Are professional services taxable in Pennsylvania? For most traditional professional work, the answer is no. Pennsylvania generally exempts these services from sales tax. But specific service categories face taxation, and mixed transactions involving both services and tangible products create complexity that catches businesses off guard.
Misclassifying services triggers audits, back taxes, penalties, and interest stretching years into the past. Whether you’re a solo consultant, a growing firm, or a business purchasing services, knowing what’s taxable protects you from expensive compliance mistakes.
That’s where Hands Off Sales Tax (HOST) becomes essential. With over 25 years focused exclusively on sales tax compliance, HOST helps professional service providers navigate Pennsylvania’s rules, classify mixed transactions correctly, and manage multi-state obligations as your business expands.
Pennsylvania’s General Rule: Services Are Exempt Unless Listed
Pennsylvania operates on a “default exempt” principle. According to the Pennsylvania Department of Revenue, services aren’t subject to sales tax unless specifically enumerated in state law.
This contrasts sharply with states like Hawaii, South Dakota, New Mexico, and West Virginia, which tax virtually all services. Pennsylvania’s 6% state sales tax (plus 1% in Allegheny County and 2% in Philadelphia) applies primarily to tangible personal property and specifically designated services.
For professional service providers, this means most of what you do remains exempt. Legal advice, accounting consultations, medical diagnoses, architectural designs, engineering consultations, these traditional professional services fall outside Pennsylvania’s sales tax scope.
Which Professional Services Are Exempt in Pennsylvania?
Legal Services: Attorneys providing legal advice, representation, contract drafting, estate planning, and litigation support don’t collect sales tax on professional fees.
Accounting Services: CPAs offering tax preparation, audits, financial statements, and bookkeeping operate tax-free.
Medical and Healthcare Services: Physicians, dentists, therapists, and other healthcare professionals provide exempt services. Diagnoses, treatments, surgeries, consultations.
Architectural and Engineering Services: Design work, blueprints, structural analysis, project specifications, and professional consultations remain exempt.
Consulting Services: Management consulting, business strategy, financial planning, and HR consulting generally avoid sales tax when they don’t involve taxable tangible property or digital products.
According to LegalClarity’s analysis, these exemptions reflect Pennsylvania’s policy of not taxing labor or intellectual work that doesn’t result in transferring tangible property.
Industry-Specific Professional Service Scenarios
Understanding how Pennsylvania’s rules apply to your specific industry prevents costly classification mistakes.
Graphic Design & Creative Services: Design work itself is exempt professional service. However, if you sell stock graphics, templates, or digital files as products, those may be taxable digital goods. Best practice: Invoice design services separately from any digital deliverables.
Marketing & Advertising Agencies: Strategic consulting, campaign planning, and creative direction are exempt. Social media management and content strategy remain exempt professional services. However, if you’re providing editing services (assembling, refining, or proofreading client materials), that specific component becomes taxable.
Real Estate Professionals: Brokerage services and commission-based sales assistance are exempt professional services. Property management services are also generally exempt, though janitorial or building maintenance services you contract separately would be taxable.
Photography Services: Portrait sessions, event coverage, and creative photography services are exempt. However, when you sell physical prints or digital files as products (rather than as part of the professional service), those sales may trigger tangible property tax treatment depending on delivery and invoicing.
Court Reporting & Legal Support: Pennsylvania specifically exempts court reporting and stenographic services from sales tax according to 61 Pa. Code § 9.3, even though other secretarial services are taxable. This exemption recognizes the specialized nature of legal support services.
Entertainment Industry Services: Theatrical employment agencies and motion picture casting bureaus are exempt from sales tax. A specific carve-out recognizing the unique staffing needs of Pennsylvania’s entertainment industry.
The Exception: Specifically Taxable Services
While most professional services escape taxation, Pennsylvania taxes specific categories. The Pennsylvania Department of Revenue maintains a complete list:
Lobbying Services: Fees paid to lobbyists for lobbying activities.
Business Services: Adjustment services, collection services, credit reporting, secretarial services, and editing. Editing is specifically taxable and includes “services performed upon written material, film, videos and audio tape.”
Employment Services: Employment agency services and help supply services (temporary staffing).
Building Services: Cleaning, maintenance, disinfecting, and pest control.
Repair Services: Repairing, altering, mending, pressing, or cleaning tangible personal property (except everyday apparel and shoes).
Telecommunications: Mobile, premium cable, video programming, and streaming services.
Computer-Related Services: According to 61 Pa. Code § 9.3, taxable computer services include consulting, software documentation, disk conversion, software installation, training, and data recovery when provided with canned (pre-written) software.
The Software Exception: When Technology Services Become Taxable
Pennsylvania’s treatment of software creates significant complexity for tech-focused professionals.
Since Act 84 of 2016, Pennsylvania classifies canned (pre-written) software and Software as a Service (SaaS) as tangible personal property subject to sales tax:
- Pre-written software delivered electronically
- SaaS accessed via subscription
- Cloud-based software platforms
- Maintenance, support, and updates for canned software
However, custom software designed for a specific original purchaser remains exempt as a non-taxable service.
The critical distinction: if you’re writing software specifically for one client’s unique needs, that’s exempt. If you’re licensing existing software to multiple clients (even with minor customizations), that’s taxable.
Wipfli’s analysis explains that Pennsylvania distinguishes between taxable “support” services and non-taxable software “consulting.” Consulting involves gathering and analyzing customer information and linking them to solutions. That’s exempt. Support services related to software usability, including troubleshooting and help desk support, are generally taxable when bundled with canned software.
Mixed Transactions: The Complexity of Bundled Services
Many professional engagements don’t fit neatly into “service only” or “product only” categories. These mixed transactions create the most compliance risk.
Pennsylvania applies a “true object test” to determine whether a transaction’s primary purpose is the service or the tangible product. If the tangible output is merely incidental to the professional service, the entire transaction may remain exempt. If the tangible product is the primary deliverable, sales tax applies.
Examples:
Architect Providing Blueprints: The professional service (design) is exempt. Blueprints are incidental to the design work itself.
Consultant Delivering Licensed Software: If an engagement includes implementing pre-written software, the software portion is taxable even if consulting work is exempt. Proper invoicing must separate components.
IT Services with Hardware: A managed services provider installing network equipment must charge sales tax on hardware while configuration services may be exempt or taxable depending on classification and invoicing.
HOST helps professional service providers structure invoicing and service delivery to properly classify these mixed transactions. Collecting tax where required without overcharging clients on exempt services.
Service Contracts and Maintenance Agreements
Pennsylvania treats service agreements and maintenance contracts as taxable when they obligate you to perform taxable services on tangible personal property. Even if the contract includes inspection or preventive maintenance.
According to 61 Pa. Code § 31.5, when you enter into agreements to inspect, repair, and maintain office equipment or other tangible property, the entire charge is subject to tax without deduction for separately stated items.
Example: A firm contracts with a serviceman for quarterly office equipment inspections and repairs. The entire annual contract fee is taxable, even though individual visits might only involve inspection without repairs. The obligation to perform taxable services makes the entire agreement taxable.
Economic Nexus and Professional Service Providers
Even outside Pennsylvania, you may have sales tax obligations if you exceed the state’s economic nexus threshold.
Pennsylvania’s economic nexus threshold is $100,000 in annual sales into the state. This applies to all sales: taxable, exempt, and marketplace transactions combined.
If your professional service firm exceeds $100,000 in Pennsylvania sales (even if most services are exempt), you must register for a Pennsylvania sales tax license. You’ll then track which services are taxable and collect accordingly.
Registration is required by April 1 of the year following the year you exceed the threshold. Register through Pennsylvania’s myPATH portal.
Use Tax: The Hidden Obligation
Use tax is sales tax’s companion, owed when you purchase taxable items or services without paying sales tax at the point of sale.
If your professional firm purchases taxable services from vendors who don’t collect Pennsylvania sales tax (often out-of-state vendors), you owe Pennsylvania use tax at the same rate.
Common scenarios:
- Purchasing computer services from out-of-state vendors
- Buying SaaS subscriptions from vendors without Pennsylvania nexus
- Acquiring office furniture or equipment from online retailers who don’t collect PA tax
- Contracting cleaning or maintenance services from unregistered providers
Use tax returns are due by the 20th day of the month following purchase. Many businesses overlook this obligation, creating significant audit exposure.
HOST: Your Partner for Pennsylvania Service Tax Compliance
Sales tax compliance for professional service providers is all about structure.
What HOST Delivers:
Nexus Analysis: We determine whether you’ve triggered Pennsylvania economic or physical nexus based on your service delivery model and sales volume.
Service Taxability Review: We analyze your specific services to classify which are taxable and which are exempt under Pennsylvania rules, including complex software and mixed transactions.
Sales Tax Registration: We handle Pennsylvania registration through the myPATH portal, managing paperwork and follow-up.
Ongoing Compliance: We file your Pennsylvania sales tax returns on schedule, calculate correct tax on taxable services, and maintain documentation.
Audit Defense: If Pennsylvania audits your business, we organize documentation, challenge incorrect findings, and represent your interests.
Voluntary Disclosure Support: For past compliance gaps, we evaluate VDA options and negotiate with Pennsylvania authorities to limit exposure.
We’ve been 100% focused on sales tax since 1999. That’s over 25 years helping businesses, including professional service firms, navigate compliance while protecting their bottom line.
Ready to Ensure Compliant Service Delivery?
Pennsylvania’s service taxability rules create real compliance risk for professional firms, particularly those providing software-related services, mixed consulting/product engagements, or expanding across state lines.
Whether you’re uncertain about taxability for specific services, concerned about past compliance gaps, or need ongoing management as you scale, the right sales tax partner eliminates uncertainty and prevents costly mistakes.
When you’re ready to structure compliant service delivery and protect your practice from audit exposure, we’re ready to help. Contact HOST today to discuss your Pennsylvania compliance needs.
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Frequently Asked Questions
Are legal services taxable in Pennsylvania?
No, legal services provided by attorneys are generally exempt from Pennsylvania sales tax. This includes legal advice, representation, contract drafting, estate planning, and litigation support.
Are accounting services subject to sales tax in Pennsylvania?
No, traditional accounting services including tax preparation, audits, financial statement preparation, and bookkeeping are exempt from Pennsylvania sales tax.
Is software consulting taxable in Pennsylvania?
It depends on what you deliver. Custom software designed for a specific client is exempt. Pre-written (canned) software and SaaS are taxable, as are maintenance and support services. Software consulting that involves gathering information and linking clients to solutions is generally exempt, while support services for existing software are typically taxable.
Do I need to register for Pennsylvania sales tax if all my services are exempt?
If you exceed $100,000 in Pennsylvania sales annually, you must register even if your services are exempt. Once registered, you’ll file returns (potentially as zero-tax returns) but won’t collect tax on exempt services.
What is Pennsylvania use tax and when do I owe it?
Use tax is owed when you purchase taxable services or products for use in Pennsylvania without paying sales tax at the point of sale. If you buy computer services, SaaS subscriptions, office equipment, or other taxable items from vendors who don’t collect Pennsylvania sales tax, you must remit use tax at the same rate (6% plus applicable local taxes).
How should I invoice mixed transactions that include both taxable and exempt components?
Separately state taxable and exempt components on your invoices. For example, if you provide consulting services (exempt) plus implement pre-written software (taxable), invoice them as separate line items. This documentation protects you during audits and ensures clients understand what they’re paying tax on.
