I wrote this post (click here) on sales taxes sometime ago and it’s now time to do a follow-up for US residents. There seems to be a blanket statement in the virtual service industry that says “services are not taxable” and by services there is no distinction made of the type of services that aren’t taxable.
“Services aren’t taxable” can be a misleading statement when you don’t know what type of services each person provides, where they operate their business and the tax rules that apply to them across the scope of the services they provide. Some services may be taxable while others are not.
Check with the Department of Revenue, State Comptroller or the authority that has oversight of business taxes for your area for updated tax information. A CPA or tax attorney may also be able to answer your questions.
Most states have this information online but interpreting the information isn’t always easy. Getting a knowledgeable representative on the phone and having them walk you through information related to the actual services you provide(not just virtual assistant) is important.
The representative was able to tell me that a specific virtual service I was providing was taxable because I provided details about the service and didn’t call and ask about virtual services in general. Be specific.
There are no blanket rules about services. Tax rules change so be sure you’re monitoring them. With the virtual services industry growing so rapidly, some states are seeking to do away with certain exemptions that make some services non-taxable.
I want to make further clarification of this post: Click Here
I’m in Texas, US.
Let’s assume my virtual clients are all Texas (many are).
I’m a photographer.
As an example one service I provide is to create custom social media graphics(click here) using images I photographed.
I create these custom graphics in the course of providing “services” to my clients.
Yes, I provided service to my client but it’s the type of service that I provided that determines if it is taxable.
As a photographer here’s what’s taxable for me: Click Here
To understand what’s taxable to me as a photographer or virtual service provider regarding this specific service you don’t have to read beyond the first section which says:
Sales of photographs are taxable. Photographs can be made from film (negatives or positive
transparencies) or from digital or electronic files, and sold as prints, on a DVD, CD, digitally, electronically
or by any other medium.
As a Virtual Service Provider when I photograph something and use it to create social media graphics, stock for websites, blog post etc it’s taxable too.
It’s a deliverable like the original photograph according to my state representative.
The representative called it “data processing” when I explained that I was creating some graphics using my own images and some provided by the client and managing the clients social media accounts. Services in Texas, US are non taxable unless they are listed as taxable and you guessed it. This is listed as taxable.
Let’s assume the representative got the name all wrong and it’s not data processing(see a case study). What we do know is that Texas defines digital goods as tangible property and tangible property is taxable in Texas. The general thought for my area is that if taxes would apply if it were physically delivered it may also apply if it’s virtually/digitally delivered.
This is what makes “services are not taxable” such a financially dangerous thing.
Every area varies. In my area some interactions with clients may involve a combination of non-taxable and taxable services. Not to worry Texas has a complex and head-banging-against-the-desk formula for that, CLICK HERE
Locate information for your area and verify taxable-vs-nontaxable with a qualified professional. “Services aren’t taxable” is too broad to be a reliable answer for an industry that offers such a great range of diversity in services around the globe.
Here’s a good read for sales tax by state, Click Here