Bryan Corliss Mar 17, 2022
Do freelancers, independent contractors, and business service providers need to collect and remit sales tax for the work they do?
Like so many questions about sales and use tax law, the answer is: It depends.
In this case, it depends on the nature of your contracting business, the nature of the work you’re doing, and — above all — the state in which you’re doing the work.
To be clear, in this post we’re not talking about construction contractors. (Those businesses have their own unique tax obligations.)
Instead, we’re talking about various kinds of work performed on a contract basis. This can include business services provided under a long-term contract, or goods or services provided by freelancers on a contractual basis.
In most states, if you’re selling a tangible good, that transaction is subject to sales tax. The question becomes one of definitions, with each state having specific criteria for what constitutes a taxable tangible good or taxable sale.
Texas, for example, taxes a number of information services that could be provided by freelancers or other self-employed writers and researchers: newsletters, financial market reports, and scouting reports or surveys in particular. That means if you write a twice-monthly oil industry newsletter for investors, or a weekly scouting report for fantasy football team owners, Texas might want you to collect and remit sales tax on your subscription sales. (However, if your investment advice is published in a newspaper, that service is not taxable, according to the state’s comptroller.)
Note that 20% of the charge for information services is exempt from sales tax in Texas; sales tax in the Lone Star State only applies to 80% of the charges for information services.
Sure, Amazon delivers home electronics, clothing, and kitchen gadgets. But it also provides a marketplace for freelance artists and authors.
Self-published written works or original art may or may not be subject to sales tax — it depends on the nature of the product sold and the state where the sale occurs. Sales tax generally applies to sales of tangible books (the kind with a cover you can hold in your hands), but ebooks are exempt in some states, like California. Most states will tax a painting that can hang on a wall but may exempt an NFT design by Beeple.
Every state with a sales tax has a marketplace facilitator law requiring Amazon to collect and remit the taxes for marketplace sellers, but some states require individual marketplace sellers to register and remit returns, so you may still have sales tax obligations even if tax is remitted on your behalf. (You can learn more about this with our state-by-state guide to marketplace facilitator laws and registration requirements for marketplace sellers.)
If you sell through a smaller marketplace, you may be responsible for collecting and remitting the tax due on sales of your self-published work. In Washington state, for example, “The author does not need to collect sales tax on sales they made through a marketplace if they received confirmation from the marketplace facilitator that the facilitator will collect sales tax. The author must report this under the retailing B&O tax and the retail sales tax classifications and claim a ‘Gross Sales Collected by Facilitator’ deduction. If the author does not get confirmation from the facilitator, the author needs to collect and submit retail sales tax on book sales to Washington consumers.”
In addition, some states may require authors and artists who sell works through Amazon or another marketplace to register as small businesses. (You can learn more about small business registration requirements here.)
For artists, tangible work is generally subject to state and local sales tax. It doesn’t matter whether the work is commissioned by a buyer or created on spec — although some states are reported to require the artist to collect use tax upon the sale of a major piece, because they don’t trust buyers to do it.
Art sales are usually taxed no matter how the sale is made, whether online, in an upscale gallery, or at a flea market. The difference is that if a gallery makes a sale, it’s incumbent on the gallery to collect and remit the tax; if the artist makes the sale, it’s up to them.
Just like in the rest of the business world, there can be exceptions for sales to government agencies, sales to nonprofits, or sales of artwork intended for immediate resale. In those cases, “exempt transactions need to be carefully documented with an appropriate certificate of exemption from the state’s revenue department,” note the accountants at Lehmann Strobel.
(Managing sales tax exemptions can be challenging. You can download our Ultimate Guide to Sales Tax Exemption Certificates here.)
Some states tax some business services, but most don’t. For example, South Dakota generally taxes payroll services, but New York doesn’t.
New York does tax interior decorating and design services, but California generally only taxes charges for professional design services directly related to the sale of merchandise, including sales of samples or finished drawings.
Although nonresidential cleaning services are subject to sales tax in Florida, residential cleaning services are exempt. Rental cleaning services are generally exempt, but if a guest of a transient rental is required to pay cleaning services charges, sales tax, discretionary sales surtax, and local option transient rental tax applies.
In Wisconsin, the taxability of cleaning services depends on a host of factors. For example, while “routine and repetitive janitorial services” are not taxable, “specialized or non-repetitive cleaning services to tangible personal property are taxable.”
In some states, whether a service is subject to sales tax depends on how the service provider bills the customer.
When it comes to interior designers in California, noted above, consulting on design, layout, color schemes, and fabrics are not taxable services; neither is supervising installation. However, if a designer charges for measuring draperies or accompanying a client to showrooms, then those charges are subject to tax, because they’re directly tied to the purchase of taxable items.
In addition, if a designer bills a customer to build something (custom furniture, perhaps), the labor is subject to sales tax in California. If the designer installs something new or repairs something old, that’s generally not taxable
And if the designer doesn’t itemize their fees to specify which kind of labor was performed and billed for, then the whole bill is subject to California sales and use tax.
Washington extends sales tax to auto detailing services. Ohio taxes car wash services — unless they’re coin-operated.
Georgia sales tax doesn’t apply charges for a tattoo. In New York, sales of tattooing and permanent makeup services are exempt from state and local sales tax everywhere in the state outside of the Big Apple, but subject to New York City local sales tax.
Obviously, there are a lot of rules to keep track of, particularly for artists, writers, and artisans living in and around major metropolitan areas that straddle state lines, like Kansas City.
Automating your sales tax compliance processes could help you spend less time shuffling paper and more time creating great things. To learn more, check out our solutions for small businesses. You can also read our Small Business FAQ, which has more information about tax compliance issues sole proprietors face every day.
Cover photo by Canva
