal property are taxable.

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.

 

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