Can services be taxed?

Unlike many other states, California does not tax services unless they are an integral part of a taxable property transfer. No two states tax the exact same specific services, but the general types of services that are taxed can be roughly divided into six categories. The list of services is not exhaustive. It is not a list of all services that can be taxed.

He doesn't make any suggestions as to whether a service should be taxable. You don't want to charge or pay unnecessary sales tax for services that are exempt and, on the other hand, you don't want to realize in the future that you should have paid taxes for one of your services and owe back taxes plus interest and penalties. Of the remaining 45 states, four (Hawaii, South Dakota, New Mexico and West Virginia) tax services by default, with exceptions only for services specifically exempt from the law. In this case, the company separately stated that pet care services did not affect taxation, since the maintenance of tangible assets is a taxable service in New York.

Each of these states taxes a different set of services, making it difficult for service companies to understand what state laws require them to file a return, as well as what specific elements of their services are taxable. However, even if non-taxable services account for the majority of your sales, if you sell anything other than services, such as a tangible asset, you must be prepared to act with due diligence for sales tax purposes. Many companies that provide services are still unaware of these legal changes, some mistakenly believing that they don't have to pay any sales tax, even if they sell services across the United States. Advance sales tax laws generally allowed only “tangible personal property” (TPP) to be taxed, rather than taxing services.

If you charge a single price for a package of taxable and non-taxable goods and services, the state will likely consider you a seller of goods rather than services and impose taxes on the entire sale price. For example, in New York, a company was subject to sales tax on pet care services because pets were considered tangible personal property and the services provided by the company consisted of paying “maintenance and service” taxes on tangible personal property. Here are some common mistakes to avoid when it comes to sales tax on services to ensure that you're not unnecessarily creating an outstanding tax liability for yourself. If you sell service contracts separately or in conjunction with the sale of tangible goods, you may have to collect sales tax.

In some states, businesses must charge sales tax for services provided in conjunction with sales of physical goods. As the United States moved from a manufacturing-based economy to a service-based economy, many states also began to impose taxes on sales and the use of services. Ohio is a state that receives “benefits,” and professional services, such as accounting, are generally obtained where the benefit is received, regardless of where the service provider is located. Companies that provide services that are strictly tax-exempt do not need to collect or remit sales tax on their services.

Knowing what rate to charge and what sales tax rules apply is especially difficult for companies that sell goods or services in multiple states.

Janis Urso
Janis Urso

Passionate zombie specialist. Unapologetic social media evangelist. Infuriatingly humble pop culture maven. Lifelong bacon lover. Wannabe web nerd. Incurable social media geek.

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