Businesses operating in the United States generally sell one or both of the following:
- Tangible personal property: Physical items that can be touched and moved.
- Services: Intangible work performed by one or more individuals, such as repairs, personal care, software subscriptions (SaaS), consulting, and professional services.
When sales tax was first introduced, the U.S. was largely a manufacturing economy producing tangible personal property. As a result, sales tax laws understandably focused on property, and services were largely untaxed.
But as the U.S. shifted towards a service-based economy, a growing number of states changed their rules to reflect the shift, with many imposing sales tax on at least some services.
One of the most common mistakes companies now make is overlooking this shift and assuming sales tax still applies only to physical goods when that's simply not the case.
Hawaii, South Dakota, New Mexico, and West Virginia now tax services by default, although several of these states technically impose a gross receipts or general excise tax rather than a traditional sales tax.
And in the majority of states with a sales tax, services are taxed in at least some circumstances, most notably when the services affect tangible personal property.
While Alaska, Delaware, Montana, New Hampshire, and Oregon don't have a statewide sales tax, if you sell services in any of the other 45 states, you must know the rules that determine if it's subject to tax.
This guide provides a state-by-state overview of sales tax on services in the U.S., including standard rules and exceptions that may trip up businesses, like digital services, remote delivery, and bundled transactions.
How states approach sales tax on services
States can be divided into three different categories based on how they approach sales tax on services:
- States with no state sales tax: This includes Alaska, Delaware, Montana, New Hampshire, and Oregon. However, some local areas in Alaska do charge sales tax. Outside of these local Alaska areas, if you are selling in these states, you will not owe sales tax on your services.
- States that broadly tax services: In Hawaii, South Dakota, New Mexico, and West Virginia, services are subject to sales tax unless they are exempt. You should assume you must charge tax on your services to all customers in all transactions unless you confirm an exemption applies.
- States that charge tax on enumerated services: In the remaining 41 states and in Washington, D.C., state laws explicitly specify which services are taxable, while all other services are non-taxable by default. You must research the laws of the states where you sell your services to determine whether you meet the requirements to collect and remit tax.
The laws on the taxation of services are also evolving, as states expand their tax base in a quest for more revenue. The rapid pace of change means services that were previously non-taxable can become taxable due to legislative shifts at any time. You can't assume that because your company didn't owe tax on a service today, you won't tomorrow.
For example, Washington made seven new services taxable starting October 1, 2025, including services related to advertising, IT support, custom website development, live presentation, investigation, security and armored car services, temporary staffing, and custom software.
Maine also added audiovisual and audio services to the list of taxable services in 2026, and on June 18, 2026, California sent Senate Bill 122 to the governor to sign. The bill makes SaaS taxable starting January 2027.
Partnering with a service like Numeral that proactively monitors your sales tax obligations across all 50 states (and internationally) can help you respond to these shifts in a timely manner before you face a risk of uncollected sales tax.
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Which states tax services: a state-by-state overview
The table below covers all of the states with a statewide sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon are excluded because they do not charge sales tax.
Alaska does have local municipalities that collect sales taxes, and the Department of Commerce recommends checking with local jurisdictions when selling services.
Even in states where few services are subject to sales tax, there are exceptions. This is one factor that makes it so challenging for service-based businesses to comply with regulations.
Numeral can help by integrating with your existing sales platforms to monitor sales, track nexus, and determine if and when sales tax applies to the services you sell.
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The tricky cases: when service taxability gets complicated
In a small number of states, professional services are almost always subject to sales tax or a similar tax. This includes:
- New Mexico: New Mexico charges a gross receipts tax instead of a sales tax. There is no broad exemption for professional services.
- Washington: The state's business and occupation tax broadly applies to professional services. Washington also substantially expanded the professional services subject to retail sales tax as of October 1, 2025, adding technology, IT, website development, custom software, and a number of other services.
- South Dakota: South Dakota applies a gross receipts tax to most professional services.
- Hawaii: Hawaii charges a general excise tax on the gross income of almost every business, including those providing professional services.
The common thread among these states is that they do not use the standard sales tax structure applicable in most other states throughout the U.S. In the majority of states that charge retail sales tax, most professional services are exempt.
Professional services generally include strategic advice or planning services offered by professionals who are licensed or who have specialized training or expertise. Examples include legal, accounting, consulting, marketing, engineering, architecture, and medical services.
However, professional service providers must be aware of the bundling trap. When a professional service comes with a tangible deliverable or software access, the service can sometimes lose its exempt status. This could include, for example:
- Lawyers who provide access to legal research software
- Web developers who offer website design plus hosting services
- Consultants who prepare certain physical products such as standardized reports or tangible printed materials
When the professional provides access to a physical product, the entire transaction can sometimes be reclassified as the sale of a product subject to the standard retail sales tax.
Bundled transactions and the true object test
Professionals can fall into the bundling trap whenever they enter into bundled transactions. A bundled transaction occurs when a company combines separate and distinct items or services, some of which are taxable and some of which are non-taxable.
It's very common for professionals to enter into bundled transactions or to combine professional services with tangible goods. However, this has caused conflicts when states try to tax the entire package, even though the items in the package can clearly be separated.
Courts and taxing authorities that have addressed these conflicts have generally focused on whether the company is purchasing the service or is purchasing the property:
- If the primary purpose is the service (such as a dentist filling a cavity), the incidental property (the material used for the filling) does not result in the entire transaction becoming taxable.
- If the primary purpose is the product (new computer equipment, which an IT professional happens to install), then the entire transaction, including the labor, may be treated as taxable.
Companies may be able to avoid having an entire transaction become taxable because of bundling if the company separates the taxable from the non-taxable items on an invoice, even if it charges a flat fee for both the taxable product and the non-taxable service.
For example, a home security company that sells non-taxable monitoring and taxable equipment as part of a bundled package may be able to prevent the non-taxable monitoring from becoming taxable by itemizing the invoice.
The 24 states that are part of the Streamlined Sales Tax (SST) agreement (which is aimed at simplifying sales tax compliance) all must follow the SST's rules for bundled transactions. The transaction must meet three criteria to be considered bundled:
- Two or more distinct, identifiable products are sold
- The seller must charge one non-itemized price for the objects
- The sales price must not change based on a customer selecting products
When these criteria are met, sales tax applies to the entire bundle unless it falls within an exception, such as for food and drugs bundled with medical equipment. Some states also have a de minimis rule, so the bundle isn't taxed if the taxable component is a small part of its value.
Digital services and SaaS
Digital goods present unique challenges for state tax authorities because it's often unclear if they should be taxed in the same way as physical products, despite having no tangible form. Some states define digital goods as taxable, but others treat them as a non-taxable service.
As new digital goods come onto the market, states must repeatedly grapple with this issue and adjust the laws. For example, many states that taxed digital goods like ebooks now apply those same rules to streaming services.
SaaS is also a growing market that creates complexity for subscription-based sales tax compliance because SaaS may be treated as a digital product, a licensed software product, or an electronically supplied service.
As Numeral's state-by-state breakdown of sales tax on SaaS shows, around half of all states now tax SaaS in some form. However, the rules are evolving, with California recently moving towards taxing SaaS beginning in 2027.
The specifics can also matter. For example, most states that tax software only tax prewritten or canned software, while custom-developed software is often non-taxable as a service.
These issues make compliance difficult for companies selling digital products. Fortunately, Numeral keeps up-to-date on evolving laws, ensuring you remain in full compliance without having to constantly monitor legislative developments in all states where you sell services.
Labor and installation services
Another common question that trips up businesses is whether labor is taxable, as that often depends entirely on context.
While standalone labor services, including many types of hourly and professional work, are often not taxable, labor associated with installing or modifying tangible personal property is often taxable, especially if it's bundled with taxable property.
However, rules vary considerably by state. For example, Texas may tax labor when it's closely tied to taxable goods or services, while New York generally excludes labor from sales tax unless it falls within a specific list of taxable services. For example, in New York:
- Installation or repair labor is generally not taxable when performed on real property.
- Labor can become taxable when it is part of installing or maintaining taxable tangible personal property or certain enumerated services.
The type of labor being performed also matters. For example, some states expressly make repair and maintenance services taxable, while labor may not be taxable if you are improving real property.
Contractors may also be treated as the end user of materials or products used in installation, and may pass those costs onto the customer without the customer paying separately for the taxable products.
For example, in Texas, a contractor installing cabinets generally pays sales tax on the cabinets, then charges the customer for services, passing the tax costs onto the consumer as part of the contract price. The labor and cabinets aren't separately taxed if real property is being improved.
Services delivered remotely or across state lines
One of the major challenges for service providers is that you do not just have to understand the rules in one state. You must understand the rules in every state where you have economic nexus.
Traditionally, you only had to comply with sales tax rules in states where you had physical nexus, or sufficient physical connections to the state. However, a 2018 case, South Dakota v. Wayfair, changed the rules.
After Wayfair, states can set thresholds at which you establish economic nexus and are thus obligated to register with the state, then collect and remit sales tax. While these thresholds vary, many states set a $100,000 sales volume or 200 transaction threshold for establishing nexus.
Service revenue is often included in determining if you meet these thresholds, and while some states count only taxable sales, others also count exempt sales. So, when you provide a service in a specific state, this can create a nexus even if you have no physical presence there.
When you provide a service remotely to clients in other states, destination sourcing rules usually apply, which means you must follow the tax rules in the state where the customer receives or uses the service, not where you perform it.
So, if you perform services in any state outside of your own, you must follow that state's rules both for when you establish nexus and for when your services are taxable—even if the rules are completely different from where you do business.
That's how, say, a consulting firm that's based in California but that serves clients in New York ends up owing sales tax in New York if those services are taxable there.
If you don’t want to keep track of all this, check out Numeral’s free nexus monitoring service with no obligation, so you will know exactly when you have new tax obligations to fulfill.
What to actually do: a compliance checklist for service businesses
So, how can your business manage these complex rules and ensure full compliance to avoid owing back tax, penalties, and fees for failure to register and comply with state sales tax obligations?
- Identify what you are selling: Create a specific, detailed, and comprehensive list of all of the services you are selling whether in person or online. Describe the nature of the services and any products, as well as any bundled packages, so you can select the correct classification.
- Determine where you have nexus: Nexus could be established by a physical presence, such as an office, local employees, or inventory. Even selling at a local trade show could establish physical nexus. Doing a certain volume of sales or number of transactions in a state can also result in establishing nexus. As you grow, you must do periodic assessments to see if you've established nexus anywhere. Or Numeral offers free nexus monitoring to help you see instantly which states you have nexus in or when you're close to crossing the nexus threshold.
- Register when you are required to do so. Once you have established nexus, you must register to get a sales tax permit before you begin collecting sales tax. A failure to register when required or collecting tax without registering can create liability. Numeral can register for you for a flat rate of $150 per state with no commitment needed.
- Check the tax rules for each state where you have nexus. You will need to look at each state's laws and find the specific details. Check guidance from the state Department of Revenue, or let Numeral perform an analysis to determine what services and products you're offering are taxable.
- Collect, file, and remit taxes: Make sure your invoicing tools collect the correct amount. Numeral integrates with your billing software and sales platforms to make it easy to collect the correct tax. You will also need to file and remit taxes on schedule, which varies by state. We can autofile for you for $75 per return, with each return reviewed by a U.S.-based tax professional.
- Monitor for changes: The rules regarding sales tax on services change often, as demonstrated by recent expansions in Washington, California, and Maine. You must conduct periodic reviews or let a company like Numeral monitor these issues for you.
There is tremendous time and risk involved in these steps, which is why outsourcing sales tax to an automated tool like Numeral is often necessary to ensure you are in full compliance with the rules and to avoid endless hours spent reading rules from Departments of Revenue.
How Numeral handles sales tax on services
Numeral serves companies of all sizes, from enterprise businesses to ecommerce and SaaS companies. Both ecommerce and SaaS businesses are especially vulnerable to compliance issues because of evolving and unclear rules, and Numeral was built to solve this issue.
Numeral offers comprehensive end-to-end solutions for service businesses, including:
- Nexus monitoring: Numeral automatically tracks your sales of goods and services across the U.S. and alerts you if you're close to or have crossed the economic nexus threshold.
- Registration: Numeral can automatically register for you in any new states where you establish nexus, so you'll be ready to legally collect sales tax as soon as you incur liability or before.
- Automated filing and remittance: Numeral will file your returns and remit payments for you on schedule, across every U.S. state where you are required to register and submit. Experts review every form before it's sent.
- Virtual mailbox: Numeral gets your mail from state agencies and responds, so nothing is missed, and you don't spend your time managing sales tax issues.
And you have peace of mind knowing this is all done right, as we back our services with the Numeral Guarantee. If we make a filing error that leads to penalties or interest, Numeral will cover the cost.
Best of all, there are no long-term commitments required and no complicated onboarding process necessary. In fact, Numeral offers a free monitoring plan to track nexus exposure, and then registers you for $150 per state and remits filings for $75 per filing.
Book a demo or get started today to see how we can help you manage sales tax compliance, whether you sell products, services, or both.
Sales tax on services FAQs
Still need to know more? Here are the answers to frequently asked questions about sales tax on services.
Are services subject to sales tax?
Some services are subject to sales tax, but it depends on the state's rules.
- Some states tax very few services, often taxing only things like repairs of tangible property or utilities.
- Others tax a long list of enumerated services, such as telecommunications, lodging, and repairs.
- And others tax almost all services, including professional services, unless a specific exception applies.
Check the laws in the state where the customer receives the service to determine if it is subject to sales tax.
Do I need to charge sales tax on consulting services?
Consulting is often considered to be a non-taxable professional service. However, there are limited exceptions, including in New Mexico, Washington, South Dakota, and Hawaii.
Consulting can also become taxable in states where it generally isn't, if it is bundled with any physical goods, such as a custom report or computer program.
Does selling services create a sales tax nexus?
You could establish physical nexus by having a physical presence in a state or establish economic nexus by doing a certain volume of sales or number of transactions.
Many states count revenue from services towards economic thresholds, so you could trigger a registration requirement without selling any physical products locally.
In some states, only taxable sales count towards the economic nexus threshold, but in many others, all transactions, including exempt transactions, count towards determining if you meet the threshold.
Is labor taxable for sales tax purposes?
Standalone labor, such as consulting, is often not taxable in most states. However, labor related to the installation or repairs of tangible property or related to fabrication may be considered taxable. It depends on the state's rules, how the labor is invoiced, and what kind of labor is performed.
What states don't tax services?
There are five states that do not charge sales tax, and so do not tax services. These include Alaska, Delaware, Montana, New Hampshire, and Oregon. However, you may owe local tax in certain areas in Alaska.
In all other states, at least some services are taxed. However, some states tax only very few services, but others tax most or all services. For example, California does not charge tax on most services, but does tax fabrication labor and will charge tax on SaaS after 2027. You will need to check each individual state's guidelines.
How do I know if I owe sales tax on the services I sell?
To determine if you owe sales tax:
- Determine what state's tax rules apply. Usually, under destination sourcing rules, that's the state where the customer receives the service.
- Determine if you have physical or economic nexus in that state, based on your physical presence, volume of sales, or number of transactions
- Review the state's department of revenue to see if your services are taxable in the state where your customer is located
If you have nexus and the state's rules say that your service is taxable, you will owe sales tax. You must register, collect the correct tax, file returns, and remit the tax on schedule.
A tax professional or an automated compliance service like Numeral can help you to determine when you owe sales tax and in what amount.
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