Tax & Accounting Blog

Ask an Expert: Sales Taxes on Professional Services

Blog, Indirect Tax, ONESOURCE, Sales and Use Tax October 31, 2014

We recently received a question relating to the taxation of accounting services. Generally speaking, sales taxes are a transaction tax levied on the sale of tangible personal property along with enumerated services. While the common perception is that a sales tax is only imposed on the sale of tangible personal property, e.g. a table or a computer, almost all states impose their sales taxes on at least some services. States vary widely on which services they subject to their sales taxes–if they tax services at all. This is a primer on those states that specifically charge sales taxes on Professional Services.

Hawaii:

Hawaii imposes a general excise tax on service business or callings, including professional services at the rate of 4.0%. See Hawaii Revised Statute § 237-13(6)(A).

New Mexico:

New Mexico imposes a gross receipts tax on the privilege of engaging businesses, including professional services at the rate of 5%. See New Mexico Revised Statute § 7-9-4; New Mexico Admin Code §3.2.18.

South Dakota:

South Dakota imposes a gross receipts tax on the sale of tangible personal property and enumerated services, including several professional services. Accounting services are specifically included in the taxable services. See South Dakota Revised Statutes § 10-45-5.

Other states also impose business or occupation taxes on professional services:

Delaware:

Delaware imposes a business license tax on service businesses, including accounting businesses of 0.3983%, for receipts in excess of $100,000.00 per month. Delaware Code Title 30, § 2301(d)(1).

Washington:

Washington imposes a business and occupations tax of 1.5% on service professions, including accounting services. See Revised Code of Washington § 82.04.290;  Washington Administrative Code § 458-20-224.

As you can see, even states that subject professional services to a transaction or gross receipts tax vary widely on the rate. While this list may seem short, many states are moving towards imposing their sales and use taxes on an increased number of services, including professional services.