I’m always amazed at how many people, even business folks who should know better, subscribe to the myth that services are not subject to sales and use taxes. If you’ve ever spent any time in Hawaii or South Dakota, where just about everything is taxed, you’d know that it just ain’t so.

True, for most states you’re fairly safe in making the general assumption that goods are taxed and services aren’t. But nationwide the picture is much more complicated than you might think.

A new white paper from CCH, a Wolters Kluwer business, provides a good overview of the current state of play, including the knotty issue of nexus. Author Phil Schlesinger breaks services into five main categories: stand-alone, including both professional services (e.g., those provided by public accountants, physicians, and architects) and nonprofessional services (bookkeeping, design services); tangible personal property services, such as machinery repair or installation; real property services (landscaping, remodeling); bundled services; and digital/informational services.

States’ tax treatment of these five categories varies widely. And it can get pretty hairy. For example, in commercial construction, Texas differentiates for sales tax purposes between new construction and remodeling construction. Services connected with new construction are not subject to tax, but services provided for remodeling are taxable. ###