Should web designers and developers charge sales tax?
If you’re a web designer or developer and you want to know whether you should charge your clients sales tax, we’ve got good news and bad news.
The bad news is that each state has complex and confusing rules on the subject and you’ll have to know those rules for each state you sell in.
The good news is that we’ve broken down most of the sales tax scenarios you’ll find, and even shown you how to get the information you need.
Do you have sales tax nexus?
First, you should determine whether you have triggered sales tax nexus in a given state.
If you have professional ties to any state that you sell in (called nexus), you are responsible for collecting and remitting sales tax in that state. Some of the things than trigger nexus in most states are:
- Having a physical location in the state, including an office, warehouse, or store
- Having an employee or agent in the state
- Keeping inventory in the state in your own warehouse or that of another business
- Using an affiliate that has nexus in the state
Use our Sales and Use Tax Guides to find out what triggers nexus in the states you sell in.
Web design services and sales tax
If you determine you have nexus in a state, your next step is to determine whether that state requires you to charge your customers for website design and development. Here are the three most common ways states deal with these types of services.
- Some states, such as New York and Wisconsin, specifically exempt website design services from sales tax as long as any work is delivered electronically. If you also deliver the work in any form of personal tangible property, that portion of the sale is taxable and must be stated separately on the invoice.
- Other states like Pennsylvania expect sellers to charge sales tax if they are creating custom software or other programs, but not for website design. Utah also completely exempts website design and development. In other words, if you are only selling a service and not a product in these states, you aren’t required to collect sales tax.
- Finally, some states like Connecticut require sellers to charge sales tax on website design and development.
How to stay sales tax compliant
Sales tax laws and regulations are constantly changing, and as evidenced by the recent change in Utah's tax code that resulted in the rule listed above, it can be difficult to keep up. You can either try to stay current for each state you sell in by keeping in touch with those states' departments of revenue, or use an automated sales tax program that will do it for you.
Either way, sales tax and website design and development is a complex topic. If you're a business owner who often works across state lines, staying in compliance depends on keeping abreast of the most updated rules in each place you offer your services.
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