Do you charge sales tax on web design?
The laws in Texas are a bit odd. If I design a site from scratch for a client, I’m supposed to charge sales tax. However, if I make updates and modify an existing design I don’t have to charge sales tax.
How do you handle sales tax?
I’m in Florida; I just make it abundantly clear that I’m not selling a product, but consultancy services (with limited scope). That simplifies a lot of issues, including sales tax.
In most states, you don’t have to charge sales tax on services. If you offer a product, though, you do.
You’ll have to do what is required in your state. I would recommend calling them up and asking for more information, maybe a sit down meeting, to discuss the sales tax issue with the people who know. Ask them if you have to pay taxes, when to pay (quarterly, annually, monthly) and what forms need to be filled out (and what records to keep).
Getting the information from anywhere but the source would be opening yourself up to a lot of heartache later. I don’t know too many experts on Texas sales tax here 
Check out the following site for more info:
http://www.window.state.tx.us/taxinfo/sales/faq_collect.html
My strategy exactly (in Virginia). I sell web development services - not websites.
Heh, that’s funny that naming it differently results in different sales taxes …
Here in sweet Belgium, Europe, we just charge 21% on all of it … sigh
In Texas there’s a play safe method: Charge Sales Tax and give it to the state.
The state does not mind one bit if you charge tax in error as long as it gets to them. But if you don’t charge it and they find out, it’s hell to pay.
That’s just been from my experience.
There is a similar problem in the photography field. No charge for the service of taking pictures (i.e. sitting fees, etc), but if they want the photos (or negatives, etc), then the whole thing becomes taxable.
I live in Florida and was not sure so I called the Florida Department of REvenue and was told I do not need to charge sales tax for designing a website, however if I give the client a physical copy of the site, then I have to charge tax since a product exchanged hands.
Just call your local office and ask them.
Makes me proud to be an American… and even prouder to be a Floridian.
Texas - Yes you do have to charge sales tax on web design. Regardless of whether they are in state or out of state, if they benefit from the website in texas then you must charge them sales tax.
No you would only charge it to Texas residents. I know the state of Texas may think it is big and all that, but it has no jurisdiction over other states or residents of other states, and it has no power to regulate interstate commerce.
You really have to look at the wording of the law in your state. Here in PA it says “products or services” … web design falls into the services catagory.
I was told by an account any time you see the word services you have to them go find the “excluded services” section of the laws … if you cant find your service under the exclusions you have to charge sales tax.
Give it time as there seems to be a lot of movements to charge more and more if not all services… after all, we’ve moved into the information age and there are a lot more services that could generate a lot more tax dollars.
Absolutely check with your state though, especially as these rules can change over time. And it really comes down to how you define it. As I learned, in Wisconsin, I don’t have to charge tax… that is if I develop their site, and load it up on the server. But if they wanted a hardcopy printout of the code, I would have to charge sales tax on that. I don’t have to charge tax on the work I do on images or graphics that are created for their site, but if I went out and took a photo of whatever they wanted on their site, I would have to charge tax for that service!
I think the plan is to make it so complex, that we all just start charging tax to be safe.
In Wisconsin, I have personally called the Dept of Rev 3 times and each time, talked to a different person and so I received 3 different answers. The last answer is the one that I live by. If you provide them with a copy of the files, its now a product so you must charge tax. If you do not provide them with any files that they can have, its a service. What I do is charge tax on all new projects as they receive a cd, but any changes are not taxed.
Its been quite the discuss with designers in the area here as well. Some charge sales tax, others don’t - I think its split 50/50. I play it safe and charge tax.
A further complication is, if the state of residence of your client charges tax on services (labor) then you have to obtain a sales tax license for that state , charge tax, and remit to the taxing authority.
Yes, indeed, this is ridiculous, but when the question is asked it has to get answered legally. In my state, Colorado, every county and many cities have their own sales tax regs well … I sell hardware … black boxes … to the transportation industry and I have a whole folder full of sales tax licenses from many states and yes the accounting and the deadlines for all of them are a hassle.
If you are dealing with small, cheap jobs, better check on the rules of tan where your client lives … it may be worth passing up certain work as the sales tax issue can eat up significant profit … god Bless America, the land of the former free.
I don’t really think you do. The way it works in most states, the client is supposed to get a use tax form or whatever the state calls it, and remit the taxes to their state.
You can get a sales tax license for other states, but unless you conduct a huge amount of business through other states, it is not required in most states (I’ve never seen a state require it unless you conducting serious business in the state). But we can really thank ourselves for this, because as all good Americans know, when you buy something from another state, there is no need to submit use tax to your state because that would be silly, even though it is the law. As a result, many states now have pushed to burden the out of state company, but usually only in case of significant business activities. Whether they can legally do this is questionable though.
And watch out if you make a large business purchase from another state. If you don’t remit use tax to your state, that could just get your state tax department a wee bit upset.
Anyone heard about the laws in TN? I have heard that ANY web services, development or redesign, are taxed…and that the IRS can go back 6 or more years to collect. Anyone with a definitive answer?
I contacted the TN Revenue dept on this very issue:
I am trying to find out if I am responsible for charging TN sales tax on “software” that will reside on a server out-of state.
I did find this on the Tennessee,gov,revenue website which is the exact opposite of what I want to find out:
[I]". Should a Tennessee software developer collect Tennessee sales tax on software it installs on a server located in Tennessee if the customer buying the software is located outside Tennessee and only accesses the software via the Internet?
Yes. The software is located on a server in Tennessee and is used by the out-of-state customer on a server in Tennessee. Thus, title and/or possession of the software have transferred to the customer in Tennessee. This is a taxable sale of software, and the developer should collect Tennessee sales tax on the transaction."[/I]
This leads me to believe that my customer is subject to whatever taxes are relevant in the state the server resides in…
Their reply was:
No, software developed in Tennessee for hosting on a server in another state is not subject to the sales or use tax in Tennessee. Websites are computer software, therefore the same rule applies. Ray Todd
Any opinion from tax law or regulations given herein is believed to be a correct interpretation. However, the opinions cannot constitute a revenue or letter ruling pursuant to the provisions of Tenn. Code Ann. Sect. 67-1-109.
If you go to Tennessee,gov,revenue website There is a lot of great information there. For example, if the software is delivered physically (on a CD-ROM) than you must charge Sales and Use Tax.
Consequently…
Should a Tennessee dealer selling merchandise through the Internet collect sales tax?
When a Tennessee dealer accepts an order through the Internet and delivers a product to a Tennessee customer, the charge is subject to sales or use tax. If the Tennessee dealer delivers a product to a consumer located in another state, the sale is not subject to Tennessee sales or use tax.
So the bottom line here is that if it is delivered or stored on a server in TN you must charge the sales and use tax. If the software resides out of state, it may be subject to the use and sales tax governing that state. The company buying the website is responsible for paying their own use tax. Many states do not tax on services though.
Hope this helps!
also…
Are computer consulting services subject to sales/use tax?
In many instances, yes. Consulting services alone are not taxable. However, such services are frequently sold in conjunction with the transfer of software and taxable services. Software is currently taxed as tangible personal property (T.C.A. Section 67-6-102(30)(B)). The “sales price” of software and other tangible personal property includes the total amount for which it is sold, including any services that are a part of the sale (T.C.A. Section 67-6-102(26)). Thus, any charges for services that are performed as part of the sale of software are subject to tax. For example, in Creasy Systems Consultants, Inc. v. Olsen, 716 S.W.2d 35 (Tenn. 1986), the Tennessee Supreme Court held that hourly consulting charges for determining the needs of a client, designing a software program to meet those needs, and then writing the software program were all subject to sales tax. Thus, if consulting services are not provided as additional services separate and optional from the sale of software or taxable services, they are subject to tax in Tennessee.
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