How to Charge Sales Tax on Services

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Sales tax is a consumption tax placed on taxable goods and services. As of July 2010, 45 states impose sales taxes plus 7500 cities, counties and other jurisdictions. However, not all states charge sales tax on services, and some make specific exemptions for certain services. For example, the state of Washington exempts repairs on manufacturing equipment from sales tax. If you want to collect sales tax on services, then you must be registered with your state's Department of Revenue.

Register with your state's Department of Revenue to become a sales tax collector. Each state has different rules and regulations: check with your state for specific guidelines. See the Resources for a link to the Sales Tax Clearinghouse, which lists the Department of Revenue websites for each state.

Find out the current rate of sales tax on services for your state. Your state's Department of Revenue will have this information. TaxAdmin.org also keeps an updated list of sales tax rates.

Calculate the sales tax on the service you are providing by multiplying the amount of the service by the sales tax percentage. For example, if you sell a $100 service at a tax rate of 7%, then $100 x 0.07 = $7.

Collect the sales tax from the customer at the time of purchase. This can be either before or after the service has been completed.

Keep a record of how much sales tax you have collected. Some businesses keep sales tax in a separate bank account.

File a return according to your state's schedule. You may be required to file monthly, quarterly or annually depending on the level of services you provide and your state's regulations.

Tips & Warnings

  • Your county or city may collect sales tax as well. Your local Chamber of Commerce will have sales tax information for start-up businesses in your area.
  • Sales tax rate are subject to change. Make sure you periodically check with your state's Department of Revenue to ensure you are charging the correct amount of sales tax.

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