The Unexpected (Tax) Nature of Funeral Services – Wacky Tax Wednesday
- Sales and Use Tax
- May 21, 2015 | Gail Cole
I have a couple of friends with an astonishing breadth of life experience. Knowing this, I expect to hear the unexpected when I spend time with them. Yet I was unprepared when one once shared a story beginning with, “Well, that was when we ran a funeral home….”
My friend’s unlikely stint as a funeral director came to mind when I learned that the California State Board of Equalization is currently scrutinizing Regulation 1505, Morticians. For in spite of the fact that my grandmother lived across the street from a funeral home, that I have buried loved ones, and that I was an ardent fan of the HBO show Six Feet Under, I have never devoted much thought to the business side of death.
In fact, it’s a subject worth scrutiny. With an inevitable market share, the death-care industry is big business. And while many funeral homes are small businesses owned and operated by mom and pop and their children (à la Six Feet Under), thousands are owned and operated by chains.
The more states in which a business operates, the more complicated the sales tax returns. Just as they do for all other industries, rules vary by state for the death-care industry. That’s as much of a given as death itself.
Mortician as retailer
As the current California regulation points out, morticians are retailers. In addition to their services – which may or may not be taxed depending on the state – they sell boxes, caskets, clothing and vaults, and “any other tangible personal property furnished in connection with rendering their services if a separate charge is made for such property.” In California, unless a specific exemption applies, sales tax “applies to the sales price of all tangible personal property sold by morticians.” This is true in many states.
Mortician as end user
Morticians are also considered the end user of a variety of products in most states. These range from embalming fluids to eye caps and aprons. Unless a specific exemption applies, morticians in most states owe use tax on such consumables if sales tax isn’t paid at the time of purchase.
Mortician as service provider
It’s when we look at the taxation of services provided by morticians that tax law gets especially interesting. Sales tax began as a tax on tangible personal property – goods that can be seen and touched. As the focus of the American economy has shifted to be more service-based, some states have reacted by extending sales tax to numerous services. This is an area of tax law that is much in flux, and there is little consistency between states.
Most services provided by morticians are exempt in the following states:
- California (the proposed amendment to Regulation 1505 would identify the basic services of a funeral director)
- New Jersey
- Rhode Island (including funeral transportation services)
- Texas (list of taxable services)
In Baton Rouge, Louisiana, sales tax must be “paid on 50 percent of the total bill, less cash advanced” when customers are charged a lump sum that covers the entire cost of the funeral.
In Indiana, sales tax is due on 100% of the price when “funeral expenses stated as one lump sum with no itemization of tangible personal property.”
In North Carolina, funeral services were subject to sales tax prior to January 1, 2006 – except the first $1,500 charged for taxable goods and services. Effective January 1, 2006, “gross receipts from services rendered by funeral directors, morticians, or undertakers are exempt from sales and use tax,” as are certain other “services rendered in connection with funerals,” such as “those services provided by beauticians and barbers.”
In South Dakota, most services provided by morticians are subject to sales tax.
And in Washington State, where I live and may well die, retail sales tax is collected upon one-half of
[a lump sum price for a standard funeral service, which includes both the sale of tangible personal property and a charge for the rendering of service].” Good to know.
Invoicing funeral services can be particularly complicated in Ohio, where limousine services for funerals are subject to sales tax if entirely within the borders of Ohio but exempt if interstate. In Ohio, charges for the application of cosmetics, manicuring, pedicuring, hair removal, and other similar services for the living are subject to sales tax. However, applying makeup to the deceased is exempt from sales tax.
And the following items must be separately stated on invoices and taxed in Ohio:
- Guest book services
- Outside containers (except pine box furnished with casket)
- Urns, and other containers used for ashes from cremation
- Vaults (all kinds)
While the services listed below must be separately stated and not taxed:
- Cash advances
- Counseling services
- Embalming and care of the remains
- Funeral notices
- Transportation of the remains
- Use of funeral home for chapel for services and showings