State sales tax laws are confusing. You want to abide by the law and collect/pay sales taxes, but you're not sure if your service is taxable. I recently answered a reader question about this and helped her find the answer to her question about whether web design and graphic design services were subject to sales tax in Ohio. I'll tell you about what I did to give you an example. First, some general information:
Sales Taxes are a State Tax
Each U.S. state determines what is taxable and what is not. They also set overall sales tax rates and administer local sales taxes. For example, a locality may pass a local option tax in addition to the overall state sales tax rates; the state taxing agency keeps track of these local options.
Products are Subject to Sales Tax
First, be aware that most products are subject to sales tax in most states. A few products are exempt from sales taxes: many states exempt medicines; some exempt clothing; most food items purchased in a grocery store or market are not taxable. But all other products are usually taxable. Services, on the other hand, are not generally taxable; some are; some aren't. And, of course, it varies by state.
Finding Information on Services Subject to State Sales Tax
To find out if web design and graphic design services were subject to sales taxes, I used a two-step process:
- Online Research. I searched for "sales tax Ohio" to find the website of the Ohio department of taxation. Then I looked for information on services subject to sales tax. I could have used the internal search, but found the information fairly easily. The tricky part was interpreting the information. The site listed products and services which were NOT subject to sales tax; the implication is that everything else is taxable. I also found a list of services which were subject to sales tax; no design services were listed.
- Direct Contact. I figured these services were not taxable, but I wanted to be sure. So I found the number for business services at the Ohio Department of Taxation and made a phone call. As you might expect, there was a many-step menu of options. I worked my way patiently through the steps, and I finally reached Mike. He was extremely helpful in answering my question, giving me the general rule then the specific circumstance.
The Answer to the Question
Mike said that since design services (web or graphic) did not produce a tangible product, they were not taxable. But, if these services were part of a package which was sold to a customer, they would be taxable. Makes sense.
Before you go running off and saying that design services are not taxable in your state, remember that each state is different. This example was only for Ohio, and only for one type of service. My purpose in giving you this information is so you can see how to get to the answer to a specific question for your state. You'll have to do the research yourself. It isn't difficult; you just need to read carefully and be patient.
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