Sales Tax for Software Consulting? (pay, income, versus, work)

[RoundRockinite]

I plan to call the tax office on Monday but I am wondering how consultants handle sales tax.

For example, if I develop a custom software solution for a client do I need to charge sales tax? I reside in Texas so if the client is in another state do I need to as well?

Here's a link where I think I would be a "taxable service":
FAQ: Texas Sales Tax

Taxable Services are listed here:
Taxable Services (96-259) (http://www.window.state.tx.us/taxinfo/taxpubs/tx96_259.html - broken link)

I think I would fall under the "Data processing" area although it only mentions "web site creation, storage and maintenance." which I think would also include other types of software development, but it does not mention any of that! Why does it mention specifically "web sites" but not software development in general?

The tax site lists "NAICS Codes" for sales tax and there are codes for every type of software area and I gather mine would be 41512, "Computer software consulting services or consultants".

I spoke with someone last night who provides medical consulting and she says she does not charge sales tax as she is providing a "Professional Service". And so I am kind of confused about this.

I don't want to pay unnecessary sales tax as the rate in Texas is 8.25%! On top of that I have to pay income tax, self-employment tax, or whatever Turbo Tax tells me.

Any feedback is appreciated.

[Donn2390]

Sales tax is only charged on merchandise, you can't charge tax on labor. Consolation sounds like labor, or professonal service, not merchandise...!

[RoundRockinite]

Thanks! I am wondering however if my labor produces a software product which is delivered to a customer for sale is that merchandise? What happens if I am upgrading an existing piece of software that the client will sell? I guess I need to figure out what portion of work is labor versus merchandise.

I appreciate the response. I will call Monday to hopefully clarify.

[StealthRabbit]

Originally Posted by Donn2390

Sales tax is only charged on merchandise, you can't charge tax on labor. Consolation sounds like labor, or professonal service, not merchandise...!

That depends on the State. WA charges Sales Tax on Labor, including AUto mechanics and Medical services. BUT consultants do not charge sales tax when invoicing a client.

OP, read the fine print, have a nice friendly discussion with your state dept of Revenue WITHOUT disclosing to them your specific identity. (as a business... you may trigger an audit)

[RoundRockinite]

Thanks for the input everyone. I called the tax office and got the answers I needed. I would normally post answers but since this a legal issue I will refrain. I recommend contacting the state tax office with any tax questions. Thanks.

[naveed]

I was looking for this info as well and had to call the tax office. The answer and the documentation is here: http://info.sos.state.tx.us/pls/pub/...=1&ch=3&rl=308