Sales Tax on Services

States generally levy three primary types of taxes—income taxes, property taxes, and sales taxes. State sales and gross receipts taxes are a significant revenue source for state governments.

Recent reports indicate that 32 percent of the nation’s state tax revenue in the fourth quarter of 2020 came from sales and gross receipts taxes. This represented an increase of 4.6 percent in revenue to $115.9 billion (±1.9 billion) in the fourth quarter of 2020, from $110.8 billion (±0.9 billion) collected in the same quarter of 2019.

Accordingly, state sales taxes receive significant attention from state legislatures, especially when state budgets are tight. Most states assess a sales tax on many goods and some services. Only Alaska, Delaware, Montana, New Hampshire and Oregon do not have a state sales tax. However, even in some of those states, broadly based gross receipts taxes or corporate taxes based on sales may apply.

It is important to note that some states allow local governments to charge a local sales tax in addition to the statewide sales tax. If you want to know the specific tax liability of your business in your state, consult state Departments of Revenue for additional information.

Most of the services related taxes exclude real estate services or commissions, however many states have considered or are considering expanding the application of sales taxes of services to include a wide range of professional services such as real estate, legal assistance, accounting services, etc.

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