Tax on Services

The push to expand state tax bases has been building for a long time, and states have increasingly considered taxing services in recent years. These proposals are usually met with widespread opposition, but they are more likely to be successful when states are facing budget pressure or when lawmakers want to offset the cost of personal income tax reductions. Hawaii, New Mexico, and South Dakota remain the only states to broadly tax services (because they’ve always done so, not as a result of an expansion campaign). Although there have been plenty of these bills introduced in recent years, nearly all have failed to gain traction.

Taxing services was highlighted during a U.S. House Judiciary Committee hearing in 2018, on Wayfair’s impact on states, when a majority witness noted that “accountants, lawyers, doctors, architects, and others who provide services over the phone or internet” could be targets for tax base expansion.

“States may seek to impose new sales taxes or professional services taxes on the sale of digital goods and provision of services of all types to customers in the state, and impose accompanying collection obligations on sellers or service providers that have no physical presence in the state,” said Andrew Pincus, a partner at the law firm Mayer Brown LLP.

Research & Resources

Chamber Resources

• Salt Lake Chamber - Tax Reform White Paper (2019)

Research

• AICPA. Tax on Services. (2014)
• AICPA. States on Standards for Tax Services. (2019)
• California Taxpayers Association. Sales Tax on Services. (2013)