Taxability Archives

Is there a tax on food? Determine grocery sales tax by state | TaxHero

Is there a tax on food? When it comes to sales tax, food items are a challenging category, as every state in the United States deals with sales tax on grocery items in various ways. Some states, like Texas, exempt grocery items completely, while others partially or fully charge sales tax at either full or reduced rates.

As selling food online has rapidly grown in the US, you must know the answer to, “Is there a tax on food in this state?” Whether you sell through a marketplace facilitator or have an independent platform, it is equally important to understand how sales tax on food works.

This guide will walk you through different food categories and state guidelines on sales tax for grocery food items.

Different Categories of Taxable Food Items

All types of consumable items intended for human consumption are called food items. They include raw and prepared foods such as vegetables, fruits, meat, dairy products, grains, and other consumable items.

To understand the taxability of food items, we can classify them into the following broad categories.

Grocery items – these food items are commonly sold in grocery stores and include a wide range of products. Everyday grocery items include non-prepared food, canned products, packaged snacks, spices, and beverages.
Prepackaged food – these are food items that are processed, packaged, and made ready for sale to customers. They include canned drinks, bottled beverages, packaged snacks, frozen meals, and canned products.
Prepared food – refers to processed food products prepared after cooking or assembling various ingredients for immediate consumption. They include meals from restaurants and food establishments available for dine-in and takeaway.

State-by-State Guide to Grocery Sales Tax

The table below outlines the taxability of non-prepared grocery food by state. Most states that exempt grocery food exclude soft drinks, candy, and confections. States also charge sales tax for prepared food in restaurants and grocery stores as it is a meal.

Out of 45 states that impose some sales tax, 13 impose statewide sales tax on groceries.

Note: Sales tax regulations keep changing frequently. Bookmark this table to keep yourself updated about the latest developments regarding sales tax on grocery food.

STATE	ARE GROCERIES TAXABLE?	SALES TAX RATE	REDUCED GROCERY RATE	EXEMPTIONS (IF ANY)
Alabama	Yes	4%	3%	In accordance with Act 2023-554, the state sales and use tax rates on food was reduced effective September 1, 2023.
Alaska	not applicable	0%	–	None. There is no sales tax in this state.
Arizona	No	n/a	–	Some grocery food purchases may be subject to local sales tax.
Arkansas	Yes	6.50%	0.125%	Food and food ingredients are taxed at a reduced rate of 0.125% plus the applicable local rate.
California	No	n/a	–	Certain meals are taxed.
Colorado	No	n/a	–	Carbonated water, chewing gum, cold sandwiches, plants to grow food, candy, drinks, and beverages served in unsealed cups
Connecticut	No	n/a	–
Delaware	not applicable	0%	–	None. There is no sales tax in this state.
Florida	No	n/a	–
Georgia	No	n/a	–
Hawaii	Yes	4%	–	Food purchased with federal food coupons or vouchers is exempt.
Idaho	Yes	6%	–	You can claim an average $100 income tax credit for purchasing grocery items in this state if you are a resident of Idaho.
Illinois	Yes	6.25%	1%	Food consumed off the premises until July 1, 2023, is exempt. After July 1, 2023, the tax rate on items will go back to 1%.
Indiana	No	n/a	–	Starting January 1, 2025, businesses that receive 75% of their total sales from sales of prepared food can now apply for a 50% sales tax exemption on their electric meter without a need for a utility check.
Iowa	No	n/a	–
Kansas	Yes	6.50%	0%	Kansas has officially eliminated the state sales tax on food and groceries as of January 1, 2025. Although the state sales tax has been eliminated, local taxes remain unaffected.
Kentucky	No	n/a	–	Tobacco, alcoholic beverages, candy, prepared food, dietary supplements, soft drinks, and food sold through vending machines are not exempt.
Louisiana	No	n/a	–	Food sold for preparation and consumption at home is exempt.
Maine	No	n/a	–	The exemption is limited to “grocery staples”(i.e., vegetables, meats, fish, dairy, bread, canned and boxed food products).
Maryland	Yes	6%	–	Sales of food to patients in a hospital, on vehicles operating in interstate commerce, etc., may be exempt
Massachusetts	No	n/a	–
Michigan	No	n/a	–	Food or salad bars, bottled or canned beverages, candy bars, cookies, and potato chips are not exempt.
Minnesota	No	n/a	–
Mississippi	Yes	7%	–	Only state sales tax and no local sales tax on groceries.
Missouri	Yes	4.225%	1.225%
Montana	not applicable	0%	–	None. There is no sales tax in this state.
Nebraska	No	n/a	–
Nevada	No	n/a	–
New Hampshire	not applicable	0%	–	None. There is no sales tax in this state.
New Jersey	No	n/a	–
New Mexico	No	n/a	–
New York	No	n/a	–	Carbonated beverages, sandwiches, confectionery, and candy are not exempt.
North Carolina	No	n/a	–	Sales of food are subject to local taxes.
North Dakota	No	n/a	–
Ohio	No	n/a	–
Oklahoma	No	4.50%	–	Oklahoma has officially eliminated the state sales tax on food and groceries as of August 29, 2024. For a detailed breakdown of what’s exempt and what’s not, check out the comprehensive list here. Although the state sales tax has been eliminated, local taxes remain unaffected. Residents may still face higher grocery taxes in the future if counties or cities decide to increase their local sales tax rates. However, under the new law, changes will not take effect until after July 1, 2025.
Oregon	not applicable	0%	–	None. There is no sales tax in this state.
Pennsylvania	No	n/a	–	It depends on the type of food and the location of where the food is sold.
Rhode Island	No	n/a	–
South Carolina	No	n/a	–	Unprepared food bought with federal food stamps is exempt from state sales tax but might still be subject to local sales tax.
South Dakota	Yes	4.20%	–
Tennessee	Yes	7%	4%	Grocery sales tax holiday (August 2023 – October 2023)
Texas	No	n/a	–
Utah	Yes	4.85%	1.75%	Taxed at a reduced rate. Utah is looking to remove state sales and use tax for food and food ingredients beginning January 1, 2025, if approved by voters.
Vermont	No	n/a	–
Virginia	Yes	4.30%	1%	Seeds & plants used to grow food, alcoholic beverages, and tobacco are not exempt.
Washington	No	n/a	–
West Virginia	No	n/a	–
Wisconsin	No	n/a	–	Some food snacks are excluded from this exemption.
Wyoming	No	n/a	–

*The data included in the table is based on statewide sales tax and does not consider local sales tax rates.

Grocery Tax by States – Key Takeaways

Here are some quick takeaways from the “grocery tax by states” table.

Of the 45 states with sales tax, 33 states and the District of Columbia do not apply sales tax on groceries, while 12 states charge sales tax on groceries.
Six states: Alabama, Hawaii, Idaho, Mississippi, Oklahoma, and South Dakota, levy standard sales tax on grocery food.
Six states: Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia, levy reduced sales tax rates.
Of six states that levy ordinary sales tax rates on groceries, four states: Hawaii, Idaho, and Oklahoma, offer credit to low-income households.
Mississippi charges the highest sales tax rate on groceries (7%) with no credits.
Arkansas charges the lowest sales tax rates on groceries (0.125%).
Only food prepared for off-premises consumption is tax-exempt.
Arizona, Colorado, Georgia, Kansas, Louisiana, North Carolina, and South Carolina exempt groceries from state-level sales tax but impose local sales tax on various food items.

Is there Tax on your Food Business?

Sales tax on food, especially grocery, has always been contentious. Each state strives to simplify rules about sales tax on food, making it easier for people to comply. However, online sellers may need help to keep up with the constantly changing requirements for food tax compliance.

TaxHero is your solution. We take the sales tax burden off your shoulders so you can concentrate on baking those goods or perfecting your product. Talk to us and have an expert guide you to success.

Which states impose sales tax on clothing in the US? | TaxHero

Clothing ranks among the most online shopped items in the USA, with around 51% share in the total online sales, as reported by Statista. Thus making fashion a vital expenditure head for consumers and a source of revenue for businesses. And as either a seller or a buyer, it is important to remember that sales tax on clothing varies by state, with different rates and exemptions.

Sales tax on clothes differs because some states exempt them to a certain degree, although they are tangible personal property. Some states categorize clothes as a necessity and, therefore, fully or partially exempt them from sales tax.

Is there a tax on clothes in your state? Our guide has got you covered. Find out if clothes are taxed, the sales tax rate, and which states exempt sales tax on clothing.

States without Sales Tax on Clothing

Seven states exempt sales tax on clothing. These states are Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. See the table below for more information.

In addition to these states, five states: Alaska, Delaware, Montana, New Hampshire, and Oregon, don’t charge any state sales tax for any items.

List of US States and their Sales Tax on Clothing

Clothing sales tax rates vary significantly among different states. There are also variations in the sales tax exemptions on clothes in different states.

Note: Sales tax regulations keep changing frequently. Bookmark this table to keep yourself updated about the latest developments regarding sales tax on clothing.

STATE	IS CLOTHING TAXABLE?	SALES TAX RATE	EXEMPTIONS (if any)
Alabama	Yes	4%
Alaska	Not applicable	0%	Alaska’s state-wide sales tax rate is 0%
Arizona	Yes	5.60%
Arkansas	Yes	6.50%
California	Yes	7.25%	Exemptions allowed for (1) new children’s clothing sold to nonprofit organizations for free distribution to elementary school children and (2) used clothing sold by certain thrift stores benefiting the chronically ill.
Colorado	Yes	2.90%
Connecticut	Yes	6.35%	Clothing and footwear that costs more than $1,000 is subject to the luxury goods tax. Certain exemptions apply.
Delaware	Not applicable	0%	None. There is no sales tax in this state
Florida	Yes	6%
Georgia	Yes	4%
Hawaii	Yes	4%
Idaho	Yes	6%	An exemption applies to purchases of clothes and footwear by nonsale clothiers that provide free clothes to the needy.
Illinois	Yes	6.25%
Indiana	Yes	7%
Iowa	Yes	6%
Kansas	Yes	6.50%
Kentucky	Yes	6%
Louisiana	Yes	5.00%
Maine	Yes	5.50%
Maryland	Yes	6%
Massachusetts	NO	n/a	The exemption is limited to clothing and footwear costing $175 or less. Specific clothing and footwear designed for athletic activity or protective use are taxable. Taxable items’ sales tax rate is 6.25%.
Michigan	Yes	6%
Minnesota	NO	n/a	Accessories, most protective equipment, sports and recreational articles, and fur clothing are taxable. Taxable items’ sales tax rate is 6.88%.
Mississippi	Yes	7%	Clothing, footwear, and accessories used as wardrobes in the production of motion pictures are exempt.
Missouri	Yes	4.225%
Montana	Not applicable	0%	None. There is no sales tax in this state
Nebraska	Yes	5.50%
Nevada	Yes	6.85%
New Hampshire	Not applicable	0%	None. There is no sales tax in this state
New Jersey	NO	n/a	Fur clothing, accessories, sport or recreational or protective equipment are taxable. Protective equipment is only exempt when purchased for the user’s daily work and worn as a work uniform. Taxable items’ sales tax rate is 6.63%.
New Mexico	Yes	4.875%
New York	NO	n/a	The exemption is limited to clothing and footwear costing less than $110 per item or pair. Clothing and footwear costing $110 or more per item or pair are taxable. Taxable items’ sales tax rate is 4%.
North Carolina	Yes	4.75%	Separately stated alteration charges in connection with the sale of clothing are exempt.
North Dakota	Yes	5%
Ohio	Yes	5.75%	Narrow exemption for protective clothing used exclusively in a regulated manufacturing area.
Oklahoma	Yes	4.50%
Oregon	Not applicable	0%	None. There is no sales tax in this state
Pennsylvania	NO	n/a	Accessories, fur articles, ornamental and formal wear, and sports clothing are taxable. Taxable items’ sales tax rate is 6%.
Rhode Island	NO	n/a	Accessories and special clothing designed primarily for athletic or protective use are taxable. The clothing exemption only applies to $250 of the sales price per item. Taxable items’ sales tax rate is 7%.
South Carolina	Yes	6%	Certain protective clothing required for working in a clean room environment is exempt.
South Dakota	Yes	4.50%
Tennessee	Yes	7%	An exemption applies to used clothing sold by certain nonprofit organizations.
Texas	Yes	6.25%
Utah	Yes	4.85%
Vermont	NO	n/a	Clothing accessories or equipment, protective equipment, and sports or recreational equipment are taxable. Taxable items’ sales tax rate is 6%.
Virginia	Yes	4.30%	Exemptions apply to certain protective clothing furnished to employees engaged in research activities, mining, and manufacturing; and foul-weather clothing worn by commercial watermen.
Washington	Yes	6.50%
West Virginia	Yes	6%
Wisconsin	Yes	5%
Wyoming	Yes	4%

*The data included in the table is based on statewide sales tax and does not consider local sales tax rates.

Clothing Tax by States – Key Takeaways

Here are some quick takeaways from the “clothing tax by states” table.

Of 45 states that impose sales tax, 38 states impose sales tax on clothing.
Alaska has no state sales tax, but many jurisdictions impose local sales tax on clothing and footwear.
Massachusetts and Rhode Island only tax the amount exceeding the exemption limit. For instance, if a clothing item costs $300 in Rhode Island, you only have to pay tax for the additional $50 and not the total price of $300.

Clothing Sales Tax Holidays

Some states do not exempt tax on clothing but offer clothing sales tax holidays that may last from several days to weeks. Take note that sales tax holidays vary annually.

Most clothing tax holidays happen from July to August for the back-to-school season. Here’s the list of states offering 2024 tax holidays on clothing:

Arkansas
Connecticut
Florida
Iowa
Maryland
Mississippi
Missouri
New Mexico
Ohio
Oklahoma
South Carolina
Tennessee
Texas
West Virginia

Do online sellers need to collect clothing tax?

Yes, online sellers must collect and remit sales tax on clothing if they have met nexus in the state.

I sell fashion and I need help!

There is always room for learning when it comes to sales tax. As an online seller, keeping a record of everything by yourself can be challenging, so you should consider outsourcing this complex business aspect. TaxHero covers everything from determining nexus to identifying the taxability of your goods.

The regulations and laws are often changing, and you must stay updated. TaxHero is an excellent solution, offering its all-inclusive, full-stack services to help online businesses with all sales tax matters. Schedule a chat with our CEO and learn how we can help you today.

Cloud-based services and Software-as-a-Service (SaaS) businesses have become more popular worldwide. According to Statista, the global SaaS market is projected to be worth $197 billion by the end of 2023. The increasing popularity of this business model comes with sales tax implications too.

Software-as-a-Service providers often need help finding out whether their services are taxable or not in their operating state. Vendors must stay on top of sales tax laws to avoid legal consequences and penalties.

This blog addresses the questions about SaaS taxability and provides a state-by-state guide about the sales tax regulations for SaaS-based businesses.

What is SaaS Sales Tax?

SaaS, short for Software-as-a-Service, is a business model providing electronic access to software. The software is hosted in one location, and the business offers users the option to purchase a subscription or license to access it. The SaaS provider owns, operates, and maintains the software application.

The customer only purchases access to the software through the internet and does not get ownership rights to download or modify the software application. For example, TaxHero is a SaaS-based business. Some other examples of SaaS businesses are Microsoft, Google Workspace, Slack, Adobe, and the Shopify platform.

Sales tax for SaaS businesses can be tricky and complex as some states treat it as tangible personal property, similar to product businesses. While on the other hand, some states consider it a service that may be subject to or exempt from sales tax depending on different factors. Learn more about sales tax on services in this blog.

Do all States Charge Sales Tax on Software-as-a-Service?

No, not all states charge sales tax on SaaS.

Besides the states with no sales tax, some other states wholly or partially exempt SaaS products from sales tax. This situation can be confusing and complicate navigating SaaS services’ sales tax compliance requirements. Understanding SaaS regulations ensures you meet your sales tax obligations appropriately.

Which States Charge Sales Tax on SaaS?

Before operating a SaaS business in any state, you must determine if your state charges sales tax.

Here is a state-by-state guide about SaaS taxability.

STATE	IS SAAS TAXABLE?	SALES TAX RATE	SPECIFICATIONS
Alabama	Yes	4%	All sales of software, including SaaS, are taxable.
Alaska	Yes	up to 7.50% local sales tax	While SaaS products are not subject to a statewide sales tax in Alaska, they are taxed in many home rule charters in the state.
Arizona	Yes	5.60%	Software delivery electronically on a subscription basis is considered tangible personal property.
Arkansas	No	n/a	Software delivered electronically is considered non-tangible and non-taxable.
California	No	n/a	Only if the possession or control of the software is transferred to the user/customer it is considered taxable.
Colorado	No	n/a	Generally, Software-as-a-Service is exempt from sales tax.
Connecticut	Yes	6.35%	If SaaS is used for personal use, then taxed at the full state sales tax rate. If SaaS is used for business, then it is only taxed at the rate of 1%.
Delaware	Not applicable	0%	None. There is no sales tax in this state
Florida	No	n/a	Cloud computing services and the sale of software electronically are not subject to Florida sales tax
Georgia	No	n/a	Electronic delivery of software is not considered tangible personal property.
Hawaii	Yes	4%	It does not have a sales tax, but the general excise tax applies to certain goods and services, including SaaS.
Idaho	No	n/a	Since the user has no permanent right to use the software, it is not defined as a taxable service.
Illinois	No	n/a	Generally, Software-as-a-Service is exempt from sales tax.
Indiana	No	n/a	Exempted if the customer has no ownership or control over the software or server.
Iowa	Yes	6%	Taxable if for personal use. If for business use, then SaaS is exempt.
Kansas	No	n/a	SaaS services are not taxed as long as their ownership is not transferred to the users and they access the software remotely.
Kentucky	Yes	6%	SaaS services performed before January 1, 2023, are exempt.
Louisiana	No	n/a	Starting January 1, 2025, Saas will now be taxable in the state of Louisiana. Additionally, transactions where the customer pays a fee to use a website or software without owning it will also be subject to sales tax. Digital Products (i.e., ebooks, downloadable video content, mobile apps) are also taxable.
Maine	No	n/a	Prewritten and electronically delivered software are subject to sales tax, but SaaS services are exempt.
Maryland	Yes	6%	SaaS intended for business use is exempt from sales tax.
Massachusetts	Yes	6.25%	The tax is applied on the use of the software, irrespective of the transfer of ownership
Michigan	No	n/a	As long as the software is accessed electronically only, it is not taxable.
Minnesota	No	n/a	If the seller owns the application, SaaS services are not taxable.
Mississippi	No	n/a	SaaS services are not taxable as long as the software is stored on a server located outside the state.
Missouri	No	n/a	The service provider is taxed for tangible personal property used to provide the service purchased or used in this state.
Montana	Not applicable	0%	None. There is no sales tax in this state
Nebraska	No	n/a	Computer software is taxable, but SaaS services are not defined as computer software.
Nevada	No	n/a	Electronically delivered software is not considered tangible personal property.
New Hampshire	Not applicable	0%	None. There is no sales tax in this state
New Jersey	No	n/a	Software is not taxed as long as it is not electronically delivered to the user. However, Software-as-a-Service businesses that meet the definition of an information service are subject to sales tax.
New Mexico	Yes	4.875%	Custom and canned software and computer services are taxable.
New York	Yes	4%	Access to computing power is non-taxable in the state.
North Carolina	No	n/a	Since the software is not downloaded on the user’s computer, it is not taxed.
North Dakota	No	n/a	Computer software is taxed when transferred and does not require a subscription.
Ohio	Yes	5.75%	Tax-exempt when SaaS is employed for personal use.
Oklahoma	No	n/a	SaaS is not defined as a taxable service.
Oregon	Not applicable	0%	None. There is no sales tax in this state
Pennsylvania	Yes	6%	Computer software is taxable if the user is located within the state.
Rhode Island	Yes	7%	All prewritten software, whether vendor-hosted or not, is subject to SaaS sales tax.
South Carolina	Yes	6%	Software-as-a-Service is considered a communications service and, therefore, subject to sales tax
South Dakota	Yes	4.50%	Electronically delivered software is considered tangible personal property.
Tennessee	Yes	7%	SaaS is subject to sales and uses tax, irrespective of a customer’s method of use.
Texas	Yes	6.25%	SaaS is 80% taxable and 20% exempt from sales tax as they are considered part of a data processing service.
Utah	Yes	4.85%	License fees for remotely accessed software and cloud computing applications are taxable.
Vermont	No	n/a	Prewritten and downloadable software are considered taxable
Virginia	No	n/a	SaaS transactions and maintenance services are exempt from sales and use tax.
Washington	Yes	6.50%	All types of software are taxable in the state.
West Virginia	Yes	6%	The sales of qualified data processing services are non-taxable.
Wisconsin	No	n/a	The services are exempt from sales tax if the vendor owns and possesses the software.
Wyoming	No	n/a	The services are non-taxable as long as the user doesn’t get any tangible personal property (such as a disk drive).

SaaS is taxable in the District of Columbia as all custom and prewritten software are taxed.

If SaaS services are taxable in your state, you must collect sales tax on SaaS subscriptions from your customers. You must have a Private Letter Ruling for specific guidance about SaaS taxability in your state to get the proper compliance guidance for your business.

TaxHero helps your SaaS business stays compliant.

Complying with SaaS sales tax laws and regulations can be a complex and time-consuming. TaxHero experts can simplify this job by handling all the compliance requirements. Our CEO can help walk you through our full-stack all-inclusive sales tax services.

Is shipping taxable? Determine sales tax on shipping by state | TaxHero

Is there such a thing as sales tax on shipping? You might wonder whether shipping and handling charges are taxable if you’re an online seller. The answer to this question varies by state.

As an ecommerce seller in the US, you likely already collect sales tax from your customers for the products and services you sell. But what about shipping? Do you need to charge sales tax on shipping as well?

Understanding how sales tax on shipping is crucial to maintaining compliance with states you have nexus. This blog delves into shipping taxability and provides all the details you need.

What are Shipping and Handling Services?

Regarding shipping and handling services, it’s essential to understand that these terms encompass different activities involved in delivering products to customers.

Shipping involves explicit activities such as:

selecting a shipping carrier
packaging items
generating shipping labels
tracking shipments
transporting items

Handling services, on the other hand, include activities like

product inspection
sorting and organizing
package assembly
ensuring package safety
labeling packages
coordinating with shipping carriers

While the taxability of these services varies by state, it’s worth noting that shipping services are taxable in some states, while others exempt them from sales tax. On the contrary, handling services are typically subject to sales tax in most states.

Continue reading as we provide a more detailed explanation of the tax implications for shipping and handling services.

What Factors Determine if Shipping is Taxable?

Shipping tax or the sales tax on shipping involves considering several factors. Here are some of the critical factors that play a role:

Destination – The customer’s location determines whether sales tax applies to shipping. Depending on the state’s sales tax rate and taxability laws where the products are being shipped, the shipping cost may be subject to sales tax.
Taxability of Product – Another important factor is the taxability of the product being shipped. Certain products may be exempt from sales tax, while others are taxable. The distinction can impact whether sales tax applies to the shipping charges.
Mode of Transportation – The method used for transportation, whether the seller uses their own vehicle or a third-party shipping carrier, can also influence the shipping taxability. Different states may have specific rules or exemptions based on the mode of transportation.

Considering these factors, you can determine whether sales tax should apply to shipping charges.

When is Sales Tax on Shipping Charged?

Determining when to charge sales tax on shipping can indeed be overwhelming for ecommerce businesses due to the complexity and variations in state rules. It’s essential to understand the regulations to avoid potential liabilities.

Forgetting to collect sales tax on shipping can result in personal financial responsibility. To ensure compliance and mitigate risks, it’s crucial to familiarize yourself with the specific sales tax requirements in each state where you have nexus.

Here are some general guidelines to keep in mind:

Taxable Items – If the shipped items are taxable, the shipping charges will likely be subject to sales tax unless stated otherwise.
Non-Taxable Items – No state typically imposes a sales tax on shipping non-taxable items as long as they are shipped separately from taxable items.
Combined Shipments – In cases where a shipment includes taxable and exempt products, the shipping cost allocated to the taxable sales is taxable.
Separate Shipping Charges – Some states may exempt shipping charges from sales tax if you separately charge customers for shipping, distinct from the selling price of the product. However, if you include shipping costs in the item’s price, it is generally considered taxable, and you must calculate sales tax on the total amount (product price + shipping cost).

These guidelines provide a starting point, but digging deeper into the specific sales tax regulations of the states where you operate is essential to ensure accurate compliance.

States Guide on Sales Tax on Shipping

Here is our comprehensive guide with a state-by-state breakdown of key details about sales tax on shipping.

STATE	IS SHIPPING TAXABLE?	EXEMPTIONS, IF ANY
Alabama	Yes	Sales tax is exempt if: shipping charges are billed as a separate line item from the price of the item and are paid by the customer (indirectly or directly) and delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service
Alaska	Not applicable	There is no sales tax in this state.
Arizona	No	Sales tax is exempt if: shipping charges are separable from the product price and stated separately
Arkansas	Yes	Sales tax on shipping is exempt if the item is exempt.
California	No	Sales tax is exempt if: shipping charges are billed as a separate line item from the price of the item and are paid by the customer (indirectly or directly) and delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service
Colorado	No	Sales tax is exempt if: shipping charges are separable from the product price and stated separately
Connecticut	Yes	Sales tax on shipping is exempt if the item is exempt.
Delaware	Not applicable	There is no sales tax in this state.
District of Columbia	Yes	Sales tax is exempt if: delivery happens after the sale and shipping charges are stated separately
Florida	No	Sales tax is exempt if: shipping is optional (i.e., buyer is allowed to pick up the item) and shipping charges are stated separately
Georgia	Yes	Sales tax on shipping is exempt if the item is exempt.
Hawaii	Yes	Sales tax is exempt if shipments are made outside of the state.
Idaho	No	Sales tax is exempt if shipping charges are stated separately.
Illinois	No	Sales tax is exempt if: shipping charges are separately contracted for and the buyer is allowed to pick up the purchased item Sales tax on shipping is exempt if the item is exempt.
Indiana	Yes	Sales tax is exempt if delivery charges are billed and furnished by a third party.
Iowa	No	Sales tax is exempt if: shipping charges are separately contracted for and separately stated.
Kansas	Yes	Beginning July 1, 2023, sales tax is exempt for delivery charges separately stated on the invoice.
Kentucky	Yes	Sales tax on shipping is exempt if the item is exempt.
Louisiana	No	Sales tax is exempt if: delivery happens after the sale and shipping charges are stated separately
Maine	Yes	Sales tax is exempt if: shipping charges are billed as a separate line item from the price of the item and are paid by the customer (indirectly or directly), delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service, and shipment is made directly to the customer.
Maryland	No	Sales tax is exempt if shipping charges are stated separately.
Massachusetts	No	Sales tax is exempt if: shipping costs are related to the cost of preparing and delivering goods to a location set by the buyer, shipping charges are stated separately, and the prices are set in good faith and are reasonable.
Michigan	No	Sales tax is exempt if: shipping charges are stated separately and seller maintains records to show transactions used to determine sales tax separately. Shipping costs related to a utility’s sale of natural gas, electricity, or artificial gas are still taxable.
Minnesota	Yes	Sales tax on shipping is exempt if the item is exempt.
Mississippi	Yes	Sales tax on shipping is exempt if the item is exempt.
Missouri	No	Shipping and handling charges in the state of Missouri are not taxable.
Montana	Not applicable	There is no sales tax in this state.
Nebraska	Yes	Sales tax is exempt if the buyer/customer paid the shipping charge separately from the product’s sale to the shipping carrier or delivery/freight company.
Nevada	No	Sales tax is exempt if: shipping charges are stated separately and title passes to the purchaser before shipment according to a written agreement.
New Hampshire	Not applicable	There is no sales tax in this state.
New Jersey	Yes	Sales tax on shipping is exempt if the item is exempt.
New Mexico	Yes	Sales tax is exempt if the seller paid the shipping charge separately from the product’s sale to the shipping carrier or delivery/freight company.
New York	Yes	Sales tax is exempt if they have separately stated charges to ship promotional materials.
North Carolina	Yes	Sales tax on shipping is exempt if the item is exempt.
North Dakota	Yes	Sales tax on shipping is exempt if the item is exempt.
Ohio	Yes	Sales tax is exempt if: the buyer/customer paid the shipping charge separately from the sale of the product to the shipping carrier or delivery/freight company or item is exempt.
Oklahoma	No	Sales tax is exempt if shipping charges are stated separately.
Oregon	Not applicable	There is no sales tax in this state.
Pennsylvania	Yes	Sales tax on shipping is exempt if the item is exempt.
Rhode Island	Yes	Sales tax on shipping is exempt if the item is exempt.
South Carolina	Yes	Sales tax is exempt if shipping charges are incurred after the title has passed to the buyer.
South Dakota	Yes	Sales tax is exempt if: the buyer/customer paid the shipping charge separately from the sale of the product to the shipping carrier or delivery/freight company or item is exempt.
Tennessee	Yes	Sales tax on shipping is exempt if the item is exempt.
Texas	Yes	Sales tax is exempt if: the buyer/customer paid the shipping charge separately from the sale of the product to the shipping carrier or delivery/freight company or item is exempt.
Utah	No	Sales tax is exempt if shipping charges are stated separately.
Vermont	Yes	Sales tax is exempt if separately stated shipping charges for direct mail and not retail sales
Virginia	No	Sales tax is exempt if shipping charges are stated separately.
Washington	Yes	Sales tax is exempt if: a third party delivers goods to the customer after the sale of the goods or item is exempt.
West Virginia	Yes	Sales tax on shipping is exempt if the item is exempt.
Wisconsin	Yes	Sales tax is exempt if: separately stated shipping charges for direct mail and not retail sales, or item is exempt.
Wyoming	No	Sales tax is exempt if shipping charges are stated separately.

Is Shipping Taxable On Out-of-State Sales?

Nexus determines the taxability of shipping, whether it is an in-state or out-of-state sale. Sales tax nexus refers to a business’s presence or connection in a particular state that triggers sales tax obligations.

If you do not have an economic nexus in a specific state, you are not required to collect sales tax from buyers in that state, including sales tax on shipping. Conversely, if you have a sales tax nexus in a state, but the state exempts sales tax on shipping, you are not obligated to collect it from customers.

It’s important to note that each state has its own rules and regulations regarding sales tax on shipping. To determine whether shipping tax is payable on out-of-state sales, it’s best to contact the Department of Revenue in those states. They can provide information on their policies regarding sales tax nexus and shipping taxability.

Remember to consult professionals or TaxHero’s sales tax experts to receive accurate and up-to-date advice tailored to your specific business circumstances.

Should you charge sales tax on your shipping fee?

Shipping taxability is just one of the elements you must get right to ensure compliance for your ecommerce business. We know it is challenging. That is why TaxHero is here to assist you. Our team specializes in and handles all your sales tax functions.

To get personalized advice tailored to your business, we invite you to speak with Lahari, our CEO. More than TaxHero’s founder, she is a sales tax expert with extensive experience managing ecom companies’ sales tax.

Sales tax on services by state: A complete guide | TaxHero

Navigating the complex and ever-changing sales tax on services can be challenging for businesses and is usually more complicated than understanding sales tax on goods.

The common misunderstanding is that only physical goods are subject to sales tax, and services are somehow exempt. However, clarifying this misconception is essential because many businesses are unaware of the changing rules and regulations when collecting sales tax on services. In recent years, an increasing number of states have started requiring sales tax on services and are continuously updating their guidelines on what is taxable and what is exempt.

This guide aims to clarify sales tax on services across the states and serves as a valuable resource to streamline sales tax compliance for businesses and tax professionals.

Goods vs. Services: What’s the difference?

To better understand how sales tax guidelines distinguish between “goods” and “services,” let’s define these terms and highlight their fundamental differences.

Goods. Defined as TPP or “Tangible Personal Property” items, such as furniture, automobile, jewelry, beauty products, clothing, appliances, electronics, food items, and more.
Services. Refers to intangible activities that may or may not produce a tangible good. Services include legal, consulting, advertising, personal grooming, repairs and maintenance, and more.

What are the different types of “Services”?

Services cover many activities, but we can make things easier to understand by grouping them into a few broad categories.

Business Services – includes consulting, advertising, computer services, lobby, and human resource services.
Personal Services – includes various self-improvement and personal grooming services, such as dry cleaning, salons, and spas. Animal grooming is also included in personal services and is taxable in some states.
Professional Services – services provided by licensed and certified professionals such as accountants, lawyers, physicians, attorneys, doctors, and architects. These services are taxable only in some states due to powerful lobbying.
Services to TPP – refer to services directly related to the sale of tangible personal property (i.e., products). These services include repairs and maintenance, shipping or delivery, warehousing, engineering, installation, and rental services.
Amusement and Recreation Services – services that provide entertainment, fun, and enjoyment to individuals. They include amusement parks, sports events, concerts, and sightseeing tours.
Service to Real Property – services directly related to immovable property (i.e., buildings) and real estate. They include building improvement, construction, architectural, property management, property maintenance (i.e., lawn service, cleaning/janitorial services), and broker services.

Some other services are educational, healthcare, and nonprofit organization services. Typically, these services are exempt from sales tax in all states.

Do I Charge Sales Tax on Services?

Each state has its rules and regulations on what type of service to charge sales tax. Just like products, not all services are subject to sales tax. New sales tax regulations are being implemented frequently on services as service-based businesses grow in the United States.

As a business, you must determine whether you need to charge sales tax on services before running a service-based business.

To determine if your business is eligible to collect sales tax on the services you provide, there are a few crucial factors to consider:

Taxability of Services: Understanding the taxability rules for services in each state where you conduct business is vital. Each state has different guidelines regarding which services are subject to sales tax.
Nexus Requirements: You only need to focus on the states where your business has established a physical and economic nexus. Nexus refers to having a significant presence or connection in a state that triggers tax obligations.

You should register for a sales tax permit in states where your business meets these criteria. This registration ensures compliance with sales tax regulations specific to your services.

Sales Tax on Services by States

The following table summarizes each state’s general services category subject to sales tax.

Note: Within each category of services, each state can have different regulations for sales tax and what is taxable within that category. Please refer to the State’s Department of Revenue website for guidelines on whether a specific service is taxable.

STATE	ARE SERVICES TAXABLE?	SALES TAX RATE	EXEMPTIONS
Alabama	No	n/a	Services are generally not taxable.
Alaska	not applicable	0%	None. There is no sales tax in this state.
Arizona	No	n/a	The majority of all service-based transactions, such as professional services, advertising, and cleaning services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Job Printing Pipeline Prime Contracting Private Car Line Telecommunications Transient Lodging Transporting Utilities
Arkansas	Yes	6.50%	Personal and business services, services to TPP, amusement, and services to real property
California	No	n/a	None
Colorado	No	n/a	None
Connecticut	No	n/a	The majority of all service-based transactions, such as medical services and engineering, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Advertising or public relations services Computer and Data Processing Credit Information and Reporting Exterminating Services Dry Cleaning Services Management
Delaware	not applicable	0%	None. There is no sales tax in this state.
Florida	No	n/a	The majority of all service-based transactions, such as professional services, advertising, and salon services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Detective and other protection services Fingerprinting services Non-residential cleaning and pest control services Charges for admission to any place of amusement, sport, or recreation
Georgia	No	n/a	None
Hawaii	Yes	4%	Personal and business services, services to TPP, amusement, and services to real property
Idaho	No	6%	Taxable services: Food/drink or serving services, accommodation services, Intrastate air transportation services, manufacturing or production services, Taxidermy services, tire service
Illinois	No	n/a	None
Indiana	No	n/a	None
Iowa	No	n/a	The majority of service-based transactions, such as advertising, employee service, and construction, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Building maintenance like janitorial and cleaning services (non-residential only) Alteration and garment repair Barber and beauty services Photography Jewelry and watch repair Landscaping, lawn care, and tree trimming and removal Sewing and stitching Tanning beds or tanning salons Demolition
Kansas	Yes	6.50%	Services to TPP and amusement
Kentucky	Yes	6%	Recreation
Louisiana	No	n/a	The majority of service-based transactions, such as professional services, advertising, and employment services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Coating, wrapping, and galvanizing pipe and other property Laundry, cleaning, pressing, and dyeing services Repairs to autos, appliances, equipment, and other property Storage space for clothing, furs, and rugs Vehicle storage and parking Cold storage space Hotel occupancy Printing services Telecommunications services
Maine	Yes	5.50%	Personal services and services to TPP
Maryland	No	n/a	The majority of service-based transactions, such as professional services and advertising, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Manufacturing or producing personal property Transportation of electricity or natural gas Certain telecommunications services Credit reporting services Security services Commercial cleaning and janitorial services
Massachusetts	No	n/a	None
Michigan	No	n/a	None
Minnesota	Yes	6.88%	Personal and business services, services to TPP, amusement, and services to real property
Mississippi	Yes	7%	Business services, services to TPP, amusement, and services to real property
Missouri	No	n/a	The majority of service-based transactions, such as professional services, advertising, and cleaning services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Admissions to places of amusement, entertainment and recreation, games, and athletic events Utilities like electricity, water, or gas to domestic, commercial or industrial users Phone, mobile, and telegraph services Hotel stays, restaurant meals, and drinks from places like hotels, diners, and bars Transportation services like taxis, rideshares, buses, etc.
Montana	not applicable	0%	None. There is no sales tax in this state.
Nebraska	Yes	5.50%	Personal and business services, services to TPP, amusement, and services to real property
Nevada	No	n/a	The majority of service-based transactions, such as professional services, advertising, and cleaning services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Production, fabrication, processing, printing, and imprinting services Food or beverage preparation services
New Hampshire	not applicable	0%	None. There is no sales tax in this state.
New Jersey	No	n/a	The majority of service-based transactions, such as professional services, advertising, and interior design services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Information services Investigation and detective services Mail processing services for printed advertising/promotional material Massage services Sign fabrication and installation services Servicing or repair of real property Tanning services Tattooing Telecommunications Utility services Telephone answering services received by customers in New Jersey
New Mexico	Yes	4.875%	Personal, professional, and business services, services to TPP, amusement, and services to real property
New York	No	n/a	The majority of service-based transactions, such as professional services, advertising, and laundry and dry cleaning services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Utility services Cleaning, maintenance, and repair services Telecommunication (phone and mobile) services Information services Interior decorating and design services Protective and detective services Hotel occupancy Admission to places of amusement Social and athletic club dues Certain cabaret services
North Carolina	No	n/a	The majority of service-based transactions, such as professional services, advertising, and janitorial services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Service Contracts Video Programming Services Dry Cleaning and Laundry Services Repair, Maintenance, and Installation Services Telecommunications Services and Ancillary Services Prepaid Telephone Calling Services Satellite Digital Audio Radio Services Admission Charges to an Entertainment Activity
North Dakota	Yes	5%	Recreation
Ohio	No	n/a	The majority of service-based transactions, such as professional services and advertising, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Short-term hotel room rentals Private investigation or security services Information services via 1-900 calls Producing goods from customer-supplied materials Exterminating services Physical fitness facility services Recreation and sports club services Vehicle washing, cleaning, waxing, polishing, or painting services Towing services for motor vehicles Laundry and dry cleaning services, excluding coin-operated Business-related data processing, computer, and electronic information services Certain telecommunication services Satellite broadcasting services Personal care services (skin care, cosmetics, manicures, pedicures, hair removal, tattoos, piercings, tanning, massage), excluding hair care In-state person transportation, excluding public transit and commercial airlines Snow removal services with annual sales over $5,000 Storage of tangible personal property, except for inventory storage
Oklahoma	No	n/a	The majority of service-based transactions, such as professional services and cleaning services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Advertising services Admissions, dues, or fees to clubs, amusement venues, sports events, or for using facilities related to entertainment, recreation, or athletics. Catering services Computer services involving prewritten programs Fabrication services Florist services Hotel accommodation Tanning salons Telecommunications services sourced to Oklahoma
Oregon	not applicable	0%	None. There is no sales tax in this state.
Pennsylvania	No	n/a	The majority of service-based transactions, such as professional services, advertising, and laundry and dry cleaning services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Adjustment and collection services Lobbying services Disinfecting or pest control service Catering services Help supply services Credit reporting services Lawn care services Premium cable services Self-storage services
Rhode Island	No	n/a	None
South Carolina	Yes	6%	Personal services, services to TPP, and amusement
South Dakota	Yes	4.50%	Personal, professional, and business services, services to TPP, amusement, and services to real property
Tennessee	No	n/a	Taxable services include: Repair and installation of TPP or computer software, cleaning of TPP, lodging services, animal bathing, Telecommunication and Television programming services, parking, ancillary services
Texas	Yes	6.25%	Business services, services to TPP, amusement, and services to real property
Utah	No	n/a	The majority of service-based transactions, such as professional services, advertising, and beauty services, are not subject to sales tax. However, there are specific situations where certain services are taxable like: Laundry and dry-cleaning services Assisted cleaning or washing of tangible personal property Use of assisted amusement devices In-state telecom services
Vermont	Yes	6%	Amusement and services to TPP
Virginia	No	n/a	The majority of service-based transactions, such as professional services, clothing alterations, and repair services, are not subject to sales tax. However, if a business offers services that include creating or manufacturing a tangible personal product, it is seen as a retail sale and, therefore, is subject to sales tax.
Washington	Yes	6.50%	Personal and business services, services to TPP, and amusement
West Virginia	Yes	6%	Business services, services to TPP, amusement, and services to real property
Wisconsin	Yes	5%	Services to TPP, amusement, and services to real property
Wyoming	Yes	4%	Amusement and services to TPP

Improve your Sales Tax Compliance with TaxHero

Let the expert at TaxHero handle the nitty-gritty of your sales tax compliance. We’ll take care of everything from determining taxability to understanding your nexus requirements. Book a call today to get your questions answered!