Getting sales tax wrong can mean paying it later out of your own pocket.
In this article
Why it matters
Audits can find uncollected tax years later.
Taxable services
Vary by state.
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Parts vs labor
Often treated differently.
Registration
Sales tax permits.
Invoices
Separate lines.
Where to start
Ask your accountant which of your services and parts are taxable in each state you work in.
An example
A company learned parts were taxable in its state and updated invoices before an audit.
Common mistakes
Assuming nothing is taxable, mixing parts and labor and missing filings.
What to track
Track taxable sales, filings and deadlines.
Questions to ask
Do we work in more than one state? Are parts listed separately? Who files?
A closer look
Rules differ widely. In some states, repair labor is taxable; in others, only parts are; and some services are exempt entirely. Work in several states and the picture gets more complex. Keep parts and labor on separate invoice lines, store exemption certificates from commercial customers and set reminders for filing dates. When you add a new service line, ask your accountant whether it changes your tax obligations.
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Frequently asked questions
Do service businesses charge sales tax?
It depends on the state and the type of service. Some states tax certain services or parts, others do not. Check with your state and an accountant.