Should You Charge A Sales Tax On Your Services?

When it comes to sales tax, most people assume that products are taxable while services are not. But, regulations for sales tax on services are changing as the American economy becomes more reliant on services than on manufacturing. There are many sales tax challenges to navigate as a business, including:

• Sales tax laws vary by state.
• States are expanding their tax base, which includes introducing sales tax on previously untaxed services.
• Digital products and services blur the previous distinction between product and service, and each state is defining this line in its on way.

The 4 categories of services, for sales tax purposes

There are several categories that determine how a service is treated for sales tax purposes.

• Services to tangible personal property (TPP): This category of services includes services like carpentry, car repair, and other services that improve or repair personal property.
• Services to real property: Services in this group include any service that improves buildings or land, such as landscaping, painting, and lawn services.
• Business services: Receptionist services, credit reporting agencies, pest extermination, and other services provided for businesses are included in this group.
• Personal services: This range of businesses includes “self-improvements” services like tanning, salons, massages not performed by a licensed massage therapist, and animal grooming services.
• Professional services: This category of services includes attorneys, physicians, accountants, and other licensed professionals.
• Amusement and recreation: Admission to recreational events, amusement parks, and sporting events are taxed in most of the states that do charge sales tax on services.

Does your state charge sales tax on services?

How to properly charge sales tax on services

• Avoid assuming your state does or doesn’t charge sales taxes for your specific services.
• Stay up-to-date on changes to sales tax rates for states in which you do business
• Understand your nexus exposure in operating states

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