Sales Tax Fundamentals
Get up to speed on the basics of sales tax
Does Texas Charge Sales Tax on Services?
byJune 14, 2022
Almost every US state requires sellers to charge sales tax on tangible personal property, also known as physical goods. Many states also implement sales and use tax on digital goods and SaaS offerings. Because the economy has shifted over time from a manufacturing economy to a service economy, states are now looking to generate revenue by taxing services as well.
Here’s what merchants need to know about how to collect sales tax on services in the state of Texas.
Are services subject to Texas sales tax?
Many services are subject to Texas’s 6.25% state sales tax rate:
- Amusement services including sightseeing tours, online games, fortune telling and similar activities
- Cable television services and bundled cable services. However, satellite television service provided directly to a customer’s premises is exempt from local sales and use tax. This applies to both residential and nonresidential customers.
- Creation or delivery of a credit report for a fee. Sales tax is charged on credit reporting services if the address of the credit applicant is in Texas at the time of the request for a report, and the person who requested the credit report is in Texas or is doing business in Texas.
- Using a computer for word processing, data entry, production, compilation, storage or manipulation is a taxable data processing service. However, 20% of the charge for data processing services is exempt from tax.
- Debt collection services
- Information services including subscriptions to genealogical, financial, geological or similar databases, newsletters, scouting reports and surveys, financial market reports
- Data retrieval and/or research, news clipping services, wire reports, multiple listing services, mailing lists, global positioning system information, and news. However, 20% of the charge for information services is exempt from tax.
- Insurance services
- Laundry, cleaning and garment services
- Motor vehicle parking and storage services including charges for parking meters, parking decals and permits, valet parking services, and impound fees
- All charges for labor and materials to rebuild, replace, alter, modify or upgrade existing nonresidential realty
- Services such as shoe shining or repair, appliance repair, furniture refurbishing or upholstering, jewelry repair or cleaning and dog grooming
- Personal services provided by a massage parlor, Turkish bath or escort service
- Pest control and extermination, garbage and other waste collection or removal, janitorial and custodial services, landscaping and lawn maintenance and surveying
- Certain security services
- Telecommunication services
- Receiving and relaying of telephone messages by a human operator
- Services provided by a transmission and distribution utility are taxable if the transmission or delivery is directly to an end-use customer whose consumption of the electricity is subject to sales tax.
- Labor services like photography, artistry, tailors, etc.
See more details on taxable services in Texas here.
Please keep in mind that this is a guideline, and you should consult with a sales tax professional to determine if the services your business provides should be taxed. For an in-depth look at sales tax in Texas, TaxJar’s guide to sales tax in Texas and the Texas Comptroller website has more details.