Sales Tax in Service Industries
The service industry covers a whole spectrum of different types of businesses, but a common element that they all share is the performance of activities in which there is little, if any, transfer of ownership or use of property.
Service providers also share the common characteristic of generally not being subject to sales and use taxes on the services they provide. This exclusion is not absolute, however. There are certain issues and considerations that you must address in order to determine whether the services you provide will be excluded from taxability. We have provided an analysis which looks at a number of these issues and includes discussions of solutions that may provide a benefit to your business.
In the past few years the number of small businesses in the service sector of our economy have grown at an incredible rate. This growth rate is due in large part to the fact that today's entrepreneurs recognize that any aspect of our busy lives that can be made easier or more efficient provides fertile ground for a service business. In addition, there are now small businesses that are going head-to-head with the large corporations to offer services that were once provided only by the large corporations. For instance, in the past, telephone companies were often the only providers of networking and installation services. Now a great number of small local telecommunication firms offer both individual and corporate clients the same type of installation and maintenance services that the large phone companies do, and often at competitive prices.
Accompanying this expansion in the service sector, however, are the number issues confronting states and service business owners. In the following analysis we look at a number of sales and use tax questions that are common to service businesses. Read on to learn about issues common to the service industry:
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