What Services Are Exempt From Sales Tax in Ohio?

Ohio’s sales and use tax system applies to the retail sale of tangible personal property and certain services. While tangible goods are generally taxable unless specifically exempted, services in Ohio follow a different principle. The fundamental rule is that services are not subject to sales tax unless the law explicitly identifies them as taxable.

General Principles of Ohio Sales Tax on Services

In Ohio, a “service” for sales tax purposes involves an act performed for another, rather than the sale of a physical item. The state’s tax framework presumes services are not taxable. This is a distinction from tangible personal property, which is presumed taxable unless an exemption applies.

The rationale behind exempting many services includes avoiding double taxation or promoting specific economic activities. Some services are already subject to other taxes, or taxing them might hinder growth in particular sectors.

Specific Categories of Exempt Services

Many services fall outside the scope of Ohio’s sales tax, providing clarity for businesses and consumers. Professional and personal services are exempt from sales tax. This includes services by lawyers, accountants, medical practitioners, and real estate agents. Barbers and beauty services, including hair cutting, coloring, and styling, are also not taxed. This exemption applies when any transfer of tangible personal property, like hair product, is incidental and no separate charge is made for it.

Public utility services, including water, natural gas, and electricity for residential use, are exempt from sales tax. Telecommunication services are also largely exempt, though certain specific services may be taxable. This exemption supports essential household and business operations.

Transportation services, particularly those involving the transportation of property by common carriers, are exempt. While the transportation of persons by motor vehicle or aircraft within Ohio is taxable, public transit systems and commercial airlines are exempt. An exemption also exists for businesses that primarily transport goods belonging to others for consideration, covering vehicles, equipment, and related repair and maintenance.

Financial services, such as banking and investment advisory services, are not subject to Ohio sales tax. This category encompasses a wide range of activities related to money management and financial transactions. Educational services, including tuition and instructional services provided by accredited institutions, are exempt.

Certain repair and installation services are exempt, particularly labor for improvements that become a permanent part of real estate. While repairs to tangible personal property are taxable, the labor component for installing property can be exempt if it becomes a permanent improvement to real property. Additionally, certain specialized cleaning services that do not fit the definition of general janitorial work may be exempt.

Services provided to qualifying tax-exempt organizations are also exempt from sales tax. This includes sales to churches, organizations recognized under Section 501(c)(3) of the Internal Revenue Code, and other non-profit organizations operating exclusively for charitable purposes within Ohio. To qualify, these organizations must meet specific criteria related to their charitable mission.

Other specific statutory exemptions exist for certain types of services. Digital advertising services are explicitly exempt from sales and use tax. This exemption covers services like displaying promotional advertisements or transferring marketing data. Research and development services, specifically the purchase of qualified machinery and equipment used primarily for research and development, also benefit from sales tax exemptions.

Understanding Taxable Services

While many services are exempt from sales tax in Ohio, numerous others are explicitly defined as taxable. Common examples of taxable services include most repair and installation services involving tangible personal property. If a repair involves parts, the entire transaction, including labor, becomes taxable unless labor is separately stated for real property improvements.

Other services subject to sales tax include building maintenance and janitorial services, especially if annual sales exceed a certain threshold, such as $5,000. Landscaping and lawn care services also fall into this category, often with a similar sales threshold. Pest control, security services, and car washes (excluding coin-operated) are taxable.

Certain digital services are also subject to sales tax when provided for use in a business. This includes automatic data processing, computer services, and electronic information services. Personal care services like manicures, pedicures, tanning, body piercing, and tattoos are taxable. The rental of hotel rooms for less than 30 consecutive days is also taxable.

Services Involving Tangible Personal Property

When a service transaction involves both a service component and the transfer or use of tangible personal property, Ohio applies a “true object” test to determine taxability. This test identifies the primary purpose of the transaction from the customer’s perspective. If the customer’s main objective is to receive the tangible personal property, the entire transaction may be taxable.

Conversely, if the true object is the service, and any tangible property transferred is merely incidental to that service, the transaction may be exempt. For example, if a design service culminates in a tangible product, the taxability depends on whether the customer primarily sought the design expertise or the physical product itself. Businesses must differentiate these components and, where applicable, separately state charges for taxable and non-taxable elements to ensure accurate tax application.

Documenting Service Exemptions

Businesses providing services in Ohio must document any transactions where sales tax is not collected due to an exemption. This record-keeping is important for demonstrating compliance during potential audits by the Ohio Department of Taxation.

A common method for documenting exemptions is through exemption certificates. These certificates are provided by the purchaser to the seller, affirming that the transaction qualifies for a specific exemption. Ohio recognizes various types of exemption certificates, including unit exemption certificates for single purchases and blanket exemption certificates for ongoing exempt transactions with the same vendor. The purchaser is responsible for providing a completed certificate to the vendor.

The certificate must:
State the names of the vendor and customer.
Cite the specific exemption.
Be dated.
Be signed by the customer.

Sellers are relieved from the obligation to collect tax if they obtain a properly completed exemption certificate. Businesses should retain these certificates in their files to support their non-taxable sales.