Service charges are generally exempt from retail sales and use tax. However, services provided in connection with the sale of tangible movable property are 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. Virginia usually doesn't collect sales tax on services.
However, services that consider part of the physical merchandise purchased, as valued is money or in (such as the installation of a purchased piece of machinery), are considered taxable. Typesetting service is taxable, as are gift and package wrapping services, diaper service, tuxedo rental, purchase of packaged or canned programs, limousine service, and includes several other services. When it comes to sales tax, the general rule of thumb has always been “products are taxable, while services are not taxable. Many companies that provide customer support, installation, or warranty services in conjunction with the sale of a physical asset need to hire an army of accountants to determine what is taxable and what is exempt.
While Hawaii, New Mexico, and South Dakota generally tax all sales of services, many other states tax some services but not others. Hawaii, New Mexico, and South Dakota tax all personal services; some other states tax most personal services. In some states, businesses must charge sales tax for services provided in conjunction with sales of physical goods. Some surprising states, such as New York, Texas, and the District of Columbia, tax several commercial services.
However, several state legislators have begun to re-examine the service's exclusion from the sales tax obligation because they realize that a potentially large source of income is not collected. Professional service providers include architects, lawyers, doctors, engineers, people who need to obtain special certification, education, and licenses to practice in a state. States regularly change product and service taxation rules, and the responsibility to keep abreast of changes rests with companies. This question of taxation on the purchase of supplies and materials is common to both the service industry and the construction industry.
In fact, one reason many states have chosen not to tax a lot of professional services is that it's easy to buy those services from providers located in other (more tax-friendly) states. If you sell service contracts separately or in conjunction with the sale of tangible goods, you may need to collect sales tax. As consumption in the United States continues to shift from goods to services, states that rely on sales tax revenues will seek to tax more services to keep their budgets in the black. For example, a new law in Kentucky recently added veterinary care, garden work, and camping rentals to the list of service providers who must charge a 6 percent sales tax.
Businesses that sell services in multiple states need to know where those services are subject to sales tax.