States (Hawaii, South Dakota, New Mexico, and West Virginia) tax services by default, with exceptions only for services specifically exempt from the law. In the rest of the 41 states and the District of Columbia, services are not taxed by default, but services specified by the state may be taxable. 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. There is no national sales tax in the U.S.
UU. and, therefore, there is no Sales or use tax rates vary by state and range from 2.9 to 7.25 percent at the state level. In addition to the state tax, local governments in 35 states impose an additional sales or use tax that ranges from 1 to 5 percent. Several states also offer reduced or no rates on certain types of properties, such as food for household consumption, residential services, and manufacturing-related machinery.
The term taxable services is defined in Section 151.0101 of the Tax Code, “Taxable Services”, to include 17 broad categories of services. Each category covers a variety of specific services. Listed below are the types of services that are taxable, including examples and references to additional information. Services provided by a transportation and distribution company are taxable if the transmission or delivery is made directly to an end-use customer whose electricity consumption is subject to sales tax.
For example, in Hawaii, New Mexico and South Dakota, a sales tax is imposed on all services provided. Rule 3.366, Internet Access Services, Rule 3.334, Telecommunication Services, and Rule 3.313, are being amended to reflect this change in the taxation of Internet access services. Some states that tax too few services, such as Utah, continue to tax admission fees for most sporting and entertainment events. If sales tax rates and rules are not properly applied to products and services, costly mistakes can be made.
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. For example, both Florida and Iowa are marked as “taxable” as “business services,” although Iowa taxes a wide range of these services and Florida taxes only security and detective services. 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 by law. Examples of services not subject to sales tax include capital improvements in real estate, health care, education, and personal and professional services.
Companies that sell services in multiple states need to know where those services are subject to sales tax. However, if a seller doesn't collect sales or use taxes from a taxable transaction, the buyer may have to accrue the use tax. Taxable security services also include computer forensic services that constitute the analysis of computer-based data, in particular hidden, temporary, deleted, protected or encrypted files, in order to discover information related (generally) to the causes of the events or the conduct of people; as well as computer repair and support services that include reviewing computer data in order to investigate possible criminal or civil matters. See Rule 3.344, Telecommunication Services and Publication 94-132, Sales Tax on Telecommunications Services.
The mere use of a computer as a tool to help perform a professional service is not a data processing service. While Hawaii, New Mexico and South Dakota generally tax all sales of services, many other states tax some services but not others. .
Leave Reply