Service Taxability
By State
When state legislatures in the United States
implemented the first sales tax laws to boost
revenues in the 1930s, the American economy
depended on the manufacture and sale of
physical goods. Typically, early sales tax laws
allowed only the taxation of “tangible personal
property” (TPP), rather than services.
Service Taxability By State ©Avalara 2015Page 1
As the United States has shifted from a manufacturing-
based economy to a service-based economy, many states
started to impose sales and use tax on services as well.
Many businesses that provide services are still unaware
of these statutory changes—some mistakenly believe they
don’t have to pay any sales tax at all, even if they’re selling
services all over the United States.
Every state is different
This guide is designed to provide an overview of the complexity of service
taxation by state.
Five U.S. states (New Hampshire, Oregon, Montana, Alaska, and Delaware) do
not impose any general, statewide sales tax, whether on goods or services. Of
the 45 states remaining, four (Hawaii, South Dakota, New Mexico, and West
Virginia) tax services by default, with exceptions only for services specifically
exempted in the law.
This leaves 41 states — and the District of Columbia — where services are not
taxed by default, but services enumerated by the state may be taxed. Every one
of these states taxes a different set of services, making it difficult for service
businesses to understand which states’ laws require them to file a return, as
well as which specific elements of their services are taxable.
Categories of 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 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.
Service Taxability By State ©Avalara 2015Page 2
Services to real property: Improvements to 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. 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-improvement.” For example, tanning
salons, massages not performed by a licensed massage therapist, and animal
grooming services can be considered “personal services.”
Professional services: The least taxed service area, in large part because profes-
sional groups have powerful lobbying presences. Professional services include
attorneys, physicians, accountants, and other licensed professionals.
Amusement/Recreation: Admission to recreational events and amusement
parks, as well as other types of entertainment. Some states that tax very few
other services, like Utah, still tax admission charges to most sporting and
entertainment events.
How to use this chart
Remember that within each category of services, states can still have drastically
different regulations. For instance, both Florida and Iowa are marked as taxing
“business services,” even though Iowa taxes a wide range of these services and
Florida only taxes security and detective services.
For more details about the specific tax liability of your business in individual
states, consult state Departments of Revenue for additional information.
Service Taxability By StatePage 3
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About Avalara
A privately held company, Avalara was founded by a team of tax and software industry veterans to fulfill a vision of delivering an affordable, scalable sales tax
solution. Thus making what was not economically feasible in the past for mid-sized business not only affordable, but more accurate as well — all with the latest and
most innovative technology available. From Bainbridge Island, close to Seattle, Avalara’s knowledgeable staff works tirelessly to help customers put the hassles of
sales tax compliance out of mind. Avalara’s mission is to transform the tax process for customers by creating cost-effective state-of-the-art solutions. The company
does so through integrated on-demand, Web-based software services that provide transparent transactions, accurate tax compliance, painless administration
and effortless reporting.
Services to TPP
Services to Real Property
Business Services
Personal Services
Professional Services
Amusement/Recreation
REV 081115