Do consultants charge sales tax? It’s one of the most overlooked—and risky—questions in professional services today. Whether you’re a strategy coach in California, a UX consultant in Texas, or a digital advisor working remotely across five states, the wrong assumption about taxability can trigger surprise liabilities, audits, or penalties. With economic nexus laws expanding post-Wayfair, even out-of-state consulting can create compliance obligations you didn’t know existed.
This article breaks down the rules by state, by service type, and by real-world scenario. And if you want help cutting through the complexity, Hands Off Sales Tax (HOST) is here to guide you.
Understanding the Legal Context
To understand why consultants might need to collect sales tax, you first need to know how the rules changed—and why they matter even if you don’t step foot in another state.
Economic Nexus & the Wayfair Decision
In 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc. that states could require businesses to collect sales tax even without a physical presence—based purely on economic activity in the state. This means that if you earn over a certain revenue threshold or complete a specific number of transactions in a state, you may have to register and collect sales tax—even as a remote consultant.
Most states have now adopted some form of economic nexus, with thresholds often set at $100,000 in revenue or 200 transactions per year.
Use Tax vs. Sales Tax for Services
In some states, even if you don’t charge sales tax, your client may owe use tax—especially if your service provides value or benefit in that state. For example, New York requires use tax when consulting services are delivered remotely but used locally.
The bottom line: where the benefit of your service occurs can be just as important as where you are located.
Consulting Services Taxability by State
Here’s how consulting services are treated tax-wise across the U.S.—a categorized table to help you quickly assess where these services are taxable, exempt, conditionally taxed, or not taxed at all.
Taxability Overview
Based on consolidated state guidance and tax authority data:
- No State Sales Tax
Alaska, Delaware, Montana, New Hampshire, Oregon — no sales tax on consulting or services due to the absence of a statewide sales tax. - Services Taxed by Default
Hawaii, New Mexico, South Dakota, West Virginia — services are taxable by default unless specifically exempted. - Conditional or Selective Taxation
Most states (41 + DC) don’t tax services broadly. However, certain services—including consulting—may be taxable if specifically listed or meet defined criteria. - Generally Exempt (Consulting-Specific)
- New York: Consulting services are generally exempt unless explicitly listed otherwise.
- Utah: Professional consulting (e.g., marketing plans, financial statements) is not taxable when it’s incidental; sales tax only applies if tangible property (like training materials) is sold.
State Categorization Table
| Category | States |
| No Sales Tax | AK, DE, MT, NH, OR (plus local exceptions) |
| Services Taxed by Default | HI, NM, SD, WV |
| Conditional / Specific Tax | 41 states + DC (e.g., consulting taxable if listed) |
| Generally Exempt Examples | NY, UT |
Why This Matters
Understanding the category your state falls into is key to compliance—and avoiding unexpected liabilities or penalties. Stay tuned for deep-dives on individual states and consulting-type nuances in upcoming sections.
Service-Type Impact on Taxability
Not all consulting services are taxed the same—even within the same state. Whether your service is digital or in-person, strategic or hands-on, can directly affect whether sales tax applies.
Digital vs. In-Person Consulting
Some states draw a line between in-person consulting and remote services. For example, New York generally exempts consulting services from sales tax—but if your service includes tangible deliverables (e.g., printed reports, software code), the entire package may become taxable.
Other states, like Texas, may tax certain electronically delivered services if they involve data processing or tech transfer, even without physical presence.
Strategy vs. Technical Implementation
In California, “professional services”—which include strategic, legal, or marketing advice—are generally exempt from sales tax. However, if a consultant performs installation, setup, or customization (like software configuration), that portion may be taxable.
Bundled Services Caution
If your consulting package includes both taxable and non-taxable components, some states require you to charge tax on the entire amount unless you itemize each service line.
Understanding how the nature and delivery method of your services affect taxability is essential—especially if you work across multiple states. When in doubt, break down your invoice and confirm local rules.
Example Scenarios (Mini Case Studies)
Let’s bring the rules to life with real-world examples. These consultant profiles illustrate how taxability and nexus vary by service type, location, and client base.
1. The Remote Digital Consultant
Sasha, a UX consultant based in Oregon, sells remote design services to clients across five states. Although Oregon has no sales tax, Sasha exceeds the economic nexus threshold in New Jersey and Illinois—both of which tax certain consulting services. She must register, collect, and remit sales tax in those states despite having no physical presence there.
2. The California Legal Advisor
Amir, a legal consultant in Los Angeles, provides strategic advice and document review to California-based clients. Under California tax law, legal services are classified as professional services and are not subject to sales tax—unless Amir starts selling physical products like legal templates.
3. The SaaS Systems Consultant in Connecticut
Priya configures CRM systems and provides on-site implementation for clients in Connecticut. In this state, digital consulting tied to software configuration or training is often taxable—especially if bundled with tangible deliverables. Priya must collect sales tax on these services.
These examples show why every consultant should check their service type, client location, and thresholds—before invoicing.
Compliance Guide for Consultants
Sales tax compliance for consultants isn’t always straightforward—but following a clear process can keep you out of trouble. Here’s a step-by-step framework to stay compliant across states.
Step 1: Identify Client Location(s)
Start by determining where your clients are based. Sales tax is destination-based in most states, meaning where the benefit of your service is received dictates taxability.
Step 2: Evaluate Nexus Exposure
Check if you’ve triggered economic nexus in any state by exceeding thresholds (usually $100,000 in revenue or 200 transactions).
Step 3: Verify Taxability of Your Services
Research how each state treats your specific consulting service—strategic vs. technical, digital vs. in-person.
Step 4: Register & Collect Where Required
Once nexus is established and your service is taxable, you must register for a permit, charge sales tax, and remit it to the state.
Audit Risks & Record-Keeping
States are cracking down on service providers post-Wayfair. Keep contracts, invoices, exemption certificates, and detailed service descriptions. Good records are your best defense during an audit.
Staying compliant protects your business—and your reputation.
How HOST Helps Consultants Stay Sales Tax Compliant
Sales tax compliance for consultants can be confusing—especially when you operate remotely or serve clients in multiple states. Hands Off Sales Tax (HOST) simplifies the entire process, so you can focus on delivering results, not deciphering tax codes.
Nexus Identification
HOST helps you determine where your consulting activity creates economic nexus by:
- Reviewing revenue and transaction thresholds across states
- Identifying hidden triggers like subcontracting, training, or implementation work
- Mapping out where you must register, based on current state laws
Registration & Filing Services
Once nexus is established, HOST handles:
- Sales tax permit registration in all required states
- Return preparation and filing (monthly, quarterly, or annually)
- Payment remittance to state authorities—on time, every time
Audit Defense & Notice Management
If a state sends you a notice or launches an audit:
- HOST reviews and responds to all correspondence
- Communicates with state tax authorities on your behalf
- Prepares and submits documentation to resolve the issue quickly
HOST is your one-stop sales tax partner—from strategic planning to audit protection—for consultants who work across multiple states, platforms, and service types.
Conclusion: Clarity Today, Compliance Tomorrow
Consultants operate in a uniquely gray area when it comes to sales tax. What’s exempt in one state may be taxable in another—and even the nature of your service can tip the scales. But you don’t have to navigate it alone. By understanding how taxability works by state, by service type, and by client location, you can avoid costly surprises down the road. And with Hands Off Sales Tax (HOST) handling your nexus evaluation, registrations, filings, and audit defense, you’ll never have to guess again. Ready to make your consulting business audit-proof? Get in touch with HOST today.
Frequently Asked Questions (FAQs)
1. Are consulting services always subject to sales tax?
No. Taxability depends on the state, the type of consulting service, and how it’s delivered. Some states exempt professional services entirely, while others tax specific types like IT, training, or software configuration. Always verify the rules in the client’s state.
2. If I work remotely, do I still need to collect sales tax in other states?
Possibly. Under economic nexus laws, you may need to register and collect sales tax in states where your revenue or transaction count exceeds thresholds—even without physical presence. Check each state’s rules carefully.
3. What if my consulting service is bundled with software or deliverables?
Bundled services can complicate taxability. In many states, if a taxable item is included (like licensed software or printed reports), the entire invoice could become taxable unless itemized clearly.
4. Do I need to register in every state where I have clients?
Not necessarily. You only need to register in states where you meet economic nexus thresholds and your service is taxable. A nexus analysis can clarify this—HOST offers this service.
5. Can HOST help me if I get audited?
Yes. HOST provides full audit defense and notice management. We handle correspondence with the state, organize documentation, and help you resolve the audit with confidence and speed.
