Are Haircuts Taxable? A Breakdown of Service Taxes
Uncover the nuanced tax implications of haircut services, exploring consumer charges, business overhead, and professional tax obligations.
The taxation of services, such as haircuts, is often less straightforward than the taxation of tangible goods. Unlike a product you can hold, services are intangible, and their tax treatment varies significantly across different jurisdictions within the United States. This complexity arises because each state, and sometimes local governments, establishes its own rules regarding what types of services are subject to sales tax or other levies.
Sales Tax on Haircut Services
Sales tax is primarily a consumption tax applied to the sale of tangible personal property. In the majority of U.S. states, services, including haircut services, are generally exempt from sales tax at the point of sale for the customer.
There are exceptions to this general rule, however, with a few states taxing services by default unless specifically exempted. For instance, Hawaii, New Mexico, and South Dakota are among the states that generally tax personal services like haircuts. West Virginia also taxes many services, though it specifically exempts personal services like haircuts. Furthermore, some local jurisdictions, such as New York City, may impose their own sales tax on haircut services even if the state does not.
It is important to distinguish between the haircut service itself and any tangible products sold by the salon. If a salon sells items like shampoo, conditioner, styling products, or hair accessories, these retail sales are almost universally subject to sales tax. Therefore, while the service may be exempt, the products you purchase alongside it will likely incur sales tax.
Other Taxes Affecting Haircut Costs
Beyond direct sales tax, several other taxes can indirectly influence the overall cost of a haircut for consumers. Some local governments may impose specific service taxes on certain personal care services. While not as common as sales tax, these localized taxes can add to the final price a customer pays. Such taxes are highly dependent on the specific city or county’s regulations.
Businesses, including hair salons, are often subject to gross receipts taxes in some states or localities. These taxes are levied on a business’s total revenue, regardless of profitability, and are generally passed on to consumers through higher prices. Unlike sales tax, which is typically itemized on a receipt, gross receipts taxes are usually embedded within the service price, making them less transparent to the customer.
Hair salons, like most businesses, also incur various operational taxes that contribute to their overhead. These include property taxes on their physical location, utility taxes, and other business-specific fees. While these are not direct taxes levied on the customer at the point of sale, they are factored into the salon’s pricing structure to cover operational expenses. Consequently, these taxes indirectly contribute to the price of a haircut.
Tax Obligations for Haircut Professionals
Haircut professionals and salon owners have several tax obligations distinct from sales tax on services. Income earned by stylists, whether classified as employees or independent contractors, is subject to federal and state income taxes. Stylists receiving wages as W-2 employees have income taxes withheld by their employer, while independent contractors are responsible for paying their own income taxes, often through quarterly estimated payments.
Independent contractors, such as booth renters, are also responsible for self-employment tax. This tax covers Social Security and Medicare contributions, totaling 15.3% on net earnings over $400. This 15.3% rate includes a 12.4% Social Security tax on earnings up to an annual limit (e.g., $168,600 for 2024, $176,100 for 2025) and a 2.9% Medicare tax on all net earnings. Self-employed individuals can deduct one-half of their self-employment tax from their gross income when calculating their adjusted gross income.
Salon owners who employ stylists are responsible for payroll taxes, including the employer’s portion of Social Security and Medicare taxes (FICA) and federal and state unemployment taxes (FUTA and SUTA). Businesses also face various other taxes depending on their legal structure, such as federal corporate income tax (currently 21% for C-corporations) or state franchise taxes.