Question 2: What Do You Sell? Taxability Explained Artwork

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The Sales Tax People Podcast

Question 2: What Do You Sell? Taxability Explained

August 26, 2026 • The Sales Tax People • Season 2 • Episode 3

0:00 | 2:50

Nexus tells you where you owe sales tax. Taxability tells you what you actually owe it on. Most businesses get the second part wrong, and it's an expensive mistake!

We break down how each state decides what's taxable, why tangible goods are taxed by default (unless specifically exempted), and why more services are becoming taxable every year.

We'll give you real examples: a protein bar that's taxable in some states and exempt in others, a security company taxed differently for "monitoring" vs. "management" services, and a company selling AI that was actually overcollecting tax on professional services.

Get taxability wrong and you could end up paying the tax yourself out of pocket (plus penalties and interest😧) during an audit. Watch to learn how to determine taxability correctly and protect your margins.

📌 Topics covered:

Nexus vs. taxability — what's the difference
Why tangible property is taxable by default
How taxable services vary by state
Real-world taxability mistakes and their cost
What to do if you've been over- or under-collecting

If you're unsure whether what you sell is taxable, get an expert's opinion here.

SPEAKER_02 0:00

Where you sell, as we've discussed, is about Nexus. What you sell, what am I selling, is all about taxability.

SPEAKER_01 0:06

Is it taxable? It's taxable. Taxability, another fancy sales tax word.

SPEAKER_02 0:11

Taxability, huge. Huge. It's very possible that you've established Nexus in multiple states, but what you sell in those states may not be subject to tax.

SPEAKER_01 0:20

What you sell may not be taxable. Okay, here's what I sell. How would the state categorize what I sell? And then is that category taxable or not?

SPEAKER_02 0:28

So you don't have a responsibility to collect a tax on items that aren't taxable. If it's tangible property of any type, it's taxable unless there's some exemption that might exist.

SPEAKER_00 0:38

Exempt from tax.

SPEAKER_02 0:39

It was pretty common that there was no tax on services.

SPEAKER_00 0:42

However, the states are slowly but surely adding to the list of services that they enumerate in their legislation, specifically identify, hey, these are taxable.

SPEAKER_02 0:51

It's gotten more nuanced, more complicated, because each state governs its own sales tax law.

SPEAKER_01 0:56

You've got to know what sales are taxable or what revenue is taxable and what's exempt, right?

SPEAKER_02 1:01

And I'll just give you an example on how complicated it can be. Your supplement or your protein bar could be taxable in 20 states. The nature of what's in that bar uh could make it taxable in some states and exempt in other states.

SPEAKER_00 1:15

We're working with a client just recently where in the state of New York they were providing um security services, specifically monitoring services. Monitoring services versus a management service. They're taxed differently.

SPEAKER_01 1:29

An example that we recently ran into actually is a company that uh says they sell AI. The only real piece of AI that they have is like a chatbot. Mostly what they're selling is a like a professional service. They were taxing in states where they didn't need to be. They just had it completely screwed up, is the short bit. If you get taxability wrong, that is huge. More than ever customers are willing to pay tax and they're used to it.

SPEAKER_00 1:51

Otherwise, if you don't collect it from your customer and you get stuck in an audit in the future, you're gonna have to pay the sales tax, which you know, let's say it's seven or eight percent sales tax rate plus penalty and interest on top of that. That's gonna be cash out of your own pocket and it can kill your margins.

SPEAKER_02 2:06

And so it's it's really important to understand taxability.

SPEAKER_00 2:09

It is your responsibility to understand hey, I'm selling a taxable good or a taxable service, therefore tax is due.

SPEAKER_01 2:17

One of the biggest issues that we see, and it's a very common issue, unfortunately.

SPEAKER_02 2:21

Taxability is more than just is it yes or no? It's yes at what rate, and are there any other provisions or exemptions that might apply to what I'm selling?

SPEAKER_01 2:31

It's worth it to go through the work um to get the opinions and get the expertise to get it right. Taxability is is huge. Let's figure out if we need to correct the past at all. Um, and let's certainly make sure you have it right going forward.