Understanding Sales Tax on Products vs. Services in Georgia
Are Both Products and Services Subject to Georgia Sales Tax?
Question:
Why is it that when Sandra buys nail polish she pays sales tax, but when she gets a manicure she does not have to pay sales tax?
Answer:
In the first scenario, Sandra is buying a product, so the store owner is responsible for collecting sales tax on the good sold and Sandra is obligated to pay the tax. However, in the second scenario, neither the customer nor the store owner is responsible for sales tax because a service is being purchased by the buyer and the vendor is solely selling a service.
When Would Sandra Be Liable for Georgia Sales Tax?
Answer:
If Sandra purchased a nail with nail polish on it, or she purchased the nail and then the salon painted the nail, then in both cases, the entire purchase would be subject to sales tax.
A Real-World Example: Door Customization Services
In a similar case, a door building company was caught in a predicament.
ABC Doors Inc. was in the business of building doors. After the point of sale (when a consumer would purchase the door), ABC would offer them services to customize the door.
- ABC was right to charge sales tax on the purchase of the door.
- However, what they did not realize was that the service (customization of the door) was a part of the end sale.
- Since they did not charge sales tax on the entire order, they were held responsible for sales tax on the percentage of the sales of customization.
Key Takeaway for Businesses
The bottom line: When you sell a product, all revenues generated through services associated with the sale of the product are subject to Georgia sales tax.
Example of What’s Different
- Selling a car and then offering an oil change three months later is different.
- The oil change is maintenance and does not affect the original state of the product and has no correlation to the sale.
Are Services Subject to Georgia Sales Tax?
Answer: It depends on whether the service is tied to the sale of a taxable product.
Frequently Asked Questions
What is the difference between sales tax on products and services in Georgia?
In Georgia, tangible products like nail polish are subject to sales tax, while most standalone services, such as a manicure, are not taxed, unless the service is directly tied to the sale of a taxable product.
When does a service become taxable in Georgia?
A service becomes taxable if it is bundled with the sale of a tangible product. For example, if a door customization is offered along with the door sale, the entire transaction including the service, may be subject to sales tax.
Is customization of a product always taxable?
Yes, if the customization occurs as part of the product sale. For instance, painting a nail tip as part of applying a nail is a combined product and service sale, making the whole transaction taxable under Georgia law.
Are follow-up services like maintenance or repairs taxable?
Generally, no. Follow-up services that are not part of the original product sale, like an oil change months after buying a car—are considered separate transactions and are not subject to sales tax.
Who is responsible for collecting sales tax on bundled product-service sales?
The seller is responsible. If a product is sold with a related service, the seller must charge and remit sales tax on the entire amount, ensuring compliance with Georgia tax laws.