Is Web Design Taxable? Sales Tax on Agency Services by State

On this page 8 sections

1. Is Web Design Taxable? Why the Answer Is so Confusing
2. Sales Tax on Website Design: Custom Development vs. Prewritten Software
3. Is Website Development Taxable When It Includes Hosting, Plugins or Maintenance?
4. States That Tax Web Design and Digital Services
5. Bundled Invoices: How One Line Item Can Make the Whole Project Taxable
6. Collecting Sales Tax as a Digital Services Agency With Out-of-State Clients
7. Setting up Tax Lines in Your Invoicing and Payment Software
8. Next Steps

Key takeaways

• Whether web design is taxable depends on the state and on what each invoice line actually sells: custom labor, prewritten software, hosting or ongoing maintenance.
• Bundling taxable items such as theme or plugin licenses with custom work can make the whole invoice taxable in some states, so separately stated, honestly priced line items matter.
• Out-of-state clients can create collection duties through economic nexus, so track where clients receive your services and confirm each state's thresholds.
• Build tax categories into your invoicing catalog and client records, then confirm your setup with a qualified sales tax professional.

"Is web design taxable?" sounds like a yes-or-no question, but for most agencies the honest answer is "it depends on the state and on how you invoice." This guide explains how states commonly treat custom development, templates, hosting, plugin licenses and maintenance plans. It also covers how bundling one taxable item can change the tax on an entire project and what to know before billing clients in other states. It ends with practical steps for setting up tax lines in your invoicing and payment tools.

This article is general information, not tax or legal advice. Sales tax rules change, and they differ by state and sometimes by city or county. Confirm how your work is treated with your state revenue department or a qualified sales tax professional.

Is Web Design Taxable? Why the Answer Is so Confusing

Sales tax laws were written mainly for physical goods. A website project is rarely just one thing. A single invoice can include several kinds of work and products:

• Strategy, design and custom coding, which is labor
• A premium theme or page builder license, which is prewritten software
• Hosting, which may be treated as a service, a rental or something else
• A domain registration passed through at cost
• A monthly maintenance plan that mixes labor with software updates

Each state decides which of these categories it taxes. The same project can be fully taxable in one state, partly taxable in another and not taxable at all in a third. Within a single state, the answer can also change based on how the invoice is written.

Your invoice structure is therefore part of your tax position. For a web design agency, that makes billing a compliance task as well as a cash flow task.

Sales Tax on Website Design: Custom Development vs. Prewritten Software

The most important line many states draw is between custom software and prewritten software, which is sometimes called "canned" software.

Custom development is code written for one specific client. Many states treat it as a nontaxable professional service, though some states tax certain computer or data services regardless.

Prewritten software is created once and sold or licensed to many buyers. Commercial themes, templates and plugins fall into this category. Many states treat prewritten software as taxable, and some tax it whether it arrives on a disk, as a download or through a license key.

The gray zone is the customized template. Suppose you install a commercial theme and then spend many hours modifying it. Some states may tax the theme license but not the separately stated customization labor. Others may look at the transaction as a whole.

Is Website Development Taxable When It Includes Hosting, Plugins or Maintenance?

The add-ons around a build are where agencies most often get tripped up.

Hosting

Some states treat hosting as a nontaxable service. Others may tax it as a data processing, information or digital service. If you resell hosting from a provider under your own brand, ask two questions:

• Is hosting taxable in your client's state?
• Can you buy hosting tax-free for resale if you charge your client tax on it?

Domain Registration

Domain fees are usually small, but they still need a tax category in your software. Do not assume that a pass-through charge is automatically exempt.

Plugin and Theme Licenses

Annual license renewals for premium plugins look a lot like prewritten software, even when you buy them on the client's behalf. If you mark them up and resell them, treat them as their own line item and confirm their taxability in each state where you have clients.

Maintenance Plans and Retainers

Maintenance plans are hard to classify because they usually mix two things:

• Labor: security monitoring, backups, edits and support time
• Software: plugin updates, version upgrades or bundled licenses

Some states tax software maintenance agreements that include upgrades. Others tax only the software portion when it is separately stated, and some do not tax maintenance at all.

If you bill retainers automatically, the tax setup needs to be correct before the first recurring charge goes out. Our guide to automating monthly website maintenance retainer billing covers the billing side.

SEO, Copywriting and Strategy

These are generally viewed as professional services. However, states that tax a broad range of services may include some digital marketing work. Check the state's list of taxable services rather than assuming.

States That Tax Web Design and Digital Services

This article does not list each state's current rule. These rules change through new legislation, revenue department guidance and letter rulings, and a list published once can quickly become outdated.

Instead, it helps to know the broad approaches states tend to take. Then you can check where each relevant state currently fits.

How to Check a State's Current Rules

1. Go to the state revenue department's website. Avoid relying on third-party summaries alone.
2. Search for terms such as "computer services," "data processing," "information services," "digital products," "prewritten software," "software maintenance" and "website."
3. Look for published letter rulings or FAQs that deal with website design or hosting.
4. Note the date you checked and keep a copy of the guidance.
5. Ask a sales tax professional to review any gray-zone items, such as customized templates or bundled retainers.

Web Design Sales Tax in Texas: Why It Gets Extra Attention

Texas comes up often in agency discussions because its sales tax reaches some services that many other states do not tax. Website-related work may fall into one of those service categories depending on what is delivered. If you have Texas clients or a Texas office, read the Texas Comptroller's current guidance on website and data-related services. Then have a Texas-savvy tax professional review how you classify custom builds, hosting and maintenance.

A Simple State Worksheet

Keep one row for every state where you have meaningful client revenue:

Bundled Invoices: How One Line Item Can Make the Whole Project Taxable

Suppose you send one invoice that reads "Website project, complete." If any part of that project is taxable, some states may treat the entire amount as taxable. A state may do this because the charges were not separately stated or because it looks at the main purpose of the transaction.

Here is an illustrative example using made-up numbers:

To keep exempt labor from being taxed by accident:

• List taxable and nontaxable items on separate lines on every invoice, including milestone invoices.
• Price each line based on its real value. Moving value from a taxable license into "labor" to reduce tax is misreporting, and it can create audit exposure.
• Make your contract match your invoice. If the statement of work describes a bundled deliverable, the separate invoice lines may carry less weight.
• Apply the same structure to deposits. If you collect upfront payments, keep the tax treatment of each milestone consistent with the project's line items. Our guide to deposit and milestone payment terms for web design explains how to structure those payments.

Collecting Sales Tax as a Digital Services Agency With Out-of-State Clients

Remote work makes this an important question for many agencies. You may need to collect tax in a state even if you have never visited it.

Physical presence can include an office, an employee or sometimes a contractor working in a state. Remote team members may create a tax obligation where they live and work.

Economic nexus is the other trigger. Many states require out-of-state sellers to collect tax once their sales or transaction counts in that state exceed a set threshold. Those thresholds vary by state, and some states count only taxable sales while others count all sales. Check each state's current threshold with its revenue department.

Practical points:

• Sourcing rules decide which state's tax applies. Many states look at where the client receives or uses the service. A client with offices in several states may complicate this, and some states allow the charge to be apportioned.
• Register before you collect. Do not add a state's tax to an invoice unless you are registered to collect it in that state.
• Collect exemption and resale certificates. If you white-label work for another agency that resells it, or if you serve tax-exempt organizations, keep valid certificates on file for every applicable client.
• Review exposure regularly. A single large client can push you over a state's threshold.

Setting up Tax Lines in Your Invoicing and Payment Software

Your invoicing or accounting software calculates the tax. Your payment processor collects the invoice total, including that tax. Both parts need to be set up correctly.

1. Build an item catalog with tax categories. Create separate items for custom development, design, theme licenses, plugin licenses, hosting, domains and each maintenance tier. Assign each one a tax category instead of entering tax manually on each invoice.
2. Store each client's service location. Base the tax on where the client receives the service, not only on their billing address. Update it when clients move.
3. Attach exemption certificates to client records. Mark exempt clients in the software so recurring invoices do not add tax by mistake.
4. Test recurring invoices before they go live. Check tax on a sample retainer invoice for each tier and each state.
5. Sync your payment data with your books. Tax you collect is a liability, not revenue. A QuickBooks integration for payment processing can help match deposits to invoices and keep collected tax separate from income.
6. Take payments the way clients prefer. For card payments on emailed invoices or over the phone, a virtual terminal for keying in client payments charges the full invoice amount, including tax.
7. Handle card fees separately. If you add a surcharge or use another fee program, ask your tax advisor whether your state treats that fee as part of the taxable sale. Our article on passing card fees to clients on large web design invoices explains the options and the rules to check.

For agencies that want card acceptance and accounting integrations, MannyPay offers payment processing for web design agencies, along with payment gateways like NMI and Authorize.net for online payments.

Next Steps

Use this checklist to tighten your setup this quarter:

• List every product and service you sell, then assign each one a tax category.
• Fill in the state worksheet for your home state and your top client states, citing official sources.
• Split bundled invoice templates into separately stated, honestly priced lines.
• Check economic nexus exposure in states where you have clients or remote staff.
• Have a qualified sales tax professional review your categories, especially maintenance plans and customized templates.

If you are also reviewing how you accept payments, request a free payment processing quote. A MannyPay specialist will respond within one business day.

ME

About the author

MannyPay Editorial Team

Beyond the Swipe's editorial desk researches the publication's guides and news and cites its sources in every article. Articles reviewed by a named MannyPay editor carry that editor's byline.

This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.