Can you charge sales tax on labor? The rule in 25 states
In most states you do not charge sales tax on your labor. You pay the tax when you buy the parts and build it into your price, and the customer sees no tax line at all. Four of the twenty-five states here work differently. Washington taxes the whole bill on every job, North Carolina taxes repairs but not new construction, Texas taxes repairs for businesses but not homes, and Arizona taxes new construction in its own way.
Sales tax on labor by state, at a glance
The state name opens the full page for that state, with the official pages every figure came from.
| State | Sales tax on your labor | Who pays the tax on materials | Tax rate | |||
|---|---|---|---|---|---|---|
| Repair at a home | Repair at a business | New construction | ||||
| Arizona | No | No | Yes, on 65 percent of the job price | You do on repair jobs. On new construction you buy them tax-free with an exemption certificate | 5.6 percent state, plus county and city rates. The state example uses 7.8 percent for Gilbert in Maricopa County | |
| California | No | No | No | You do on pipe, duct, and parts. On fixtures such as sinks, water heaters, furnaces, and AC units you charge the customer | 7.25 percent statewide, plus district taxes of 0.10 to 2.00 percent in many cities and counties | |
| Colorado | No | No | No | You do on a fixed-price job. Bill time and materials and you become a retailer for that job, charging the customer tax on the marked-up materials | 2.9 percent state, plus city, county and special district rates that vary by address | |
| Florida | No | No | No | You do, when you buy them. Movable items such as window units are sold and taxed to the customer | 6 percent state plus county discretionary surtax | |
| Georgia | No, if labor is its own line on the invoice | No, if labor is its own line on the invoice | No, if labor is its own line on the invoice | You do, when you buy them | 4 percent state, plus local rates. Most counties total 7 to 9 percent. | |
| Illinois | No | No | No | You do. You owe use tax on the cost of everything that becomes part of the building, and your supplier usually collects it | 6.25 percent state, plus local rates that vary by town and county. Look up the rate for a job address with the Tax Rate Finder in MyTax Illinois | |
| Indiana | No, as long as the labor is its own line on the invoice | No, as long as the labor is its own line on the invoice | No, as long as the labor is its own line on the invoice | You do on a fixed-price job. On time and materials you buy them tax-free and charge the customer tax on them | 7 percent state | |
| Maryland | No | No | No | You do. Maryland taxes the materials that become part of the building when you buy them, and you add no tax to the customer's bill | 6 percent statewide. Maryland has no local sales tax | |
| Massachusetts | No | No | No | You do. Repairing or improving a building makes you the user of what you fit, so you pay the tax at the supply house. A lump sum bill carries no tax at all, because the materials are not priced separately | 6.25 percent statewide. Massachusetts has no city or county sales tax | |
| Michigan | No | No | No | You do, when you buy them | 6 percent state rate | |
| Missouri | No | No | No | You do. You pay at the supply house on what you install and charge the customer no tax. New work and repairs follow the same rule | 4.225 percent for the state. The sales tax law sets 4 percent and the state constitution adds 0.225 percent for conservation and for parks and soils. Cities, counties and special districts charge more on top, so check the rate for the job address | |
| Nevada | No | No | No | You do. Nevada treats you as the final user of everything bought to improve a building, and makes no distinction between new work, remodeling and repairs | 6.85 percent is the state base rate. Counties add to it. Clark County is 8.375 percent and Washoe County is 8.265 percent | |
| New Jersey | It depends on the job | It depends on the job | No | You do. The state treats you as the final user of what becomes part of the building. On a taxable job, list the materials separately at your cost and no tax is charged on that line | 6.625 percent statewide. There are no county or city add-ons | |
| New York | Only on a repair | Only on a repair | No | You pay at the supply house either way. On a repair you also charge the customer tax on the whole bill and claim back the tax you paid | 4 percent state, plus the county or city rate. An extra 0.375 percent applies in the downstate commuter district | |
| North Carolina | Yes, on the whole bill | Yes, on the whole bill | No | You do on new construction. On a taxable repair the parts are taxed on the customer's bill | 4.75 percent state plus local rates, for a total of 6.75 to 8.25 percent depending on the county | |
| Ohio | No | No | No | You do, when you buy them. Equipment that mainly serves a business is sold and taxed to the customer | 5.75 percent state, plus a county and transit rate on top | |
| Oregon | No | No | No | Nobody. Oregon has no sales tax, so there is none to pay when you buy and none to bill | 0 percent | |
| Pennsylvania | No | No | No | You do, at the supply house. Working for a school, charity or government lets you buy some of them tax-free | 6 percent state. 7 percent in Allegheny County. 8 percent in Philadelphia | |
| South Carolina | No | No | No | You do, when you buy them | 6 percent state, plus local taxes collected by county. Local use tax is owed by the contractor where the materials are first used | |
| Tennessee | No | No | No | You do, when you buy them | 7 percent state plus a local rate of up to 2.75 percent, paid where you buy the materials | |
| Texas | No | Yes, on the whole bill | No | You do, when you buy them. Or list them separately, buy them tax-free, and charge the customer tax on them | Not on our page yet | |
| Utah | No | No | No | You do. Utah taxes what becomes part of the building when you buy it, whoever owns the building and whether the job is new work or a repair | The state part is 4.85 percent, made of a 4.70 percent sales and use tax and a 0.15 percent Medicaid rate. Cities and counties add their own on top. Check the Tax Commission rate chart for the job site | |
| Virginia | No | No | No | You do, when you buy them. You cannot use a resale certificate for job materials | 5.3 percent in most of the state, 6 percent in Northern Virginia, Hampton Roads, and Central Virginia, 6.3 percent in some Southside counties, 7 percent in James City County, Williamsburg, and York County | |
| Washington | Yes, on the whole bill | Yes, on the whole bill | Yes, on the whole bill | The customer does, as part of the taxed bill. You buy them tax-free with a reseller permit | 6.5 percent state rate plus the local rate for the job site | |
| Wisconsin | No | No | No | You do, as the user of them. Repairing a piece of equipment rather than wiring a building is the exception, and that is taxed | 5% state rate. Some counties add a 0.5% county tax, and some add a 0.1% stadium tax, so the total can run from 5% to 5.6% depending on the county. | |
What this means for you
Your first invoice
In most of these states the labor line on your invoice carries no tax. You already paid tax at the supply house when you bought the parts. Put that cost into your price and leave the tax line off. If you add a sales tax line the state does not ask for, you still have to send that money to the state, and the customer has paid more than they should.
Getting it wrong costs you, not the customer
In Washington and North Carolina the tax belongs on the bill. If you forget it, the state still expects the money, and it comes out of your pocket. A $1,200 repair in Charlotte with the tax left off costs you about $85. Do it on twenty jobs and you have lost a week's pay.
The same job can be taxed differently
In Texas, fixing a water heater in a house has no tax on your labor. Fixing the same water heater in a shop is taxed on the whole bill. In North Carolina and Arizona it is the type of job that matters. A repair and a new install of the same equipment get different tax treatment, and in North Carolina a building permit is often the dividing line.
How you write the invoice matters in two states
Georgia only leaves your labor untaxed if it sits on its own line. Lump labor and parts together and the whole amount can be taxed. Michigan is the other way round. If you itemize materials and charge tax on them, the state may start treating you as a retailer. Copy the habit of your own state, not an invoice template from the internet.
Some states want you registered even with nothing to collect
Georgia asks every contractor to register for a sales tax number and file a return every month, even a month with no sales. Washington needs a reseller permit for materials and a separate business tax on your receipts. In Arizona you only register if you do new construction. In most of the other states you register only if you also sell parts over the counter.
State by state: what is different about sales tax on labor
What is unusual in each state. Nothing here repeats the table.
Arizona
Arizona calls its sales tax the transaction privilege tax, and it is a tax on you, the seller. Repairs and replacements in an existing building carry no tax on the invoice. New construction and large alterations are taxed on 65 percent of the contract price, with the other 35 percent treated as labor. A home alteration counts as a repair up to a quarter of the home's assessed value. Above that it is taxed as new construction.
California
California draws a line between materials and fixtures. Pipe, duct, and wire lose their identity once installed, so you pay tax on them and charge nothing. A sink, a water heater, a furnace, or an AC unit is a fixture. It stays recognizable after installation, so you are its retailer and you charge the customer tax on it. An HVAC shop that sells and installs units needs a seller's permit for that reason.
Colorado
Colorado looks at how you bill, not at the building. A fixed price means you pay the tax at the supply house. Time and materials makes you a retailer for that job, needing a sales tax license.
Florida
Florida does not tax the work when what you install becomes part of the building. Sinks, furnaces, and central air units all count. You pay tax on them when you buy them, and the customer sees no tax whether you quote one price or bill by the hour. A window unit or a portable is different. It stays a movable item, so you buy it tax-free and charge the customer tax on the sale.
Georgia
Georgia treats you as the final user of anything that becomes part of the building, so you cannot buy pipe or a water heater tax-free with a resale certificate. Your labor stays untaxed only when it is a separate line on the invoice. Every contractor must register for a sales tax number and file monthly, and if you buy materials in a county with a lower rate than the job site, you owe the difference.
Illinois
Illinois is the simplest of them all. You are the final user of everything that becomes part of the building, you pay use tax on what it cost, and your labor is never taxed on a construction contract.
Indiana
Indiana only leaves your labor untaxed if you write it on the invoice as its own line. Roll it into one price and the whole bill can be taxed.
Maryland
Maryland keeps it simple. One statewide rate, no local add-ons, and the tax falls on the materials you buy rather than on anything you bill.
Massachusetts
Massachusetts taxes almost no services, so your labor is clear. A lump sum repair bill carries no tax at all, because nothing on it is priced separately.
Michigan
Michigan is the simplest state here. No tax on your labor for a home, a business, or new construction. You pay 6 percent when you buy the materials and charge the customer nothing. The one trap is itemizing materials and charging tax on them, which can make the state treat you as a retailer. Do not do it unless you mean to be one.
Missouri
Missouri leaves your labor alone and taxes the materials at the supply house. New work and repairs are treated the same way, because the test is whether the materials become part of the building.
Nevada
Nevada treats you as the final user of everything you buy for a building, and makes no distinction between building, remodeling, adding to and repairing.
New Jersey
New Jersey turns on whether the job is a capital improvement. All new construction is exempt, and on a taxable job you list the materials separately at your cost so no tax falls on that line.
New York
New York asks one question. Did the job improve the property for good, or just keep it working. A capital improvement is untaxed with form ST-124 from the customer. A repair is taxed on the whole bill, labor included.
North Carolina
North Carolina taxes repairs, maintenance, and installation on the whole bill, including your labor, for homes and businesses alike. Replacing a toilet or repairing a water heater is taxed. New construction, additions, and a full system replacement are not. For those you pay tax on materials and keep a Form E-589CI on file. If a mixed job is more than a quarter repair work, the repair part is taxed.
Ohio
In Ohio, work that becomes part of the building is a construction contract, and you are the consumer of the materials. Equipment that mainly serves the business run inside the building, such as process cooling, is a business fixture. Installing one is a sale, so you buy it tax-free and charge the customer tax on it.
Oregon
Oregon has no sales tax of any kind, so there is nothing to pay at the supply house and nothing to add to a bill. The state taxes business income instead.
Pennsylvania
Pennsylvania taxes you at the supply house and nothing on your invoice. The exception that pays you back is work for a school, charity or government, where some materials come tax-free.
South Carolina
South Carolina treats you as the final consumer of everything you install. You pay tax when you buy pipe, fixtures, and equipment, and your bill to the customer carries no tax. Selling a spare part or a filter to a customer now and then is not taxed either, as long as you paid tax when you bought it. Materials bought in another state owe South Carolina use tax, less what you paid there.
Tennessee
Tennessee does not tax your labor when what you fix or install becomes part of the building. Repairing something that stays movable, such as an appliance or a window unit, is a taxable service.
Texas
Texas splits by customer. Repairs and remodels at a home have no tax on your labor. The same work for a business is taxed on the whole bill, labor and materials. New construction is not taxed. If you want to charge the customer tax on materials, you must list them separately and buy them with a resale certificate.
Utah
Utah taxes what becomes part of the building when you buy it. Who owns the building makes no difference, and neither does whether the job is new work or a repair.
Virginia
Virginia treats you as the final user of pipe, fittings, fixtures, and equipment that become part of a building. Your supplier charges you tax and you build it into your price, without adding a tax line for the customer. You cannot use a resale certificate for anything you know is going into a specific job. A shop that also sells fixtures over the counter may use one for that stock only.
Washington
Washington is the state that taxes everything. On a job for a homeowner or a business you charge retail sales tax on the whole contract price, labor and materials, as a separate line on the invoice. You buy the materials tax-free with a reseller permit. On top of that, your receipts are taxed under the business and occupation tax, which you pay yourself and do not pass on.
Wisconsin
Wisconsin follows the same rule until the job stops being work on a building. Repairing a piece of equipment is taxed, because the equipment never becomes part of the building.
Words in this guide
- Use tax
- The tax you owe yourself on materials you bought without paying sales tax, or bought where the rate was lower than at the job site
- Resale certificate, or reseller permit
- A form that lets you buy goods without paying sales tax because you will charge the customer tax when you sell them
- Part of the building
- The test most states use. Something that becomes part of the house or shop, such as pipe or a furnace, is taxed one way. Something that stays movable, such as a window unit, is taxed another
- Lump-sum contract
- One price for the whole job, with labor and materials not listed separately
- Prime contracting
- Arizona's name for new construction and large alterations, which are taxed on 65 percent of the contract price
How we checked these numbers
Every row was written from our own pages for that state, where each rule links to the official page or the law it came from. A person then compared each cell and each paragraph with that official page. So far 25 of the 25 rows have been through that check. How to read a page on this site.