Are Consulting Services Taxable in New York?
Learn if your consulting business needs to charge sales tax in New York. This guide clarifies the factors that distinguish a taxable service from non-taxable advice.
Determining if consulting services are taxable in New York can be complex. Consulting involves providing specialized advice, professional opinions, and strategic planning to clients. While most pure consulting services are not subject to New York’s sales tax, taxability depends on the specific nature of the service and how it is delivered.
The General Rule for Consulting Services
New York is an “enumerated service” state, meaning a service is taxable only if it is specifically listed in state tax laws. General consulting is not on this list, so when the core of the service is the delivery of expertise or strategic advice, it remains non-taxable. For instance, a management consultant providing recommendations to improve operational efficiency is not selling a taxable service. A marketing consultant who develops a strategic plan without creating finished advertising materials is also providing a non-taxable service, as the client is paying for intangible advice.
When Consulting Becomes a Taxable Service
Consulting becomes taxable when it is an integral part of a service that is specifically enumerated in tax law. In such cases, the entire fee, including the consulting portion, is subject to sales tax. For example, security consulting is taxable because it falls under protective and detective services. Advice on furniture arrangement and color schemes is considered a taxable interior decorating service.
Information services are another complex area. New York taxes the furnishing of information, with an exception for information that is “personal or individual in nature.” A consultant selling a standardized market research report to multiple clients is selling a taxable information service, while one who provides customized recommendations to a single client is providing a non-taxable service.
The “primary function” test applies to bundled transactions involving both services and tangible personal property. If a consultant provides a custom-written manual with their advisory services, taxability depends on the client’s main objective. If the goal is to obtain the consultant’s advice and the manual is incidental, the transaction is not taxable. If the main purpose is to acquire the manual, the entire charge is subject to sales tax.
Determining Where the Service is Taxed
When a consulting service is taxable, its location for tax purposes is determined by New York’s “benefit received” standard. This rule sources the sale to the location where the customer receives the primary benefit of the service. This is important for consultants located outside New York who serve clients within the state.
The consultant’s location does not determine taxability; the location of the client’s benefit does. For example, if a consultant in another state provides taxable services to a business with a single office in New York, the benefit is received in New York, and sales tax must be collected. If the client has multiple locations, the consultant must make a reasonable allocation of the service’s benefit among those locations to apply the correct local tax rates.
Obligations for Taxable Consulting Services
Consultants with taxable services sourced to New York must register with the New York State Department of Taxation and Finance. This requires obtaining a Certificate of Authority, which provides the legal authorization to collect sales tax from clients.
To apply for the Certificate of Authority through the New York Business Express online portal, a consultant must provide:
- The business’s legal name
- Employer Identification Number (EIN) or the owner’s Social Security Number
- Business address
- The date the business commenced operations
Once registered, the consultant must collect the correct amount of sales tax, determined by the client’s location. This tax, which includes the state rate plus any local taxes, must be separately stated on invoices. The collected funds are remitted to the state by filing a sales tax return, such as Form ST-100, with a frequency set by the state based on sales volume.