Guide to services

A payment for services is typically for labor that is performed directly by another person. Examples include accountants, doctors, lawyers, painters, and independent contractors. Unlike tangible goods, services cannot be shipped and are instantly consumed as provided. Services also include insurance, transportation, education, software as a service and similar services even though the service is not a per hour labor charge.

Often a payment for services can include charges for both services and tangible goods which makes it difficult to determine if the payment is 1099 reportable. In IRS Rev Ruling 81–232 the IRS gives us an example of a payment that includes $300 for labor and $700 for new parts paid to a repair shop. In this example, the IRS states that the entire payment should be reported because the repair shop did not hold itself out as a dealer in parts. The furnishing of parts was only incidental to the repair of the vehicle. The IRS makes it clear that the entire payment to a services provider including incidental tangible goods is reportable on Form 1099.  However, if you visit a dealership to purchase a vehicle, the primary purchase is a tangible good and is not reportable.

If you purchase a standard meal from a restaurant the primary purchase is food, a tangible good and is not reportable. The service provided is incidental to the food purchase. If you have your meal catered, the primary purchase is a service and is reportable. The food provided is incidental to the service. Remember in all cases, if you pay by a credit card, the goods or services are not reportable as the credit card merchant is responsible for reporting. For additional references see IRS Sections 6041 and 6041a.

In 2004 the IRS issued Rev. Proc. 2004-43 that provided an optional procedure companies could use to determine what credit card transactions were reportable on Form 1099-MISC using the merchant category. This revenue procedure is now obsolete as credit card transactions are now reported directly by credit card companies. However, the procedure is still helpful as it provides general insight into the IRS view of whether they see the business category as either primarily merchandise or primarily service.  (You must still look closely at the primary goods or services purchased since the MCC procedure is no longer available.)

This list below is taken from Rev. Proc. 2004-43 and shows the merchant categories that the IRS specified as generally reportable at a high level on Form 1099.

Merchant categories previously reportable per Rev. Proc. 2004-43

7623 A/C, Refrigeration Repair
8931 Accounting/Bookkeeping Services
7311 Advertising Services
763 Agricultural Cooperative
3000-3299 Airlines
4511 Airlines, Air Carriers
4582 Airports, Flying Fields
4119 Ambulance Services
7996 Amusement Parks/Carnivals
7998 Aquariums
8911 Architectural/Surveying Services
7531 Auto Body Repair Shops
7535 Auto Paint Shops
7538 Auto Service Shops
8675 Automobile Associations
9223 Bail and Bond Payments (payment to the surety for the bond, not the actual bond paid to the government agency)
7929 Bands, Orchestras
7230 Barber and Beauty Shops
7995 Betting/Casino Gambling
7932 Billiard/Pool Establishments
4457 Boat Rentals and Leases
7933 Bowling Alleys
4131 Bus Lines
7278 Buying/Shopping Services
3351-3441 Car Rental
7512 Car Rental Agencies
7542 Car Washes
1750 Carpentry Contractors
7217 Carpet/Upholstery Cleaning
5811 Caterers
8351 Child Care Services
8049 Chiropodists, Podiatrists
8041 Chiropractors
7349 Cleaning and Maintenance
7296 Clothing Rental
7333 Commercial Photography, Art and Graphics
4111 Commuter Transport, Ferries
7372 Computer Programming
7379 Computer Repair
1771 Concrete Work Contractors
7392 Consulting, Public Relations
7277 Counseling Services
7997 Country Clubs
4215 Courier Services
7321 Credit Reporting Agencies
4411 Cruise Lines
7911 Dance Hall, Studios, Schools
7273 Dating/Escort Services
8021 Dentists, Orthodontists
7393 Detective Agencies
5960 Direct Marketing – Insurance Services
5962 Direct Marketing – Travel
8011 Doctors
7216 Dry Cleaners
8299 Educational Services
1731 Electrical Contractors
7622 Electronics Repair Shops
7361 Employment/Temp Agencies
7394 Equipment Rental
7342 Exterminating Services
6012 Financial Institutions
7261 Funeral Services, Crematories
7641 Furniture Repair, Refinishing
1520 General Contractors
7992 Golf Courses – Public
7298 Health and Beauty Spas
1711 Heating, Plumbing, A/C
8062 Hospitals
7011 Hotels, Motels, and Resorts
3501-3790 Hotels/Motels/Inns/Resorts
7375 Information Retrieval Services
780 Landscaping Services
7211 Laundries
7210 Laundry, Cleaning Services
8111 Legal Services, Attorneys
4468 Marinas, Service and Supplies
1740 Masonry, Stonework, and Plaster
7297 Massage Parlors
8071 Medical and Dental Labs
8099 Medical Services
8699 Membership Organizations
7399 Miscellaneous Business Services
7299 Miscellaneous General Services
2741 Miscellaneous Publishing and Printing
7999 Miscellaneous Recreation Services
7699 Miscellaneous Repair Shops
7832 Motion Picture Theaters
8050 Nursing/Personal Care
8043 Opticians, Eyeglasses
8042 Optometrists, Ophthalmologist
8031 Osteopaths
7523 Parking Lots, Garages
4112 Passenger Railways
7395 Photo Developing
7221 Photographic Studios
7829 Picture/Video Production
8651 Political Organizations
8999 Professional Services
7338 Quick Copy, Repro, and Blueprint
6513 Real Estate Agents and Managers – Rentals
7519 Recreational Vehicle Rentals
1761 Roofing/Siding, Sheet Metal
7339 Secretarial Support Services
6211 Security Brokers/Dealers
7251 Shoe Repair/Hat Cleaning
7629 Small Appliance Repair
1799 Special Trade Contractors
2842 Specialty Cleaning
7032 Sporting/Recreation Camps
7941 Sports Clubs/Fields
5697 Tailors, Alterations
7276 Tax Preparation Services
4121 Taxicabs/Limousines
8734 Testing Laboratories
7922 Theatrical Ticket Agencies
7012 Timeshares
7534 Tire Retreading and Repair
7991 Tourist Attractions and Exhibits
7549 Towing Services
7033 Trailer Parks, Campgrounds
4789 Transportation Services (Not Elsewhere Classified)
4722 Travel Agencies, Tour Operators
7511 Truck Stop
7513 Truck/Utility Trailer Rentals
4723 TUI Travel – Germany
2791 Typesetting, Plate Making, and Related Services
742 Veterinary Services
7994 Video Game Arcades
7841 Video Tape Rental Stores
7631 Watch/Jewelry Repair
7692 Welding Repair
5935 Wrecking and Salvage Yards

Guide to merchandise and goods

Merchandise, telegrams, telephone service, freight, storage, and similar items

Payments of bills for merchandise, telegrams, telephone, freight, storage and similar charges are not Form 1099-MISC reportable according to the IRS. However, the IRS does not define these terms very clearly. So we will look to other IRS private letter rulings and revenue procedures that provide additional information about each of these items. In the last section, Merchant Category Codes, we provide some general examples. For additional guidance see IRS regulation section 1.6041-3(c).

Merchandise = goods

Merchandise typically refers to tangible (can be physically touched), movable goods and commodities held for sale. The IRS in a private letter ruling stated that the word “merchandise” is commonly defined and understood to include goods and commodities held for sale. The IRS also referenced Black’s Law Dictionary that defines “merchandise” as “a movable object involved in trade or traffic; that which is passed from one person to another by purchase and sale.” The Merchant Category Codes section below provides some general examples of “merchandise” payments. For additional guidance see IRS private letter ruling 14682-14, page 5.

Telephone service

Telephone service includes both landline, voice over IP and mobile services. Items similar to telephone service include cable, satellite, radio, computer network services and utilities. The Merchant Category Codes section below provides some general examples of exempt “telephone” payments.

Freight

The IRS has repeatedly interpreted the word “freight” in this section to mean a method of service for transporting goods or the cost of such transportation in multiple private letter rulings. Payments for transporting goods, whether incidental or integral to a taxpayer’s business, are therefore not reportable on Form 1099-MISC. The freight exception is to be read broadly and consistently with the common meaning of “freight”. However, note if you hire an independent contractor to simply drive your vehicle this would not be considered freight. The Merchant Category Codes section below provides some additional insight into examples of exempt “freight” payments. For additional reference see Private Letter Ruling-151002f.

Merchant category codes – A helpful resource

In 2004 the IRS issued Rev. Proc. 2004-43 that provided an optional procedure companies could use to determine what credit card transactions were reportable on Form 1099-MISC using the merchant category. This revenue procedure is now obsolete as credit card transactions are now reported directly by credit card companies. However, the procedure is still helpful as it provides general insight into the IRS view of whether they see the business category as either primarily merchandise or primarily service.

You must still look closely at the primary goods or services purchased since the MCC procedure is no longer available. For example, if you take your car into a dealership for service, the primary purchase is auto repair, a service. The entire amount would be 1099-MISC reportable as a service even if the cost of parts was more than the cost of the labor. The repair shop did not hold itself out as a dealer in parts, and the customer did not specify the kind of parts to be installed. The parts were incidental to the obligation to repair the car. See IRS Rev Rev. Rul. 81-232. However, if you visit a dealership to purchase a vehicle, the primary purchase is a tangible good and is not reportable.

If you purchase a standard meal from a restaurant the primary purchase is food, a tangible good, and is not reportable. The service provided is incidental to the food purchase. If you have your meal catered, the primary purchase is a service and is reportable. The food provided is incidental to the service. Remember in all cases, if you pay by a credit card, the goods or services are not reportable as the credit card merchant is responsible for reporting. For additional references see IRS Sections 6041 and 6041a.

This list below is taken from Rev. Proc. 2004-43 and shows the merchant categories that the IRS specified as generally not reportable at a high level on Form 1099-MISC.

Freight and similar charges

4214 Motor Freight Carriers and Trucking – Local and Long Distance, and Local Delivery Services
4011 Railroads
4784 Tolls/Bridge Fees

Telephone Service and similar charges

4899 Cable, Satellite, and Other Pay Television and Radio
4812 Telecommunication Equipment and Telephone Sales
4814 Telecommunication Services
4816 Computer Network Services
4900 Utilities

Storage and similar charges

4214 Moving and Storage Companies
4225 Public Warehousing and Storage – Farm Products, Refrigerated Goods, Household Goods, and Storage

Telegraph and similar charges

4821 Telegraph Services
4829 Wires, Money Orders

Merchandise and similar charges

5937 Antique Reproductions
5932 Antique Shops
5971 Art Dealers and Galleries
5970 Artist’s Supply and Craft Shops
5531 Auto and Home Supply Stores
6011 Automated Cash Disburse
5542 Automated Fuel Dispensers
5533 Automotive Parts and Accessories Stores
5532 Automotive Tire Stores
5462 Bakeries
5940 Bicycle Shops
5551 Boat Dealers
5942 Book Stores
5192 Books, Periodicals, and Newspapers
5946 Camera and Photographic Supply Stores
5441 Candy, Nut, and Confectionery Stores
5511 Car and Truck Dealers (New & Used) Sales, Service, Repairs Parts and Leasing
5521 Car and Truck Dealers (Used Only) Sales, Service, Repairs Parts and Leasing
5169 Chemicals and Allied Products (Not Elsewhere Classified)
5641 Children’s and Infant’s Wear Stores
5993 Cigar Stores and Stands
5046 Commercial Equipment (Not Elsewhere Classified)
5139 Commercial Footwear
5734 Computer Software Stores
5045 Computers, Peripherals, and Software
5039 Construction Materials (Not Elsewhere Classified)
5977 Cosmetic Stores
5451 Dairy Products Stores
5311 Department Stores
5964 Direct Marketing – Catalog Merchant
5965 Direct Marketing – Combination Catalog and Retail Merchant
5968 Direct Marketing – Subscription
5310 Discount Stores
5714 Drapery, Window Covering, and Upholstery Stores
5813 Drinking Places
5912 Drug Stores and Pharmacies
5122 Drugs, Drug Proprietaries, and Druggist Sundries
5099 Durable Goods (Not Elsewhere Classified)
5309 Duty Free Stores
5812 Eating Places, Restaurants
5997 Electric Razor Stores
5065 Electrical Parts and Equipment
5732 Electronics Stores
5651 Family Clothing Stores
5814 Fast Food Restaurants
5718 Fireplace, Fireplace Screens, and Accessories Stores
5713 Floor Covering Stores
5992 Florists
5193 Florists Supplies, Nursery Stock, and Flowers
5422 Freezer and Locker Meat Provisioners
5983 Fuel Dealers (Non-Automotive)
5712 Furniture, Home Furnishings, and Equipment Stores, Except Appliances
5681 Furriers and Fur Shops
5947 Gift, Card, Novelty, and Souvenir Shops
5231 Glass, Paint, and Wallpaper Stores
5950 Glassware, Crystal Stores
5411 Grocery Stores, Supermarkets
5251 Hardware Stores
5072 Hardware, Equipment, and Supplies
5975 Hearing Aids Sales and Supplies
5945 Hobby, Toy, and Game Shops
5200 Home Supply Warehouse Stores
5722 Household Appliance Stores
5085 Industrial Supplies (Not Elsewhere Classified)
6399 Insurance – Default
6300 Insurance Underwriting, Premiums
5944 Jewelry Stores, Watches, Clocks, and Silverware Stores
5948 Luggage and Leather Goods Stores
5211 Lumber, Building Materials Stores
6010 Manual Cash Disburse
5047 Medical, Dental, Ophthalmic, and Hospital Equipment and Supplies
5611 Men’s and Boy’s Clothing and Accessories Stores
5691 Men’s, Women’s Clothing Stores
5051 Metal Service Centers
5699 Miscellaneous Apparel and Accessory Shops
5599 Miscellaneous Auto Dealers
5499 Miscellaneous Food Stores – Convenience Stores and Specialty Markets
5399 Miscellaneous General Merchandise
5719 Miscellaneous Home Furnishing Specialty Stores
5999 Miscellaneous Specialty Retail
5271 Mobile Home Dealers
5592 Motor Homes Dealers
5013 Motor Vehicle Supplies and New Parts
5571 Motorcycle Shops and Dealers
5561 Motorcycle Shops, Dealers
5733 Music Stores-Musical Instruments, Pianos, and Sheet Music
5994 News Dealers and Newsstands
5199 Nondurable Goods (Not Elsewhere Classified)
6051 Non-Financial Institutions – Foreign Currency, Money Orders (not wire transfer) and Travelers Cheques
5261 Nurseries, Lawn and Garden Supply Stores
5021 Office and Commercial Furniture
5976 Orthopedic Goods – Prosthetic Devices (not customized)
5921 Package Stores-Beer, Wine, and Liquor
5198 Paints, Varnishes, and Supplies
5933 Pawn Shops
5995 Pet Shops, Pet Food, and Supplies
5172 Petroleum and Petroleum Products
5044 Photographic, Photocopy, Microfilm Equipment, and Supplies
5131 Piece Goods, Notions, and Other Dry Goods
5074 Plumbing, Heating Equipment, and Supplies
5094 Precious Stones and Metals, Watches and Jewelry
5735 Record Stores
5973 Religious Goods Stores
5541 Service Stations
5949 Sewing, Needlework, Fabric, and Piece Goods Stores
5661 Shoe Stores
5598 Snowmobile Dealers
5941 Sporting Goods Stores
5655 Sports and Riding Apparel Stores
5972 Stamp and Coin Stores
5111 Stationary, Office Supplies, Printing and Writing Paper
5943 Stationery Stores, Office, and School Supply Stores
5996 Swimming Pools Sales
5998 Tent and Awning Shops
5978 Typewriter Stores
5137 Uniforms, Commercial Clothing
5931 Used Merchandise and Secondhand Stores
5331 Variety Stores
7993 Video Amusement Game Supplies
5300 Wholesale Clubs
5698 Wig and Toupee Stores
5631 Women’s Accessory and Specialty Shops
5621 Women’s Ready-To-Wear Stores