Sales Tax for Service Businesses: A Plain-English Guide

Sales tax is the most-missed compliance item in small service businesses, because the rules vary by state and by what you actually sell. The good news: once you know the four questions to ask, you can answer it for your business in under ten minutes.

• The four questions. Do I sell tangible goods (parts, materials, finished products)? If yes, you almost certainly need to charge sales tax on those items.
• Common rule of thumb by trade.
• What to do this week. Look up your state's Department of Revenue site for taxable services

Frequently asked questions

Do I charge sales tax on labor?

In most states, labor on its own is not taxable. But if labor is bundled with a taxable repair or installation, the whole job can become taxable. Check your state.

What if I forget to collect sales tax?

You still owe it. The state will collect from you, not your customer, plus interest and penalties. File and pay anyway — voluntary disclosure usually reduces penalties.

Do I need a sales tax permit in every state?

No — only states where you have nexus (physical presence or economic threshold).

More taxes guides

• Sales Tax Nexus: When You Owe Tax in Another State
• Resale Certificates: When and How to Use One
• Quarterly Estimated Taxes: A Survival Guide for the Self-Employed
• Self-Employment Tax: What It Is and How to Reduce It
• How Much to Set Aside for Taxes (and Where to Put It)
• Schedule C Deductions: The Master Checklist for Service Businesses