Sales Tax On Consulting Services In Texas: What To Know

Sales tax refers to a tax paid to state and local tax authorities for the sale of certain goods and services. It is most commonly collected from the customer at the point of sale.

As a business owner dealing in taxable goods and services, you become responsible for collecting tax from buyers and passing it to the appropriate state or local tax authority. In Texas, sales and use tax are regulated by the Texas Comptroller of Public Accounts.

Any sales tax collected from buyers belongs to the state. Therefore, you are advised to manage the taxes in compliance with the tax laws of Texas. Otherwise, it could lead to penalties.

In Texas, sales tax is collected on the lease, sales, or rental of tangible goods and some services.

Given that sales tax is applicable on the goods and services sold to the customers, you may wonder if it is imposed on intangible services like business consulting in Texas. Let’s find out. But first of all, let’s know what business consulting is actually.

What is Business Consulting?

Wikipedia defines a consulting firm as “a professional service firm that provides expert advice for a fee. Consulting firms may have one employee or thousands; they may consult in a broad range of domains, for example, management, engineering, and so on.”

Simply put, consulting is the practice of providing a third party with expertise on a matter. These services are generally paid and involve either advisory or implementation services.

The consulting industry is believed to come into existence in the late nineteenth century. In their infancy, these services were mainly available for technical and financial concerns. Today, there are hundreds of thousands of consulting firms in the USA worth approximately $250 billion. These firms offer consulting on all sorts of different services.

Business consulting firms are supposed to help their clients with an issue, for which expert advice or knowledge is required which is otherwise not available on the client’s side.

Does Sales Tax Apply on Consulting Services in Texas?

Yes, sales tax is charged on consulting services in Texas. However, it depends. While standalone consulting is generally not taxable, consulting with some kind of purchase of taxable services is taxable even when separately stated.

For example, you hire an IT consultant who visits your office and creates a design for your computer systems architecture. They plan your networks, servers, disaster recovery, and computer equipment. This is just a consulting service that doesn’t come with any kind of tax.

But if the same professional configure your servers and equipment, install some equipment, and set up some software, this could be a taxable service.

Difference?

In the first case, you were offered intangible service which is the essence of consulting. In the second case, you got a tangible service, whether it is software installation or fixing the computer.

How to Manage Sales Tax for Your Business Consulting Services in Texas?

So you must have understood how and when your consulting services become taxable in Texas. The next thing is to manage your sales tax obligations to avoid penalties and hassles. Here’s how…

Do You Have Any Nexus in New State?

Are some of your employees working outside Texas? Or you have hired new employees that work from a remote location? It means that you will have nexus in a new state. Sales tax nexus laws are often quite complicated due to the varied laws across the country. Therefore, make sure to assess the law in each new state where you operate your business. Check the state’s sales tax laws so that you can file, calculate, file, and remit your sales tax liability.

Learn About the Payment Options:

The payment options vary based on the state. Some states have electronic payment systems while some don’t have.

Assess the Taxability of Any New Offerings:

Offering a new service? Make sure to know about the taxability associated with your new product or service.

Respond to the Notices from State or Local Tax Jurisdictions:

Have you received any tax notification despite filing and paying taxes in a timely fashion? Maybe the tax authority has made errors while processing your return and payment. Failing to address these notices on time might lead to penalties or suspension of your business license. Take your tax notices seriously.

Keep Track of Filing Due Dates:

Make sure to know the filing due dates assigned to your business by the Texas Comptroller of Public Accounts. This way, you can stay prepared and plan accordingly. Failure to miss the due dates can lead to fines and interest charges.

The Bottom Line:

Like other states, Texas has one of the complicated sale tax systems to understand. And things can be even more complex for businesses providing consulting services as they don’t have any idea whether or not to file taxes. Consulting services are taxable in Texas if they are offered along with certain products that are taxable. Consult a professional tax advisor in Texas when in doubt.