Should Freelance Editors and Writers Collect Service Taxes in 2023?

The internet has revolutionized the way content is created and reviewed. As more individuals turn to freelance editing and writing services, questions about the application of taxes arise. This article delves into whether freelance editors and writers should collect service taxes for work offered online and how this varies by geographical jurisdiction.

Taxes in Freelance Rates

Nine times out of ten, quality freelance writers and editors include taxes in their service rates. The city, county, or state does not dictate these rates. Instead, clients are charged for the professional expertise and value provided, not location-specific factors. For instance, a Chief Publication Editor in Washington D.C. earns an annual salary of $178,018. While these figures may vary, the core principle remains the same: the value provided by the service is the basis for pricing.

A Real Example

Consider Brian Clark of Copyblogger, who transitioned from practicing law in 2006 and achieved a revenue of $12 million by 2018. This example illustrates how freelance services can generate significant income, regardless of the tax implications.

Service Taxes and State Laws

State sales tax laws were initially designed for economies dominated by manufacturing and trade, where services constituted a small portion of the overall market. Consequently, services were exempt from taxation. However, as the economy shifted to a service-based model, states should have started taxing services. Nevertheless, strong lobbying from service sector organizations has thwarted widespread implementation.

To this day, only a handful of states—Hawaii, South Dakota, New Mexico, and West Virginia—have imposed sales taxes on services. Even more, Washington and Delaware have taxes on services that are similar to sales taxes. This list may have been updated over the past decade, reflecting changing legislative approaches.

Service Sector Lobbying Against Taxation

The American Institute of CPAs (AICPA), a prominent industry organization, has published articles highlighting the service sector's efforts to oppose the implementation of service taxes. Their arguments range from administrative complexity to the fairness of taxing service providers while excluding product sellers.

Freelancers’ Burden

Freelance workers already shoulder substantial tax obligations, including federal and state taxes. Unless they engage in product-based sales, additional taxes are not required. Freelancers like myself often view such additional burdens as an unwelcome load. As sole proprietors, the tax burden is considerable, further complicating the decision on whether to collect service taxes.

Conclusion

Given the current legal and economic landscape, freelance editors and writers in most jurisdictions do not need to collect additional service taxes. The value they provide is based on professional expertise and market conditions, not geographical or tax-related factors. As states continue to refine their tax laws, it is essential for freelance professionals to remain informed and compliance-minded.

Calls to Action

If you're a freelance editor or writer, consult your local tax advisor to ensure compliance with current regulations. Keep up with legislative changes to stay ahead of any potential tax implications.