Which US states charge sales tax on legal services?
Most US states exempt legal services from sales tax because they classify attorneys as providing professional services rather than retail goods. The states that do tax legal services include Hawaii (General Excise Tax at 4%), New Mexico (Gross Receipts Tax at approximately 5.125%), and South Dakota (4.5% state sales tax). Washington imposes a Business and Occupation tax on law firms, not a retail sales tax to clients. Some states tax specific legal-related services like title searches or document preparation.
Why are legal services generally exempt from sales tax?
Most state sales tax systems were designed to tax tangible personal property (goods). Services, especially professional services like legal advice, were traditionally excluded. Over decades, many states have expanded sales taxes to cover some services (e.g., transportation, telecommunications, personal services), but most states still explicitly exempt legal, accounting, and other professional services to avoid taxing access to courts and professional advice. This reflects both historical design choices and lobbying by professional associations.
Are court costs and filing fees subject to sales tax?
Generally no. Court filing fees, process serving fees, and other government-mandated costs passed through to clients are typically not subject to sales tax because they are government charges, not attorney services. Attorney disbursements (photocopying, postage, expert fees) may have different treatment depending on how they are billed — as part of the legal service or as a separate cost reimbursement. Laws vary significantly by state. When in doubt, consult the state's Department of Revenue guidance on attorney billing.