Are services taxable? Which services are subject to sales tax?
Services are not taxable by default in most states — the sales tax base is built around tangible goods. Hawaii, New Mexico, South Dakota, and Washington tax services broadly. Telecommunications, amusement and entertainment, parking, and data processing are commonly taxed even in states that otherwise exempt services. Professional services (legal, accounting, consulting, medical) are generally not taxable in most states.
Services are not taxable by default in most US states. The traditional sales tax base covers tangible personal property (physical goods) and services fall outside that base unless a state has enacted specific taxability for a service category. But the exceptions are significant enough that any business selling services needs to check.
The default rule and its exceptions
Default: Services are not subject to sales tax in most states. Purchasing legal advice, accounting services, haircuts, or consulting from a provider in most states does not trigger sales tax.
Exceptions, states that broadly tax services:
| State | Approach |
|---|---|
| Hawaii | General Excise Tax (GET) at 4% applies to virtually all business activities including services; seller-side tax |
| New Mexico | Gross Receipts Tax (GRT) at 5.125%+ applies to most receipts from business activity, including services |
| South Dakota | Specifically expanded to tax many services; SD has no income tax and uses broader sales tax base |
| Washington | Taxes a broader range of services than most states, including digital automated services and many business services |
Service categories taxed in most states
Even states that don’t broadly tax services commonly tax these categories:
Telecommunications: telephone service, VoIP, wireless service, satellite TV, taxed in most states, often with additional surcharges
Amusement and entertainment: admission to concerts, sporting events, movies, theme parks, taxed in most states; online ticket fees follow the underlying event
Parking: taxed in many states and municipalities; NYC and Chicago have specific parking taxes
Utilities: electricity, gas, and water service, taxed in most states; treatment varies by residential vs. commercial use
Service categories with significant variation
Data processing services: taxed in TX (with 20% exemption), NY, WA, and several others; not taxed in CA, FL, IL, and many others
Information services: taxed in TX, NY, CT; not taxed in most states
Computer and IT services: PA taxes “computer and data processing services” broadly; most states do not
SaaS and cloud software: taxed in roughly half of states, see the dedicated SaaS guide for state-by-state detail
Repair and maintenance services: highly variable; some states tax repair of tangible personal property, especially when parts are also provided
Printing and printing services: often treated as a sale of tangible personal property (the printed item) rather than a service
Categories generally not taxed as services
Professional services: legal, accounting, consulting, medical, dental, financial advisory, not taxable in most states; some states have proposed taxing professional services but none of the major states currently do so broadly
Personal services: haircuts, massage, fitness training, not taxable in most states (though a few states tax amusement/fitness broadly)
Health and medical services: broadly exempt across states as medical services
What mixed sales and services look like
When a sale involves both a tangible product and a service component, states apply different tests:
- True object test (majority rule): What is the customer primarily buying: the product or the service? Tax follows the dominant component.
- Separately stated rule: If the service charge is separately stated on the invoice, many states treat it as non-taxable even when the product is taxable.
- Full taxability rule (minority): A few states tax the full amount when taxable product and service are sold together, regardless of how it’s billed.
Keeping service charges separate on invoices is generally the more defensible position for sellers in most states.
Frequently asked questions
Are services subject to sales tax?
Which service categories are most commonly taxed?
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