Is Consulting Services Subject To Sales Tax In Florida

A state-by-land analysis of charging sales revenue enhancement on services

When land legislatures in the United States implemented the first sales tax laws to heave revenues in the 1930s, the American economy depended on the industry and auction of physical goods. Typically, early sales revenue enhancement laws allowed merely the taxation of "tangible personal belongings" (TPP), rather than taxing services.

As the U.s. has shifted from a manufacturing-based economic system to a service-based economy, many states started to impose sales and use tax on services likewise. Many businesses that provide services are even so unaware of these statutory changes—some mistakenly believe they don't have to pay any sales taxation at all, even if they're selling services all over the Usa.

Every state taxes services in its own fashion

This guide is designed to provide an overview of the complexity of sales tax on services by land.

Five U.S. states (New Hampshire, Oregon, Montana, Alaska, and Delaware) do not impose any full general, statewide sales tax, whether on goods or services. Of the 45 states remaining, iv (Hawaii, South Dakota, New United mexican states, and Westward Virginia) tax services past default, with exceptions just for services specifically exempted in the law.

This leaves 41 states — and the District of Columbia — where services are non taxed past default, simply services enumerated by the land may be taxed. Every one of these states taxes a different ready of services, making it hard for service businesses to sympathize which states' laws crave them to file a render, aswell as which specific elements of their services are taxable.

Categories of taxable services

No two states revenue enhancement exactly the same specific services, but the general types of services beingness taxed can be divided roughly into six categories.

Services to TPP: Many states have started to tax services to tangible personal property at the same rate as sales of TPP. These services typically improve or repair property. Services to TPP could include anything from carpentry services to car repair.

Services to existent property: Improvements to buildings and land fall into this category. I of the most commonly taxed services in this area is landscaping and lawn service. Janitorial services also autumn into this category.

Business services: Services performed for companies and businesses fall into this category. Examples include telephone answering services, credit reporting agencies and credit bureaus, and extermination services.

Personal services: Personal services include a range of businesses that provide personal grooming or other types of "self-comeback." For example, tanning salons, massages not performed by a licensed massage therapist, and animal grooming services can be considered "personal services."

Professional services: The to the lowest degree taxed service area, in large part because professional groups have powerful lobbying presences. Professional services include attorneys, physicians, accountants, and other licensed professionals.

Amusement/Recreation: Admission to recreational events and entertainment parks, as well as other types of entertainment. Some states that tax very few other services, like Utah, still tax admission charges to nigh sporting and entertainment events.

How to use this US sales tax map

Think that within each category of services, states tin still have drastically dissimilar regulations. For instance, both Florida and Iowa are marked equally taxing "business services," even though Iowa taxes a wide range of these services and Florida just taxes security and detective services.

For more details well-nigh the specific revenue enhancement liability of your business organization in individual states, consult state Departments of Revenue for additional information.

Services taxability map of United States

Summary of service tax of US states

Rules to follow when evaluating sales tax on services

one. Avoid making assumptions

Many companies assume services delivered in conjunction with appurtenances sold (e.grand., swimming pool and puddle cleaning, computers and maintenance, structure materials and installation) aren't taxable, but that'due south oft non the instance. Delaware, Hawaii, New United mexican states, and South Dakota tax about services. Nevertheless others, like Texas and Minnesota, are actively expanding service taxability.

Businesses that sell services across multiple states demand to know where those services are subject field to sales tax. The fact that sales tax laws often modify makes it challenging to remain in compliance.

two. Remember that sales taxation rates can (and do) change

States regularly change product and service taxability rules, and the onus of staying on top of changes is on businesses. For case, Washington state lawmakers decided to revenue enhancement martial arts and mixed martial arts classes in the fall of 2015. Ii years later, many of those services were over again exempt. Failure to correctly apply sales tax rates and rules to products and services can pb to costly errors.

Knowing which charge per unit to charge and which sales tax rules employ is particularly challenging for companies that sell goods or services in multiple states. No two states have the same sales tax laws.

3. Empathize your nexus exposure

Most states at present crave certain out-of-state sellers to register with the taxation authorization then collect and remit sales tax. What's challenging is figuring out which states require which businesses to do and so. That depends on nexus — the connection betwixt a business and a state that triggers a sales tax collection obligation.

Having a physical presence in a land always triggers nexus, simply thank you to the Usa Supreme Court decision in Due south Dakota v. Wayfair, Inc. (June 21, 2018), nexus tin can also be created past economic activity alone (economic nexus). Equally of June 2020, 43 states and the District of Columbia crave out-of-state businesses with a certain volume of sales or number of transactions in the land to collect and remit sales tax.

Determining nexus is the first stride toward sales tax compliance.

four. Services sold with taxable goods can complicate sales tax

Many businesses that provide customer support, installation, or warranty services in conjunction with the sale of a physical skillful demand to hire an army of accountants to determine what'southward taxable and what's exempt. If you sell service contracts separately or in tandem with sales of tangible goods, you may be liable to collect sales tax.

While Hawaii, New United mexican states, and South Dakota generally taxation all sales of services, many other states revenue enhancement some services but not others. The challenge for businesses is determining which services are taxable in states where they have nexus (an obligation to collect sales tax). In some states, businesses must charge sales revenue enhancement on services provided in conjunction with sales of physical goods.

5. The true object test tin assistance determine service taxability

When a sale includes both a product and a service, some states use a truthful object test to determine the taxability of the transaction. If the main purpose of the transaction (the true object) is the sale of taxable belongings or equipment, the entire transaction is subject area to sales tax. If the primary purpose of the transaction is instead the sale of an exempt service, the entire transaction is generally exempt.

Combined sales of products and services are more common in some industries than others, notably the construction, manufacturing, and medical industries. For case, an insulin monitor often accompanies the sale of diabetes treatment. In this instance, the product is secondary to the service, and taxability is based on the existent object of the transaction — the service provided.