How to Determine If Your Product or Service Is Taxable
- Lisa Jones
- Jun 2
- 3 min read
Updated: Jun 28
One of the most confusing parts of sales tax compliance? Figuring out if what you're selling is actually taxable.
Not all products or services are treated equally when it comes to sales tax. Taxability varies by state, product category, and even how a service is delivered. Getting it wrong can lead to overcharging customers—or worse, underpaying tax authorities and facing penalties.
This guide will walk you through the basics of how to determine taxability, common exemptions, and how Manage My Sales Tax can help you stay compliant.
Step 1: Understand the Basics of Taxability
Sales tax typically applies to tangible personal property (things you can touch) like furniture, clothing, and electronics. But in recent years, many states have extended tax to digital goods and services, too.
The catch? Every state has its own rules. What’s taxable in California might be exempt in Oregon.
Step 2: Know What You’re Selling
Tangible Products
Most physical goods are taxable—but there are exceptions:
Groceries: Often tax-exempt or taxed at a lower rate
Clothing: Exempt in some states (e.g., Pennsylvania)
Medical equipment: Frequently exempt if prescribed
Digital Goods
Downloads, software, and streaming services are taxable in some states and not in others. For example:
E-books are taxable in Texas but exempt in Florida
SaaS (Software as a Service) may be taxed differently based on whether it's downloaded or accessed online
Services
Many professional services are exempt, but others are taxable depending on:
The state
The nature of the service (e.g., repair vs. consulting)
How it’s delivered (online vs. onsite)
Step 3: Review State-Specific Rules
Each state’s Department of Revenue provides a taxability matrix or guide, but they’re not always easy to navigate. Here are some key considerations:
Does your product or service fall under a taxable category?
Are there state-specific exemptions you qualify for?
Does bundling a taxable item with a non-taxable one make the whole package taxable?
Step 4: Keep an Eye on Legislative Changes
Sales tax rules are constantly evolving. For example, digital product taxability and economic nexus laws are changing every year. A product that was exempt last year might now be taxable.
Businesses must stay up-to-date or risk non-compliance penalties.
How Manage My Sales Tax Can Help
At Manage My Sales Tax, we take the guesswork out of sales tax compliance—especially when it comes to product and service taxability.
Our services include:
Product/service taxability analysis by state
Registration and compliance setup
Monthly and quarterly tax filing
Ongoing monitoring of legislative changes
Whether you're a SaaS provider, eCommerce seller, or service-based business, we’ll help you determine what’s taxable and where—accurately and efficiently.
How to Determine If Your Product or Service Is Taxable
Figuring out whether your product or service is taxable can sometimes be confusing, especially since rules differ from state to state. Taking the time to understand how to determine if your product or service is taxable will help you stay compliant and avoid surprises down the road. When in doubt, consulting with a tax professional can make all the difference in getting it right.
Avoid Costly Mistakes—Let Us Help You Get It Right
Sales tax doesn’t have to be overwhelming. With expert guidance, you can charge the right amount of tax, avoid penalties, and keep your customers happy.
👉 Visit our website at https://www.managemysalestax.com/ to schedule a consultation and ensure your products and services are taxed correctly.
Get expert sales tax help — book your free consultation today!
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