Sales Tax on Services in 2026: Which States Tax Them and How Much You Charge

If you run a service business, whether that's a repair shop, a lawn care crew, a cleaning company, an IT consultancy or a web studio, the question of whether you charge sales tax on services has a frustrating answer: it depends on the state, and sometimes on the exact service. This guide is for owners and bookkeepers who sell services in one state or across several. It explains the three ways states approach services, which services are most often taxed, which usually aren't, how the tax is sourced, and what changed in 2025 and 2026, with worked examples checked against state revenue department guidance in October 2026.

Quick answer

Most states tax goods by default but tax services only when a law names them. Four states flip that: South Dakota and West Virginia tax services unless exempt, and New Mexico and Hawaii apply gross receipts or excise taxes to nearly all service income. Everywhere else you check the state's list.

• Commonly taxed: repairs to goods, landscaping, janitorial work, security, data processing, admissions

• Usually not taxed: legal, accounting, medical and most other professional services

• Washington taxed advertising, IT and staffing services from October 1, 2025; Maryland taxes IT and data services at 3%

• Service sales count toward economic nexus thresholds in other states

How states decide whether a service is taxable

Sales tax was built for shops selling physical goods, and most state laws still reflect that. The default rule in the large majority of states is that a sale of tangible personal property is taxable unless an exemption applies, while a sale of a service is not taxable unless the legislature has specifically listed it. That's why the same job can be taxable in one state and untaxed a few miles away across a state line.

In practice, states fall into three broad groups. This grouping is our own multistate summary built from each state's guidance, not an official classification:

• Broad-base states. Services are taxable unless a law exempts them, or the tax is charged on a business's gross income from almost any activity. South Dakota, West Virginia, New Mexico and Hawaii are in this group.
• Enumerated-list states. Services are taxable only if they appear on a list in the statute, but the list is long. Texas has 16 categories of taxable services, Iowa's Department of Revenue lists 83, and Washington and Connecticut also tax many common business services.
• Narrow-list states. Only a few services are taxed, often limited to things closely tied to goods, such as fabrication or installation, plus utilities, telecom and admissions.

Five states, Alaska, Delaware, Montana, New Hampshire and Oregon, have no statewide sales tax at all, though Alaska towns and Delaware's gross receipts tax are worth knowing about. Our states without sales tax guide covers them.

Three ways states treat services (multistate summary)

Approach	Default for services	Examples	What you check
Broad base	Taxable unless exempt	South Dakota, West Virginia, New Mexico, Hawaii	The exemption list
Long enumerated list	Taxable only if listed	Texas, Iowa, Washington, Connecticut	The statutory list of taxable services
Short list	Mostly untaxed	California and many others	Specific rules on labor, fabrication and installation
No sales tax	No state sales tax	Alaska, Delaware, Montana, New Hampshire, Oregon	Local or gross receipts taxes

Broad base

Default for services

Taxable unless exempt

Examples

South Dakota, West Virginia, New Mexico, Hawaii

What you check

The exemption list

Long enumerated list

Default for services

Taxable only if listed

Examples

Texas, Iowa, Washington, Connecticut

What you check

The statutory list of taxable services

Short list

Default for services

Mostly untaxed

Examples

California and many others

What you check

Specific rules on labor, fabrication and installation

No sales tax

Default for services

No state sales tax

Examples

Alaska, Delaware, Montana, New Hampshire, Oregon

What you check

Local or gross receipts taxes

The states that tax services by default

South Dakota. The Department of Revenue's July 2026 guide says sales tax applies to gross receipts from all retail sales, including the sale of services, at the 4.2% state rate plus municipal tax of 1% to 2%. A seller reports tax on a service unless it gets an exemption certificate, the service is specifically exempt by law, or it's a construction service taxed under the contractor's excise tax. The exempt services include health services, educational services, social services, agricultural and forestry services, certain financial services of banks, insurance agents' commissions, stockbroker services, trucking and travel agent services. Repairs, cleaning, personal care and most business services fall on the taxable side. The reduced 4.2% rate is scheduled to sunset after June 30, 2027, when the rate would return to 4.5% unless lawmakers act.

West Virginia. The State Tax Department's exemptions guide starts from the opposite of most states: all sales of tangible personal property or taxable services are presumed to be subject to tax, and the seller must collect unless an exemption clearly applies. The main service exemptions are professional services, such as those of doctors, lawyers, engineers, architects and CPAs; personal services to an individual, such as hairstyling, manicures and massage; and construction work that results in a capital improvement to real property. Everything else, including most repair work and other construction trade activity, carries the 6% state rate plus the 1% municipal tax in the 101 cities that levy it.

New Mexico. New Mexico has a gross receipts tax rather than a sales tax, and it's charged to the business. The Taxation and Revenue Department lists performing services in New Mexico as a source of gross receipts. It also reaches services performed outside the state when the product of the service is initially used in New Mexico, which catches consultants and designers working remotely for New Mexico clients. The state rate is 4.875%, and combined rates run from 5.25% to 9.4375% depending on location. Our New Mexico gross receipts tax guide has the city rates.

Hawaii. Hawaii's general excise tax applies to nearly all business activity, services included, at 4%, plus the 0.5% county surcharge on retail sales and services. Services sold to another business that resells them can qualify for the 0.5% wholesale rate. Because GET is a tax on the business, not the buyer, businesses may pass it on visibly at up to 4.712%. See our Hawaii general excise tax guide.

States with long lists of taxable services

Texas taxes 16 categories of services under Tax Code section 151.0101: amusement services, cable television, credit reporting, data processing, debt collection, information services, insurance services, motor vehicle parking and storage, nonresidential real property repair and remodeling, repair and maintenance of tangible personal property, personal services, real property services, security services, telecommunications, telephone answering and utility transmission. The Comptroller treats sellers of software as a service and application service providers as data processing providers. For data processing and information services, 20% of the charge is exempt, so tax applies to the remaining 80%. Using a computer as a tool to deliver a professional service, such as an accountant preparing returns, isn't data processing.

Iowa taxes services only when they're listed in Iowa Code section 423.2(6), but the Department of Revenue's list runs to 83 services. It includes vehicle and appliance repair, barber and beauty services, pet grooming, parking, mini-storage, janitorial work for non-residential buildings, pay television and software as a service. Two exemptions matter to most service firms: services on new construction, reconstruction, alteration or remodeling of buildings are exempt while repairs stay taxable, and services bought for resale, such as a repair shop subcontracting part of a job, are exempt.

Washington has long taxed construction, repairs, landscaping, some personal services and digital automated services as retail sales. ESSB 5814 then made seven more categories taxable from October 1, 2025: advertising services, information technology services, custom website development, live presentations, investigation, security and armored car services, temporary staffing, and custom software and customization. The same law stopped excluding advertising, data processing and human-effort services from the definition of digital automated services. From July 1, 2026, a follow-up law added exclusions for some live presentations, an exemption for schools and libraries buying certain of these services, and a narrower staffing rule for staff provided to hospitals. Parts of ESSB 5814 are being litigated, but the Department of Revenue says businesses must collect and remit under current guidance in the meantime, and it runs a penalty relief program for tax missed because of the change.

Maryland moved in 2025. From July 1, 2025, data services, information technology services and software publishing services described in NAICS sectors 518 and 519 and subsectors 5132 and 5415 are taxed at 3%. That covers data processing, cloud hosting, custom programming, systems design and IT consulting. The Comptroller judges each service on what it actually is, not on the seller's NAICS code. See our Maryland sales tax guide for the details.

Connecticut applies its 6.35% general rate to a list of taxable services and a reduced 1% rate to computer and data processing services.

Services and sales tax at a glance (2026)

4

States taxing services by default

SD, WV, NM, HI

16

Texas taxable service categories

Tax Code 151.0101

83

Taxable services on Iowa's list

Iowa Code 423.2(6)

3%

Maryland rate on IT and data services

Since July 1, 2025

Common taxable services

Across the states that tax services, the same families turn up again and again. If your business falls into one of these, assume you need to check every state where you have customers.

The table is a starting point, not a complete list. Each state defines these categories in its own words, and the edges matter. Texas, for example, taxes nonresidential real property repair but not most residential repair, while Iowa taxes janitorial work for offices but not cleaning a home for the person who lives there.

Some services are taxed because they're bound up with a sale of goods. California is a short-list state for pure services, but its Department of Tax and Fee Administration says tax applies to charges for producing, fabricating or processing tangible personal property for customers, and that many types of labor charges are taxable. A print shop, a tailor making a garment to order or a machine shop working the customer's own metal can all owe tax on the labor element, even in a state that doesn't tax services generally.

Services that usually stay exempt

Professional services are the clearest example of what most states leave alone. Neither Texas's list nor Iowa's includes legal, accounting or medical work, and West Virginia, despite its broad base, exempts professional services by name. South Dakota exempts health and educational services. If you're a lawyer, CPA, architect or physician in an enumerated-list state, you usually don't charge sales tax on your fees, although you'll pay tax on the supplies and equipment you buy.

Gross receipts states are the exception. New Mexico's tax covers services performed in the state, and Hawaii's GET covers most business income, so professional firms there generally owe the tax, though it's charged to the business and often passed on as a line item.

Construction is the other common carve-out. West Virginia exempts work that results in a capital improvement to real property, Iowa exempts services on new construction and remodeling, and South Dakota taxes construction services under its separate contractor's excise tax instead of sales tax. Repairs to existing buildings are often taxable even where new construction isn't, so contractors need to classify each job.

Where a service is taxed

With goods, the answer is usually the delivery address. Services are harder, because nothing is shipped. States use a few different rules.

Where the customer receives it. South Dakota taxes a sale where the customer receives the product or service. For personal care, that's where the service is performed. For services performed on goods, such as repairs, it's where the customer picks up the repaired item or has it delivered.

Where the benefit is used. New Mexico taxes services performed outside the state when the product of the service is initially used in New Mexico. A designer in Colorado producing a logo for an Albuquerque business can owe New Mexico gross receipts tax once over the state's remote threshold.

Apportioned by use. Maryland lets a business buyer that uses an IT or software service both inside and outside the state give the seller a multiple points of use (MPU) certificate. The seller then stops collecting, and the buyer pays Maryland use tax on the share used in Maryland, apportioned by a consistent method such as employee or licence counts.

For multistate service businesses, the practical rule is to record the customer's location for every invoice, and for business clients, where the service will actually be used.

Selling services across state lines

Taxable services count toward economic nexus. Once your sales of taxable goods and services into a state pass its threshold, most commonly $100,000, you register there and collect, even with no office or staff in the state. Texas counts all gross revenue from Texas, taxable or not, against its $500,000 safe harbor. Our economic nexus guide lists every state's test.

This affects online service businesses the most. A SaaS company in a state with no tax on software can still owe tax in Texas, Iowa, Washington, Maryland and other states where its customers are. Our SaaS sales tax guide covers that state by state.

When you buy a taxable service from an out-of-state provider that doesn't charge your state's tax, you may owe use tax on it yourself. South Dakota, for example, says its use tax applies to all products and services when sales tax wasn't paid, at the rate where the service is used.

Worked examples

The same type of job produces very different invoices depending on the state.

Same service, different states (examples, 2026 rates)

Job	Where	Taxable?	Tax on the invoice
$1,500 office cleaning contract	Des Moines, Iowa	Yes, non-residential janitorial	$1,500 × 7% = $105
$2,000 a month web hosting	Houston, Texas	Yes, 80% of the charge	$1,600 × 8.25% = $132
$400 appliance repair	Sioux Falls, South Dakota	Yes	$400 × 6.2% = $24.80
$10,000 IT consulting project	Maryland business	Yes, NAICS 5415	$10,000 × 3% = $300
$3,000 bookkeeping engagement	Texas or Iowa	No, not on the list	$0

$1,500 office cleaning contract

Where

Des Moines, Iowa

Taxable?

Yes, non-residential janitorial

Tax on the invoice

$1,500 × 7% = $105

$2,000 a month web hosting

Where

Houston, Texas

Taxable?

Yes, 80% of the charge

Tax on the invoice

$1,600 × 8.25% = $132

$400 appliance repair

Where

Sioux Falls, South Dakota

Taxable?

Yes

Tax on the invoice

$400 × 6.2% = $24.80

$10,000 IT consulting project

Where

Maryland business

Taxable?

Yes, NAICS 5415

Tax on the invoice

$10,000 × 3% = $300

$3,000 bookkeeping engagement

Where

Texas or Iowa

Taxable?

No, not on the list

Tax on the invoice

$0

Iowa office cleaning. A cleaning company invoices a Des Moines dental office $1,500 a month. Non-residential janitorial services are on Iowa's list, so the company charges the 6% state tax plus the 1% local option tax, 7% in all, or $105. If the same crew cleans the dentist's house and the dentist pays, that job isn't taxed.

Texas hosting. A hosting company bills a Houston client $2,000 a month. Hosting is data processing, so 20% is exempt and tax applies to $1,600. At Houston's 8.25% combined rate, the tax is $132, an effective rate of 6.6% on the full charge.

South Dakota repair. A Sioux Falls repair shop fixes a washing machine for $400. The service is taxable, and the combined state and city rate is 6.2%, so the bill is $424.80.

Maryland IT consulting. A Virginia consultancy designs a network for a Baltimore company for $10,000. Computer systems design falls under NAICS 5415, so if the consultancy has Maryland nexus it charges 3%, or $300. If the client will use the system in Maryland and in other states, it can give an MPU certificate and apportion the tax itself.

West Virginia plumbing repair. A plumber repairs a burst pipe in a Charleston home for $800. Repair work isn't a capital improvement, so it's taxable at 6% plus the 1% municipal tax where the city levies it, for $56 in a city with the municipal tax. A new bathroom addition that becomes part of the house would be a capital improvement instead, so the plumber would pay tax on materials rather than charge it to the homeowner.

Bundles, mixed invoices and separately stated charges

Many service jobs include goods: a repair with parts, a landscaping job with plants, an IT project with hardware. How you invoice them changes the tax.

In a state that taxes the service, the whole charge is usually taxable, parts and labor alike. In a state that doesn't tax the service, the goods are still taxable, so a mechanic or installer normally needs to state the parts separately and charge tax on them. If the goods and the service are lumped into one price, some states treat the entire bundle as taxable. Itemize goods and services on every invoice so you can show exactly what was taxed.

Charges that come with a taxable service follow it. South Dakota says charges for services necessary to complete a sale, including delivery, are part of gross receipts and are taxable when the underlying product or service is taxable. Our shipping and sales tax guide covers delivery charges in more depth.

Resale works for services too. Iowa exempts a service bought for resale, and Maryland lets a hosting company buy cloud storage tax-free when it resells it unchanged. Collect a resale certificate from the business that's buying, as you would for goods. Our resale certificate guide explains how.

Common mistakes and how to fix them

Assuming services are never taxable. The most expensive mistake, because it's usually discovered in an audit years later, with tax, penalties and interest owed on every invoice. If you sell repairs, cleaning, landscaping, security or IT, check each state's list.

Missing a new law. Washington's ESSB 5814 and Maryland's tech tax both started in 2025 and caught agencies and IT firms that had never charged tax. If you invoiced Washington clients after October 1, 2025 without tax, look at the Department of Revenue's penalty relief program and start charging now.

Using your own state's rules for out-of-state customers. A Florida IT firm selling to Texas clients has to follow Texas rules once it has nexus there, including the 80% taxable base.

Not separating professional and taxable work. A firm that does both accounting (usually untaxed) and data processing or payroll processing (taxable in some states) should price and invoice them separately.

Forgetting use tax on your own purchases. If you buy taxable services out of state with no tax charged, you may owe use tax.

Service business sales tax checklist

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• List every service you sell and match each to the taxable-services list of each state where you have customers
• Note whether each state taxes services by default (SD, WV, NM, HI) or by list
• Record each customer's location and, for business clients, where the service is used
• Test economic nexus in each state, counting taxable service sales
• Itemize parts, materials and labor on every invoice
• Collect resale or exemption certificates from business buyers who qualify
• Review the rules every year: Washington and Maryland both changed in 2025 and 2026

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Official links

• South Dakota — Sales and Use Tax Guide (PDF)Taxable and exempt services
• West Virginia — TSD-300 Exemptions (PDF)Professional and personal service exemptions
• New Mexico — Gross receipts overview
• Texas — Taxable Services (96-259)
• Iowa — Taxable services
• Washington — Services newly subject to retail sales taxESSB 5814
• Maryland — Technical Bulletin 563% tax on IT and data services
• Connecticut — Sales tax information

What to do next

Start with the states where most of your customers are, read each one's list of taxable services, and decide invoice by invoice what's taxable. If you sell across state lines, test nexus with our economic nexus guide, and use the sales tax calculator to check the tax on a quote before you send it.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

Are services subject to sales tax?

Sometimes. Most states tax goods unless an exemption applies but tax services only when a law lists them. South Dakota, West Virginia, New Mexico and Hawaii are the big exceptions: they treat services as taxable unless exempt. Elsewhere, repair work, landscaping, cleaning, security, data processing and admissions are the services most often taxed, while legal, accounting and medical work usually aren't.

Which states tax the most services?

South Dakota and West Virginia tax services unless a specific exemption applies, New Mexico's gross receipts tax covers services performed in the state, and Hawaii's general excise tax reaches nearly every business activity. Iowa, Texas, Washington and Connecticut have long lists of named taxable services, and Washington added advertising, IT and staffing services from October 1, 2025.

Do I charge sales tax on labor?

It depends on the state and the job. Labor to repair goods is taxable in Texas, Iowa, South Dakota and West Virginia. California taxes fabrication labor, meaning work that produces or processes goods for a customer, but treats many other labor charges differently. Construction labor that creates a capital improvement is often outside sales tax, though Iowa and others tax repairs to buildings.

Are professional services like legal and accounting taxable?

Usually not. Texas and Iowa don't list them, and West Virginia specifically exempts professional services such as doctors, lawyers, engineers, architects and CPAs. Gross receipts states differ: New Mexico's tax covers services performed in the state, and Hawaii's GET applies to most business income, so professionals there generally pay it.

If I sell services online to other states, do I owe their sales tax?

Only if the service is taxable in the customer's state and you have nexus there. Most economic nexus thresholds count sales of taxable services, and some, like Texas, count all revenue. SaaS, data processing and digital services are the most common online services caught by these rules.

Is SaaS a taxable service?

In some states. Texas treats SaaS as a data processing service and taxes 80% of the charge. Iowa lists SaaS as a taxable service, and Maryland taxes it at 3% when bought for a business's enterprise system. Many other states, including California and Florida, don't tax it. Our SaaS sales tax guide has the state list.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 13 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Sales and Use Tax Guide (July 2026) — South Dakota Department of Revenue · accessed 13 October 2026
2. 2.TSD-300 Exemptions from Sales and Use Tax — West Virginia State Tax Department · accessed 13 October 2026
3. 3.Gross Receipts Overview — New Mexico Taxation and Revenue Department · accessed 13 October 2026
4. 4.Taxable Services (96-259) — Texas Comptroller of Public Accounts · accessed 13 October 2026
5. 5.Iowa Sales and Use Tax: Taxable Services — Iowa Department of Revenue · accessed 13 October 2026
6. 6.Services newly subject to retail sales tax — Washington Department of Revenue · accessed 13 October 2026
7. 7.Technical Bulletin No. 56: Data or IT Services and Software Publishing Services — Comptroller of Maryland · accessed 13 October 2026
8. 8.Sales Tax Information — Connecticut Department of Revenue Services · accessed 13 October 2026
9. 9.Publication 108, Labor Charges — California Department of Tax and Fee Administration · accessed 13 October 2026