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June 2016 • www.CPAPracticeAdvisor.com 27 In the past, many small businesses that provided services, rather than sale of goods, did not have to deal with sales taxes at all. However, that is changing as the U.S. economy is increasingly driven by services and governments look for more sources of revenue. Te number of states levy- ing sales taxes on services is steadily increasing. As a small business owner, the frst two things you need to know about sales taxes on services are: • Tere are many services that have sales tax atached. • Te number of those taxable services is growing. As always in dealing with sales tax, the specifcs of sales taxes depend on the rules in the jurisdiction(s) where you are taxed. Tese can vary a great deal, so you need to know which specifc rules will apply to you. But there are some basic principles and things to watch out for if you're wondering whether you might have to collect sales taxes on your services. Presumed taxable vs. presumed exempt states Most of the 45 states that charge sales tax consider some services taxable. Te majority of states (41), plus the District of Columbia, treat services as not subject to sales tax unless specif- cally made taxable by law. However, four states (Hawaii, South Dakota, New Mexico, and West Virginia) consider services to be taxable by default, unless they are exempted by law. If your business sells services, it's crucial to know whether a state where you have nexus presumes that services are taxable or non-taxable. More states are look ing at changing their default stance on the taxability of services in order to increase their revenue. California Senate Bill 8, which would impose a tax on nearly all professional services, is an example of this type of atempt. Expected to raise $10 billion a year in sales revenue if passed, the bill did not make it to a vote last year but was expected to make a return this year. Te governors of Illinois and Pennsylvania have also come out in favor of extending sales taxes to more services in their states. Types of taxable services Services generally subject to sales tax can be divided into several groups. However, each of these types of services can be treated diferently in each jurisdiction. Services to tangible personal property (TPP): Tese ser vices typically improve or repair property, with car repair being one example. It's important to note that if there is a tax exemption for a service to tangible personal propert y, the service must be separately stated on an invoice to the customer. If it is not, the service may be considered part of the sale of the property and can be taxed like it. Services to real property: Tis categor y includes improvements to buildings and land, such as land- scaping, lawn service and janitorial services. States may treat ser v ices to residential and commercial property diferently, taxing services to com- mercial property, while services to residential property are exempt, for example. Some states may also treat new construction diferently than remodeling, with new construction exempt and remodeling ser vices subject to sales tax. Business services: Services per- formed for companies and businesses fall into this category and can range from credit reporting to extermina- tion services. Personal Services: Grooming or self-improvement services provided by businesses such as tanning or hair salons ft into this area. Professional services: Many ser- vices provided by professionals such as atorneys, physicians, accountants, and other licensed professionals are currently not subject to sales tax, but states are taking a second look at this potential revenue source. A m u s e m e n t / R e c r e a t i o n : Admission to recreational events, amusement parks, as well as other types of entertainment, are examples of services in this category. CONTINUED ONLINE AT: www.CPAPracticeAdvisor. com/12216965 Are Your Clients Prepared for Sales Taxes On Services? By Shane Ratigan S mall businesses have a big presence when it comes to providing services: according to the U.S. Small Business Administration, the top two industry categories for small businesses (defned as fewer than 500 employees) in the U.S. are "professional, scientifc, and technical services;" and "other services (except public administration)." In fact, small businesses make up 85.8% of employment in the "other services" industry category in the U.S. Shane Ratigan is a licensed atorney in Oregon and Washington and works in sales tax law and sales tax compliance with Avalara. A Year in the Life of a SALT Accountant is sponsored by Avalara C l i e n t s c c o u n t a n t b y A v a l a r a June SALT Checklist Determine if there are any votes coming up this month in the jurisdictions where your clients do business. Share results with your affected clients and incorporate any changes in laws into your own system. Filings–prepareandfleallstateandlocalreturns due this month (sales tax, income tax, etc.). Assist your clients with all necessary SALT-relat- ed journal entries, keeping in mind accounting for early payment discounts, late payment penalties. Respond to any recent notices your clients have received from SALT authorities. Follow up with taxing authorities on open SALT is- sues from previous months. Scheduleallstateandlocaltaxflingsthatwillbe due next month.