Do You Have to Pay Taxes When Providing a Service?

When it comes to sales tax, service providers must have a different perspective than retailers in most states. Companies that provide strictly tax-exempt services do not need to collect or remit sales tax for their services. However, certain services are subject to sales tax when provided to consumers. This article will provide an overview of the categories of services that are subject to sales tax, as well as some examples and additional resources. Installation and warranty may be subject to sales tax, depending on the condition.

If a service is provided in conjunction with a tangible product, but the product is secondary or incidental, the service may not be taxed at all. Retail services are services subject to sales tax. These include:

• Telecommunications services, such as telephone, telegraph, radio, and television services
• Cable television services, which is the distribution of video programming with or without the use of cables to subscribed or paying customers
• Data processing services, such as computer programming, data entry, and data analysis
• Debt collection services, such as assessing damages and losses, inspecting, investigating, adjusting or processing claims, actuarial analysis or investigation, and preventing insurance losses
• Insurance services, such as assessing damages and losses, inspecting, investigating, adjusting or processing claims, actuarial analysis or investigation, and preventing insurance losses

If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may have to pay taxes on that worker's employment (the relief provisions described below will not apply). You may also have to pay an estimated tax if the amount of income tax withheld from your salary, pension, or other income isn't enough. When a service provider combines Internet access with a taxable service, such as a telecommunications service or cable television service, the service provider should not levy taxes on the amount allocated to Internet access if the service provider can establish through its books and records a reasonable allowance for the taxable service and for tax-exempt Internet access. Property used for more than six months outside of Georgia before its first use within Georgia is taxed at the state and local sales tax rate if it is lower between the purchase price or the fair market value of the property. If you clearly describe what you sell and divide individual services and goods into different lines of the bill (and contract), you ensure that tax-exempt services are not subject to sales tax.

The Voluntary Classification Settlement Program (VCSP) is an optional program that provides taxpayers with the opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers who commit to treating their workers (or a class or group of workers) prospectively as employees.