Sales tax on services by US state: a practical reference

Federal income tax is straightforward — everyone deals with it the same way. State sales tax on services is a different beast: a service that's exempt in California is fully taxable in Hawaii, and a service that's taxable on commercial accounts in Texas is exempt on residential. Getting this wrong is how small businesses get $20,000 audit assessments. Here's the framework.

Updated 2026-05-13 · FreeInvoice.app editorial

The five states with broad service taxation

Most US states do not tax services broadly. The exceptions:

Hawaii (General Excise Tax — GET). 4-4.5% on virtually every business activity, services included. This is technically a tax on the business (not a sales tax on the customer) but most businesses pass it through. Apply by default; almost no service is exempt.
New Mexico (Gross Receipts Tax — GRT). 5-9% on most services. State-collected with local-rate variation. Service businesses operating in NM should register, file, and remit.
South Dakota. 4-6% on most services including professional services. Few exemptions.
West Virginia. 6% sales-and-service tax. Many services are taxable.
Washington (Business & Occupation Tax — B&O). Not a sales tax — a tax on gross receipts of the business at 0.4-1.5% depending on classification. Services receive a B&O classification (often 'Service and Other Activities' at 1.5%). Doesn't pass through to the customer (typically) but reduces margin.

If you operate in one of these states or have customers there, you almost certainly need to register with the state department of revenue and remit the relevant tax.

The 'tax labor on residential repair' states

A separate category of states taxes labor on residential repair-type services:

Texas. Residential repair labor is taxable (TX Tax Code §151.0101). New construction labor is generally not taxable. The line between 'repair' and 'new construction' is sometimes blurry — when in doubt, consult Comptroller publications.
Connecticut. Most residential repair services are taxable.
New Jersey. Most residential repair services are taxable.

These rules affect contractors, electricians, plumbers, HVAC, painters, roofers, mechanics, and similar repair-type trades operating in those states.

The 'capital improvement vs repair' states

New York has a particularly important distinction that affects contractors:

Capital improvement projects (new construction, additions, major renovations) are exempt from sales tax on the labor portion if the property owner provides the contractor with NY Form ST-124 (Certificate of Capital Improvement).
Repair work (fixing existing systems) is fully taxable, both labor and materials.

Getting the ST-124 on file before the work begins is critical for contractors operating in NY. Without it, the auditor assumes repair (taxable) and assesses tax on the full contract value.

Personal-service categories that get taxed

Beyond labor-on-real-property, some states tax specific personal services:

Cleaning services — taxable in CT, HI, NM, NY (above thresholds), SD, TX (commercial), WV.
Pest control — taxable in many states (CT, HI, NM, NY, SD, TX, WV).
Landscape maintenance — taxable in CT, HI, NM, NY (residential), SD, TX, WV.
Hairdressing & cosmetology — taxable in HI, NM, SD, WV, with some variation.
Pet grooming and pet-care services — taxable in HI, NM, SD, WV.
Massage therapy — taxable in HI, NM, SD, TX (when commercial), WV.

Note: rules change. Each state publishes a 'list of taxable services' on its department-of-revenue website. Bookmark yours and check annually.

How to handle multi-state customers

If you have customers in multiple states, the question is which state's rules apply. Generally:

For services delivered remotely (consulting, design, software, accounting): your home state's tax rules apply.
For services delivered on-site (in the customer's location): the customer's location rules apply.
For 'nexus' thresholds: even if you don't have a physical office in another state, doing enough business there ($100k+ or specific transaction counts) may establish economic nexus and require you to register and collect.

The Wayfair v. South Dakota Supreme Court decision (2018) gave states broad authority to require sales-tax collection from out-of-state sellers above economic-nexus thresholds. This affects e-commerce primarily but applies to services-with-tangible-deliverable in some contexts.

What to do if you're not sure

A reasonable default for service businesses uncertain about their state's rules:

Check your state's department of revenue website for a 'taxable services' or 'sales tax on services' bulletin. Most states publish one.
Talk to a CPA in your state. 1 hour of CPA time ($150-400) saves potentially thousands in audit risk. Specifically ask: 'For my service type, what's taxable, what's exempt, and what documentation do I need?'
Register and start collecting if you're in any doubt. The cost of over-collecting (a refund to the customer) is small; the cost of under-collecting (audit assessment plus penalties plus interest) is large.
Track sales by state from day one. Even if you're below nexus thresholds today, you may not be tomorrow. Bookkeeping by state from the start makes future compliance easy.

Sales tax is one of the few business-tax areas where ignorance is genuinely costly. The auditors find the businesses that didn't know better and assess as if you did.

Frequently asked questions

Do I need to charge sales tax on a service if my customer is in another state?

Depends on the service type, the destination state's rules, and whether you have 'nexus' in that state (physical presence, economic threshold, or other connections). For services delivered remotely from your office to a customer's office in another state, generally your home state's rules apply — but check carefully.

What's the difference between sales tax and Hawaii's GET?

Sales tax is a tax on the customer collected by the seller and remitted to the state. GET (Hawaii's General Excise Tax) is technically a tax on the seller for the privilege of doing business — but most sellers pass it through to the customer as if it were a sales tax. Result is functionally the same; mechanism is different.

If I'm under the nexus threshold, do I still need to register?

Generally no — economic nexus thresholds (commonly $100k in sales or 200 transactions) trigger the requirement to register and collect. Below the threshold, no obligation. But monitor your sales; cross the threshold and you trigger registration immediately.

Can I just include sales tax in my price without itemizing?

Generally no — most states require sales tax to be separately stated on the invoice. Bundling tax into your price (without separately stating) is technically non-compliant and exposes you to audit findings even when your total math is correct. Itemize.

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