Sales tax on services by state: A complete guide

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 clarifies sales tax on services across states and serves as a valuable resource to streamline sales tax compliance for businesses and tax professionals.

Key Takeaways

Each state has different rules regarding the taxability of services. Some states may exempt a specific service, while others may not
Charging sales tax on services is not required unless your business has a sales tax nexus in a state and you are selling a taxable service in that state.
What’s exempt at a state-level can still be subject to local sales tax. It’s important to check local or home rules, especially for sales tax on services.
The taxability of bundled transactions where both goods and services are sold together can be determined through a “true object test.”
Rules can change anytime. An exempt service today can be taxable tomorrow. Staying updated with the latest news is important.

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, automobiles, 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 some but not all states.

Additionally, it’s important to note that being a nonprofit organization does not always grant sales tax exemptions. Individually checking each state’s rules on nonprofit organization services is crucial to ensure you apply the proper taxabilities and exemptions.

When to Charge Sales Tax on Services?

Each state has its own rules and regulations regarding which types of services are subject to 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.

How to Determine Service Taxability Using the True Object Test

Identifying the taxability of services can stir confusion at times when it involves the sale of tangible personal property or equipment. This commonly occurs in bundled sales where both goods and services are sold together. In that case, how can you identify when to charge sales tax on services when the service may not be recognized as a service?

The states have come up with a solution to this dilemma, which is the “true object test.”

This test focuses on defining the main purpose of the transaction. Basically, you must ask yourself, is the main purpose of the transaction to receive a service or to obtain the goods involved?

Here’s an example of a true object test:

An accountant charges you for their financial reporting service. The report is a physical documentation that makes it a tangible personal property being sold along with the service.
Your main purpose is to obtain that report to use for your business’s financial planning.
However, there won’t be a report at all without the accountant’s services in the first place. In other words, the transaction can’t be accomplished without the accounting services involved.
Therefore, the “true object” here is the service provided, not just obtaining the report. Thus, the transaction is defined solely as a “service” and not the sale of tangible personal property or equipment. With this, the confusion of a service’s taxability can be easily cleared.

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	There is no statewide sales tax in Alaska. However, cities and boroughs may impose a local sales tax on services. At the local level, services are generally not taxable. However, a few services are subject to sales tax, such as: Linen or garment rentals Amusement or Entertainment Services Renting/leasing of tangible personal property Labor charges for making, producing, or fabricating new tangible personal property
Alaska	not applicable	0%	There is no statewide sales tax in Alaska. However, cities and boroughs may impose a local sales tax on services.
Arizona	No	n/a	The majority of all service-based transactions, such as professional services, advertising, and cleaning services, are generally not subject to sales tax. However, there are specific situations where certain services are taxable, like: Utilities Pipeline Contracting Job printing Transporting Private car lines Transient lodging Telecommunications Amusement or entertainment services
Arkansas	Yes	6.50%	Personal and business services, services to TPP, amusement, and services to real property are generally taxable.
California	No	n/a	Most services are not subject to sales tax in California. However, services that are inseparable from the sale of TPP may be subject to sales tax, such as fabrication labor.
Colorado	No	n/a	Sales of services are generally not taxable at the state level in Colorado. Local government can apply a home rule where a local sales tax is applied to certain services. At the state level, only a few specified services are taxable in Colorado. Those taxable services are: Telephone and telegraph services Gas and electric services for commercial use
Connecticut	Yes	6.35%	The majority of service-based transactions are generally taxable in Connecticut, such as: Management Dry cleaning services Exterminating services Computer and data processing Credit information and reporting Advertising or public relations services
Delaware	not applicable	0%	There is no sales tax in Delaware.
Florida	Yes	6%	Certain services are taxable in Florida, such as: Detective and other protection services Non-residential cleaning and non-residential pest control services Charges for admission to any place of amusement, sport, or recreation
Georgia	No	n/a	Most services are generally exempt from sales tax in Georgia. However, certain services are subject to sales tax, such as: In-state transportation of individuals through taxis or limousines Admission charges to any place of amusement, sport, or recreation Charges required to complete the sale of a TPP (e.g., $20 sale price of a shirt plus $5 for delivery, sales tax is imposed on $25)
Hawaii	Yes	4%	All services are generally subject to GET (General Excise Tax) in Hawaii. Exceptions only apply when specifically stated by Hawaii authorities.
Idaho	Yes	6%	A variety of services are taxable in Idaho, such as: Renting or leasing Accommodation services Printing and imprinting services Fitness or health club memberships Manufacturing or production services Admission charges to any place of amusement, sport, or recreation
Illinois	No	n/a	Services are generally not subject to sales tax in Illinois.
Indiana	No	n/a	Services are generally not taxable in Indiana. However, a few exceptions apply to services such as: Intrastate telecommunication services Photography and video services (when sold as a service package with added labor charges) Contractor services involving preparation, fabrication, alteration, modification, finishing, completion, and delivery of construction materials
Iowa	No	n/a	A wide range of specified services is subject to sales tax in Iowa. Anything that is not listed on the list of taxable services is most likely exempt from sales tax. The following are a few examples of tax-exempt services in Iowa: Services for resale Employee services Construction services Repair and restoration of TPP
Kansas	Yes	6.50%	Most services are generally subject to sales tax in Kansas. However, a few specific services are exempt from sales tax, such as: Janitorial services Demolition services performed in connection with the “original construction” of a building (residential or commercial) or facility on the same site Professional services such as medical services, engineering, consulting, accounting, and bookkeeping services
Kentucky	Yes	6%	The majority of service-based transactions are generally subject to sales tax in Kentucky.
Louisiana	No	n/a	Services are generally not subject to sales tax at the state level in Louisiana. However, a few specific services are taxable, such as: Parking Admissions Information services Furnishing of sleeping rooms Printing and copying services Furnishing of cold storage space Prewritten computer software access services Cable, satellite, and digital audio radio services Repairs and maintenance of TPP and digital products Telecommunications services in accordance with R.S. 47: 301.1 Laundry, cleaning, pressing, alteration, repair, and dyeing services
Maine	Yes	5.50%	Services are generally exempt from sales tax in Maine. However, certain services may be subject to the state’s service provider tax instead. Those services are: Rental services Ancillary services Fabrication services Telecommunications services Cable and satellite television or radio services Installation, maintenance, or repair of telecommunications equipment
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	Services are generally not subject to sales tax in Massachusetts.
Michigan	No	n/a	Services are generally not subject to sales tax in Michigan.
Minnesota	Yes	6.875%	Most services are generally not taxable in Minnesota. However, some services are subject to sales tax, such as: Parking Lodging Massages Admissions Delivery charges Telecommunication Detective and security Cleaning and maintenance Lawn, tree, bush, and gardening Pet grooming, boarding, and care Laundry, dry cleaning, and alteration Motor vehicle towing, washing, waxing, rustproofing, and cleaning services
Mississippi	Yes	7%	Business services, services to TPP, amusement, and services to real property
Missouri	No	n/a	Most services are exempt from sales tax in Missouri. However, there are a few exceptions. The following services are subject to sales tax in Missouri: Phone, mobile, and telegraph services Transportation services like taxis, rideshares, buses, etc. Hotel stays, restaurant meals, and drinks from places like hotels, diners, and bars Utilities like electricity, water, or gas to domestic, commercial, or industrial users Admissions to places of amusement, entertainment, and recreation, games, and athletic events
Montana	not applicable	0%	There is no sales tax in Montana.
Nebraska	Yes	5.50%	A variety of services are subject to sales tax in Nebraska. However, a few services are exempt, such as: Laundry and dry cleaning Installations of agricultural chemicals Medical services for livestock animals Repair and maintenance services for tires
Nevada	No	n/a	Most services are not taxable in Nevada. However, services to TPP are taxable, such as: Food or beverage preparation services Production, fabrication, processing, printing, and imprinting services Installation and repair services are taxable if not listed separately on the invoice
New Hampshire	not applicable	0%	There is no sales tax in New Hampshire.
New Jersey	No	n/a	Most services are taxable in New Jersey. However, exceptions apply to the following services: Typing Credit repair Bookkeeping Daycare centers Advertising services Architectural services Data processing services Laundry and dry cleaning Contractual garbage removal Sports event admission charges Professional accounting services Cable or satellite TV subscription Jewelry and real estate appraisals Beauty parlor and barber shop services
New Mexico	Yes	4.875%	Personal, professional, and business services, services to TPP, amusement, and services to real property are generally subject to gross receipts tax in New Mexico. Currently, only a few services are exempt, such as: Handling, feeding, pasturing, and training livestock Insurance company receipts or agent receipts for property bondsmen from bail bond securities
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 at the state level in New York. However, there are specific situations where certain services are taxable, like: Utility services Hotel occupancy Information services Certain cabaret services Social and athletic club dues Protective and detective services Admission to places of amusement Interior decorating and design services Cleaning, maintenance, and repair services Telecommunication (phone and mobile) services NOTE: Some services are only taxed locally in some cities but not taxed at the state level.
North Carolina	No	n/a	Most services are not subject to sales tax in North Carolina. However, there are specific situations where certain services are taxable, like: Service contracts Video programming services Dry cleaning and laundry services Prepaid telephone calling services Satellite digital audio radio services Repair, maintenance, and installation Telecommunications and ancillary services Admission charges to an entertainment activity
North Dakota	No	n/a	Most services are generally not taxable in North Dakota. However, a few services are subject to sales tax, such as: Renting or leasing of TPP Photo developing or printing Amusement or recreation services Tire repair and restoration services
Ohio	Yes	5.75%	Most services are subject to sales tax in Ohio. However, a few services are exempt, such as: Insurance transactions Professional and personal services
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: Tanning salons Florist services Catering services Advertising services Fabrication services Hotel accommodation Computer services involving prewritten programs Telecommunications services sourced to Oklahoma Admissions, dues, or fees to clubs, amusement venues, sports events, or for using facilities related to entertainment, recreation, or athletics.
Oregon	not applicable	0%	There is no sales tax in Oregon.
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: Catering services Lobbying services Lawn care services Help supply services Self-storage services Premium cable services Credit reporting services Adjustment and collection services Disinfecting or pest control service
Rhode Island	Yes	7%	A variety of services are taxable in Rhode Island. Taxable services in Rhode Island include, but aren’t limited to: Renting or leasing TPP Pet care and grooming services Transportation of individuals through taxis or limousines
South Carolina	Yes	6%	Certain services are taxable in South Carolina, including but not limited to: Electricity Hotel accommodation Communication services Renting or leasing of TPP Dry cleaning and laundry services Admission to places of amusement
South Dakota	Yes	4.20%	Most services are taxable in South Dakota. However, certain services are exempt from sales tax, such as: Social services Health services Advertising services Agricultural services Educational services Construction services Veterinary and animal specialty Local and suburban passenger transportation (not including limousine, school buses, trucking, and courier services) Credit counseling services provided by individual or family social services
Tennessee	Yes	7%	Specific services are taxable in Tennessee. Those services are: Lodging services Short-term space rentals Telecommunication services and ancillary Cleaning of TPP, including animal bathing Repair and installation of TPP or computer software
Texas	Yes	6.25%	Most services are taxable in Texas. Taxable services include, but are not limited to: Amusement Services to TPP Business services 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: Dry cleaning and laundry services In-state telecommunication services Use of assisted amusement devices Assisted cleaning or washing of tangible personal property
Vermont	Yes	6%	Most services are generally exempt from sales tax in Vermont. However, certain services are taxable, such as: Taxidermy Dog grooming Aircraft rentals Streaming services Public utility services Telecommunications service Admission to places of amusement Photo copying and printing services Cable and direct satellite TV services Producing, fabricating, printing, or imprinting of tangible personal property
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%	Most services are taxable in Washington. As of October 1, 2025, more services have also become taxable in Washington. Those services are: Web developing Temporary staffing Advertising services Custom software and customization Information Technology (IT) services Live presentations (webinars or courses) Investigation, security, and armored car services
West Virginia	Yes	6%	Most services are taxable in West Virginia. However, a few exceptions apply. The following services are exempt from West Virginia sales tax: Advertising Contracting Public services Day care services Employee services Educational summer camps Interstate transportation services
Wisconsin	Yes	5%	Most services are taxable in Wisconsin, including but not limited to: Photographic services Telecommunications services Laundry and dry cleaning services Admission to places of amusement Fabricating, processing, and printing Rooms or lodging for less than one month Contracts for future performance of services Parking services for motor vehicles and aircraft Landscaping and lawn maintenance services Towing and hauling of motor vehicles by a tow truck Repair and service of tangible personal property, items, property, or goods
Wyoming	No	n/a	Most services are generally exempt from sales tax in Wyoming. However, certain services are taxable, such as: Repair and alterations of TPP Intrastate transportation services Admission to places of amusement Rental or leasing of TPP or ancillary services

Which state taxes the most services?

Even with the table provided above, it can be difficult to tell which state taxes the most services at a glance. In summary, there are 4 states that tax services automatically, unless specific exemptions are stated. Those states are Hawaii, New Mexico, South Dakota, and West Virginia.

Aside from the aforementioned states, Washington and Minnesota are 2 states with a very broad taxability base for sales tax on services.

Which state taxes the fewest services?

Five states do not impose any sales tax at all. Those states are New Hampshire, Oregon, Montana, Alaska, and Delaware, also known as the “NOMAD” states. However, for clarification, Alaska does have a local sales tax.

But apart from the NOMAD states, there are plenty of sales tax-friendly states when it comes to the taxability of many services. Here are some of those states:

DISCLAIMER: Most services in the states listed above may not be taxable at the state level. However, services can still be taxable at a local level due to applicable home rules in states like Colorado, Alabama, and Louisiana.

How to Stay Compliant with Varying Rules for Sales Tax on Services

The taxability of services varies state-by-state. With this level of complexity, it’s easy to feel lost when it comes to navigating the ever-changing sales tax rules. To help you stay compliant when managing sales tax on services, here are 5 essential tips to keep in mind.

Check the state’s tax rules thoroughly – Whether you are selling from North to South, it’s important to know the specific rules of every state you are dealing with. One state may tax certain services, while another may not.
Additionally, local taxability also matters. Sometimes, what’s tax-exempt at a state level may still be subject to local sales tax. To keep everything covered, you should also check the city or county’s rules when it comes to the service’s taxability.
Consider your nexus – Before you worry about charging sales tax on your services, first, you need to ask, should you collect sales tax at all? If you have no sales tax nexus in a state, you are generally not required to register and have no obligation to collect sales tax from your services.
This means even if your services are subject to sales tax, charging sales tax is not mandated until you establish an economic nexus in the state you are selling to.
Keep in mind that rules change over time – What’s exempt today may become taxable tomorrow. Never let your guard down when it comes to taxabilities of your products and services. To ensure you stay updated, you can consider doing the following:
– Visit state websites directly for more official and verified news.
– Subscribe to sales tax channels that provide nationwide updates.
– Follow accounts or pages that announce relevant sales tax news.
Do a true object test when necessary – As explained earlier, a true object test is done by certain states to accurately determine a service’s taxability. If a transaction’s main purpose involves the sale of a tax-exempt service, then the transaction should be exempt from sales tax.
However, if a transaction primarily involves the sale of tangible personal property or equipment along with the service, then the transaction may be defined as a retail sale rather than a tax-exempt service.
That means the transaction is determined to be taxable based on the “true object” test.
Use a reliable sales tax software – Consider using a sales tax software that can do everything for you, including alerting you whenever there’s a new rule that may impact your business.
If you need help with sales tax compliance, you can try out TaxHero’s free demo and learn how we fully take sales tax compliance off your hands.

Local Sales Tax on Services

While some states may not have a statewide sales tax on services, some localities, such as counties or cities, may impose a local sales tax on services.

For example, the state of New York does not impose a statewide sales tax on the following services, but a local sales tax in New York City applies:

- Electrolysis
- Tanning Services
- Massage Services

Beautician Services
Credit Rating Services
Manicure and Pedicure
Services provided by weight control and Health Salons, Gyms, Sauna Baths, and other similar facilities

This difference in state and local taxabilities of services further complicates the already complex nature of sales tax.

If you need help with sales tax on services or have any questions, book a call with our CEO at TaxHero.

Common Mistakes When Managing Sales Tax on Services

Another way to ensure you stay compliant is by being conscious of the common mistakes when it comes to dealing with sales tax on services. With that said, avoid these 3 common mistakes businesses make when managing sales tax on services:

Assuming the taxability – This mistake happens anywhere related to sales tax compliance. Assuming a product’s taxability and not verifying with official resources, such as state websites, can cause you unwanted liabilities.
Skipping the true object test – It’s not always easy to determine on the spot whether your service is taxable or not. In some states, like Colorado, you must do a true object test to identify if your service is the “true object” of the transaction.
However, if a tangible personal property or equipment involved with the service is the “true object” of the transaction, then your sale may become subject to sales tax. Whenever you’re in doubt about your service’s taxability, don’t miss out on doing a true object test.
Not checking local taxability – In line with the first mistake, it’s also common to forget that some localities have their own rules. To avoid penalties, always keep in mind that state-level exemptions may not always apply locally.

Why Sales Tax on Services Continues to Expand

As of now, more states still have an average coverage when it comes to the taxability of services. However, as trends change and demands grow, some states may also begin defining the taxability of more services anytime soon.

Just like how laws on digital products and their taxability continue to evolve, sales tax on services may eventually expand to cover a broader base than before. This may be done to fund new government projects and other important plans a state may have.

Due to this, it’s necessary to stay up-to-date with every potential change that may impact your business. Don’t hesitate to bookmark and check this guide regularly, as TaxHero provides you with the newest updates.

Alternatively, if you prefer getting your occasional sales tax news from other channels, you can also follow TaxHero on Facebook, X (Twitter), or LinkedIn for more US sales tax updates for ecommerce businesses!

Simplify your Sales Tax Compliance with TaxHero

Let experts at TaxHero handle the nitty-gritty of your sales tax compliance, including managing the sales tax obligations applicable to your services. We’ll take care of everything from determining taxability to understanding your nexus requirements.

Book a call today to get your questions answered!

Frequently Asked Questions

1. Does US sales tax apply to services?+

Yes, US sales tax does apply to services in states where the service is specified to be taxable. However, for businesses, this depends on whether they have a sales tax nexus or not. If the service provider does not have a nexus, they don’t need to apply sales tax on their services.

At the same time, some states may specifically apply sales tax on certain services. Meanwhile, other states may not. That’s why the U.S is known for its complex sales tax rules since every state have their own unique laws and regulations.

2. Do I need to charge sales tax for services?+

You only need to charge sales tax for services based on 2 crucial factors:

The service you are selling is taxable in the state where you are selling and
You have a sales tax nexus in the state where you are selling, and your business is already registered

3. Do you charge sales tax on services in New York?+

You must charge sales tax on services in New York if you meet the following conditions:

You are selling a taxable service in New York – Keep in mind that most services in New York are not subject to the state-level sales tax. Therefore, you have to check the service’s taxability first.
You have a sales tax nexus in New York – Once your business meets the state’s economic nexus threshold, you are required to register and begin charging sales tax on taxable sales. This includes your services unless it is specifically stated to be exempt.

For more information, you can read: The Ultimate Business Guide to Sales Tax in New York

The Ultimate Guide for Sales Tax on Services

Key Takeaways

Goods vs. Services: What’s the difference?

What are the different types of “Services”?

When to Charge Sales Tax on Services?

How to Determine Service Taxability Using the True Object Test