State sales and use tax laws determine whether web designers are liable for collecting sales tax on their services. For example, in Wisconsin, the determining factor is whether there is a tangible property transfer. In other states, it doesn’t matter whether the transfer involves tangible or intangible property. For this reason, it’s a good idea to refer to sales tax laws for your state or consult with an accountant to ensure your web design business complies with state sales tax laws.
As of 2013, web design businesses that operate in Alaska, Delaware, Montana, New Hampshire and Oregon need not be concerned with sales tax law compliance, as these states have no sales tax laws. For web design businesses operating in states that do collect sales tax, including Wisconsin, California and New York, sales tax isn’t typically collected when site design is the only service provided in a sale. It’s important, however, to monitor laws in these states as sales tax laws not only include many provisions, but are also subject to change.
Sales tax law provisions may depend on how a website is constructed and what the site includes. For example, in the state of Utah, a site design that relies on the developer’s knowledge and expertise, such as a site developed from scratch, isn’t subject to sales and use tax. However, a site designed as a collection of pre-existing programs, such as proprietary database software, a calculator and the structure for a user forum purchased from a third party, is considered to be a purchase of canned computer software rather than a purchase of web design services and, as such, must be reported.
Sales and use collection laws can also depend on the home state of the business and its customers. In Texas, for example, web design is categorized as a taxable data processing service, and sales tax must be collected for all intra-state sales. For inter-state sales, however, it depends on whether the customer is required to pay sales tax in his home state. In general, no sales tax collection requirement exists when dealing with government agencies, nonprofit groups and site design customers who’ll be making the site available in more than one state and for this reason have a multi-state tax exemption.
How a finished website is delivered to a customer can also determine whether a business is required to collect sales tax on the sale. In Wisconsin, for example, although web design is generally not taxable, the delivery format can make a sale subject to sales and use tax. If the web design is delivered electronically, meaning there is no tangible property transfer, no sales tax will be charged. However, if the finished site is transferred to a zip drive, disk or a paper copy of the site design is provided, there is a tangible property transfer, and sales tax must be charged.