Six months ago, a Washington-based IT support firm charged its clients a flat hourly rate and never thought about sales tax. Today, that same invoice needs a tax line — not because the firm changed anything, but because the state did. As of October 1, 2025, Washington now taxes IT support, help desk services, and network administration as retail sales. If you're a consultant, accountant, marketer, or software developer who has never collected sales tax in your life, that assumption is quietly becoming outdated.
For decades, the general rule of thumb in American sales tax was simple: goods are taxable, services are not, unless a state specifically carves out an exception. That rule is unraveling fast. States are running out of easy revenue from taxing physical goods in an economy that increasingly runs on services, subscriptions, and software, and they're closing the gap by pulling professional and technical services into the tax base for the first time.
If your business bills for expertise rather than products, this shift can change your pricing, your invoicing, your multistate compliance burden, and potentially your legal exposure — often with very little advance warning.
Why States Are Suddenly Targeting Services
The U.S. economy has shifted dramatically toward services over the last generation, but most state sales tax codes were written when manufacturing and retail dominated. The result is a widening mismatch: states tax refrigerators but not the IT consultant who configures the network the refrigerator's smart thermostat runs on.
Three forces are converging to close that gap in 2026:
- Structural revenue gaps. Washington state, for example, faced a projected $16 billion budget shortfall and responded partly by expanding sales tax to IT services and raising Business & Occupation (B&O) tax rates on service businesses.
- The rise of the service and subscription economy. SaaS, cloud hosting, digital advertising, and remote consulting now represent a much larger share of commerce than when most state tax codes were drafted, and legislators increasingly see them as an obvious, underused tax base.
- Political cover from "base broadening." Expanding the tax base to more transactions, even at a flat or reduced rate, is often easier to sell politically than raising the headline sales tax rate — Michigan's draft proposal to fund property tax cuts by taxing discretionary services is a clear example of this trade.
What's Already Changed — and What's Proposed
This isn't a hypothetical future trend. Multiple states have already acted, and more are actively drafting legislation.
Washington enacted ESSB 5814, effective October 1, 2025, which imposes retail sales tax on a long list of previously exempt services: IT technical support, help desk services, network operation and support, data entry, data processing, custom software, and even advertising and staffing services. IT service providers must now report gross income under the retailing B&O classification and collect and remit sales tax like any goods retailer. The B&O "Service and Other Activities" rate also increased, tiered by gross income — 1.5% under $1 million, 1.75% between $1 million and just under $5 million, and 2.1% at $5 million or more.
Maryland implemented a 3% sales tax on technology and data services — including web hosting, software publishing, and IT consulting — effective July 1, 2025.
Maine repealed its standalone Service Provider Tax effective January 1, 2026 and folded those services directly into the general sales tax base, while also adding digital audiovisual and audio services (think streaming and podcast platforms) to the taxable list.
California passed Senate Bill 122, sent to the governor in June 2026, which will make SaaS taxable starting in January 2027 — a major shift for a state that has historically leaned on exempting most software delivered as a service.
Michigan has a draft proposal (not yet introduced to the legislature) that would apply its 6% sales tax to "discretionary" services — including accounting, consulting, marketing, and technology services — while carving out "essential" services like legal work, healthcare, and childcare. The stated goal is roughly $4.7 billion in new revenue to offset proposed property tax cuts. Critics have already pointed out that taxing only discretionary consumer-facing services likely won't hit that number, which raises the real possibility that Michigan (and states following a similar playbook) eventually expand into core business-to-business services too.
New Jersey and Maryland have also introduced or expanded taxation aimed specifically at "digital professional services" — things like remote training, cloud-based analytics platforms, and subscription-based advisory tools that didn't fit neatly into any tax category a few years ago.
Which Businesses Are Most at Risk
If your business fits any of these profiles, you should be actively monitoring this trend rather than waiting for a notice from a state revenue department:
- IT consultants, MSPs, and software developers — historically one of the first categories states add when they expand the service tax base (Washington, Maryland).
- Marketing, advertising, and PR agencies — frequently grouped with "digital services" and swept in alongside IT and data services.
- Accounting, bookkeeping, and business consulting firms — explicitly named in Michigan's draft proposal and increasingly discussed in other states' base-broadening plans.
- SaaS and cloud software companies — California's SB 122 signals that even historically service-tax-averse states are reconsidering SaaS exemptions.
- Any remote service provider with out-of-state clients — because sales tax on services is typically sourced to where the customer receives the benefit of the service, not where your business is located, a single new state law can create nexus and filing obligations you didn't have last quarter.
Crucially, most consulting and professional service businesses are not protected by federal interstate commerce protections like P.L. 86-272, which historically shielded some sellers of tangible goods from state income tax. That protection has never extended cleanly to services, and it offers no shelter at all from sales tax obligations.
How to Find Out If Your Services Are Taxable
Because there's no uniform federal standard, taxability has to be checked state by state, and the rules genuinely differ in structure:
- Some states tax services only if specifically enumerated (the traditional majority approach — nothing is taxable unless the legislature names it).
- A smaller but growing number of states tax services by default unless specifically exempted — Hawaii and New Mexico have long operated this way, and the trend line suggests more states are moving in this direction rather than away from it.
- A handful of states have no general sales tax at all (Oregon, Montana, New Hampshire, Delaware, and Alaska at the state level), which removes this issue entirely for businesses operating only there.
For every state where you have clients, check:
- Whether the specific service category you sell (IT support, consulting, marketing, data processing, SaaS) has recently been added to the taxable list.
- Whether your state uses origin-based or destination-based sourcing for services — most now source service tax to where the customer receives the benefit, which means a client in a newly-taxing state can trigger an obligation even if you've never set foot there.
- Whether you've crossed that state's economic nexus threshold — commonly $100,000 in sales or 200 transactions in a state, though thresholds and the transaction-count prong vary and are themselves being revised in several states for 2026. Crossing a threshold typically starts a 30-to-60-day clock to register.
- Whether services bundled with software or technology face different (often stricter) treatment than the same service sold standalone — bundling is a well-known audit trigger.
What to Do Before the Rules Catch Up With You
Audit your service mix against each client state's current rules, not last year's. A service that was exempt in a state twelve months ago may not be exempt today. Build a recurring quarterly check into your compliance calendar rather than assuming last year's answer still holds.
Separate taxable and non-taxable line items on invoices. If part of your engagement is legal or accounting advice (often still exempt) and part is technology implementation (increasingly taxable), a single lump-sum invoice can pull the whole thing into the taxable category in an audit. Itemizing gives you a defensible position.
Register proactively once you cross a nexus threshold — don't wait for a notice. States are actively increasing enforcement on services precisely because this is new revenue they're counting on; voluntary disclosure agreements are far cheaper than back-tax assessments with penalties and interest.
Document the "why" behind your tax treatment for every state. Keep records showing what work was performed, where the customer received the benefit, and the reasoning for how you classified it. In an audit, states will scrutinize exactly this trail, especially for anything touching advertising, analytics, or software-adjacent consulting.
Watch your home state and every state where you have recurring clients, not just the states making national headlines. Michigan's proposal isn't law yet, but Washington's and Maryland's changes were both signed with only a few months of lead time between passage and effective date — by the time a state's plan is newsworthy, the compliance clock may already be running.
Keep Your Records Ready for Whatever Comes Next
As sales tax rules on services keep shifting state by state, the businesses that adapt fastest are the ones with clean, itemized, well-documented books — invoices that clearly separate taxable and exempt line items, and a ledger that can answer an auditor's questions without a scramble. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data, so every invoice line and every state's tax treatment is traceable and version-controlled instead of buried in a black-box system. Get started for free and keep your books audit-ready no matter which state changes the rules next.