I can't be 100% confident, but it sure seems like the reason they are charging tax on the service fee even though there is no tangible product is because they recognize that the state would come after them for uncollected taxes otherwise. By the letter of the law (as read above at least), I believe Edger is right in that it should not be taxable. However, to charge a fee that is "costs and profit" is a potentially huge loophole (or an illegal practice). Why not charge $0.01 for the oil change plus a $20 service fee to cover "shop costs and profit" that is then not taxable? Obviously that example would not fly with the state/local taxing authorities, but would be what is going on here if they failed to charge the tax, just on a smaller scale.