In the s, when state legislatures implemented the first sales tax laws to boost revenues, the American economy depended on the manufacture and sale of physical goods. For the most part, early sales tax laws allowed for the taxation of tangible personal property TPP , not services.
Tangible personal property is a term for items that can be touched and moved. As the United States shifted from a manufacturing-based economy to a service-based economy, several states began to impose sales and use tax on services as well. This guide provides an overview of the complexities of sales tax on services specific to each state. You may be wondering, Should I charge sales tax on services?
The short answer is, It depends. Each state makes its own regulations as the examples of taxable services listed below demonstrate. Five U. Of the 45 states remaining, four Hawaii, New Mexico, South Dakota, and West Virginia tax services by default, with exceptions for services specifically exempted by law.
What are taxable services? No two states tax exactly the same specific services, but the general types of services being taxed can be divided roughly into six categories. Services to tangible personal property: Many states have started to tax services to tangible personal property at the same rate as sales of TPP itself.
These services typically improve or repair property. Examples of services to tangible personal property include carpentry services, car repair, and tailoring. Some states consider pets to be tangible personal property and tax services like grooming. Services to real property: Work done on buildings and land fall into this category. One of the most commonly taxed services in this area is landscaping and lawn service. Janitorial services also fall into this category. Business services: Services performed for companies and businesses fall into this category.
