Sales Taxes on Services… Ouch!


Tax reform is taking the taxes off things that have been taxed in the past and putting taxes on things that haven’t been taxed before. – Art Buchwald

I just wrote a check for almost $1,400 to replace the rotors, rear calipers, brake lines and a front axel on my wife’s 10-year-old Mini Cooper. Ouch! Included in that total is a $90 sales tax charge. Double Ouch!

In Ohio and the county where I live, the sales tax rate for most services is 7 percent — 5.75 percent for the state, plus 1.25 percent for my county. If you operate a landscape, lawn care or snow management company and bill $5,000 or more in services during the year in Ohio, you will have to charge your customers the 5.75 percent state sales tax, plus any sales tax levied by the county where you provide services.

I became interested in the topic of sales tax after reading a recent article posted by St. Louis Public Radio.

And, of course, I’m still smarting after having to fork over an extra $90 for the car repairs.

The gist of the public radio article is that Missouri voters will get a chance this coming Nov. 8 to vote on a constitutional amendment that would ban sales tax on services. The amendment, in part, says:

“In order to prohibit an increase in the tax burden on the citizens of Missouri, state and local sales and use taxes (or any similar transaction-based tax) shall not be expanded to impose taxes on any service or transaction that was not subjected to sales, use or similar transaction-based tax on January 1, 2015.”

Given the financial condition of some deeply indebted states (hello, Illinois), how likely do you feel it is that lawmakers, seeing a potentially large source of untapped revenue, will implement or, in some cases, raise sales taxes on services?

The business interests in Missouri that backed the no-service-tax amendment think that it’s highly likely. That’s why they mounted their campaign resulting in the November vote giving citizens the voice to prevent them from doing so.

“Politicians borrow bad ideas,” Scott Charton, a spokesman for the group that sought the amendment is quoted as saying in the article. “Other states such as North Carolina and Washington have implemented sales taxes on services just this year. Our neighboring states of Oklahoma and Illinois have had lawmakers discussing sales taxes on services to close some pretty significant budget holes.”

The reality is that state and local sales tax laws vary considerably across the United States.

If you do business in Delaware, Montana, Oregon, New Hampshire and Alaska you have no state-level sales tax of any kind. (While Alaska has no state sales tax, more than 100 municipalities there do.)

While most states do not require the payment of sales tax for services, New Mexico, Hawaii and South Dakota tax almost all services, including landscaping, lawn care and pest control. More than a handful of other states tax some services.

For example, Florida requires sales tax for commercial pest control services. Commercial pest control companies must charge their clients 6 percent state sales tax, plus any local sales tax. Bugs are a big deal in Florida, and so are the sales tax revenues they generate for state and local coffers.

Also, if you provide design/build landscaping services in Iowa, you may find the sales tax law to be confusing. I do. The law there says that any business in the service industry that creates or builds a tangible product will be required to pay sales tax. Does that include building, say, an outdoor patio for a client? Similarly in Kansas, if any type of tangible good is altered, repaired or installed, there is a tax requirement on the service.

Obviously, it’s always better to know and follow the letter of the law rather than to guess when it comes to whether to levy or not to levy sales taxes. In some cases you may need the help of an experienced advisor.

What do you think? Do feel state and regional authorities should require sales tax on the many, many services we all need ­– plumbing, home repairs, vehicle maintenance and repairs, pest control, etc.?