InvoiceCraftDo Contractors Charge Sales Tax on Labor? A State-by-State Guide
Written for the person sending the invoice. The rules below cover the ten largest US states, and every one links to the state revenue department it came from.
Read this first. Sales tax on construction and service work is decided state by state, and inside a state it can turn on whether the job improved real property or repaired it, whether the building is a house or a business, and whether you itemized labor separately. Nothing here is tax advice. Use it to ask your accountant a sharper question, and check the linked state page before you change what you charge.
The three questions that decide it
Every state answers the same three questions in its own order. Once you know your state's answers, the invoice writes itself.
- Did the work become part of the building? Most states treat a real property improvement completely differently from a repair, and differently again from fixing something that stays movable (a mower, a laptop, a truck).
- Are you the consumer of the materials, or the retailer? In the majority of states a contractor who installs materials into real property is the end user. You pay tax at the supply house and never charge it forward. In others you buy for resale and collect from the customer.
- Is the service itself on the state's taxable list? Some states tax almost no services and then name a handful anyway. Janitorial, lawn care, pest control and snow removal show up on those lists over and over, which catches cleaning and landscaping businesses off guard.
The ten largest states at a glance
"Real property improvement" below means work that becomes a permanent part of the building. "Repair labor" means fixing or maintaining what is already there.
| State | Labor on a real property improvement | Repair & maintenance labor | Who pays tax on materials |
|---|---|---|---|
| California | Not taxed | Not taxed | You, on materials. Fixtures are a retail sale. |
| Texas | Not taxed (new construction) | Taxed on nonresidential, not on residential | Depends on lump-sum vs separated contract |
| Florida | Not taxed | Not taxed on real property | You, at purchase |
| New York | Not taxed (capital improvement, form ST-124) | Taxed, labor included | You on capital improvements, customer on repairs |
| Pennsylvania | Not taxed | Not taxed as construction. Check the service list. | You, at purchase |
| Illinois | Not taxed | Not taxed | You, as end user |
| Ohio | Not taxed | Not taxed. Check the service list. | You, at purchase. Business fixtures differ. |
| Georgia | Not taxed | Exempt only if separately stated | You, at purchase |
| North Carolina | Not taxed (real property contract) | Taxed as an RMI service | You on real property contracts |
| Michigan | Not taxed | Not taxed | You, as consumer |
State by state
California
Contractors are consumers of the materials they furnish and install, so you pay tax when you buy them and do not add tax to the customer's labor. You are a retailer of fixtures, the items that keep their own identity after installation, such as water heaters, furnaces and air conditioning units, so tax applies to the fixture itself. Installation and repair labor on real property is not taxed. Separately state your installation charge on the invoice.
Full California guide: labor, materials, fixtures and the jobsite rate →
Source: CDTFA Regulation 1521 and Publication 9.
Texas
Texas splits on the type of building. Labor to repair or remodel residential property is not taxable. Labor and materials to repair, restore or remodel nonresidential property are fully taxable. New construction labor is not taxable either way. Separately, Texas taxes "real property services" no matter whose building it is: janitorial and custodial work, landscaping and lawn maintenance, pest control, garbage removal and surveying. Under a lump-sum contract you pay tax on materials at purchase; under a separated contract you buy them for resale and collect tax from the customer.
Full Texas guide: residential vs nonresidential, contract types and taxable services →
Source: Comptroller 94-116 and 96-259, Taxable Services.
Florida
On a real property improvement contract the contractor is the consumer of the materials. You pay tax at the supply house and the customer pays none, and itemizing labor separately does not change that either way. Two traps for trades: repairs to tangible personal property (equipment, unattached appliances, vehicles) are taxable on parts and labor together, and Florida names nonresidential cleaning and nonresidential pest control as taxable services, so a commercial janitorial route is taxable while the same work in a house is not.
Full Florida guide: real property vs equipment, fixtures, cleaning and the county surtax →
Source: Florida DOR GT-800067 and Florida sales and use tax.
New York
Everything turns on capital improvement versus repair. A capital improvement substantially adds value or prolongs the life of the property, becomes permanently affixed, and is intended to stay. Get form ST-124 signed by the customer, charge no tax on the job, and pay tax yourself on the materials. Anything that is repair, maintenance or installation short of that test is taxable on the whole bill, labor included, and you buy the materials for resale. Building a deck is a capital improvement. Fixing broken steps or swapping a thermostat is not.
Full New York guide: the capital improvement test, ST-124, material credits and cleaning →
Source: NYS Tax Bulletin ST-104.
Pennsylvania
Work that permanently affixes property to real estate is a construction activity rather than a taxable service, so you do not collect tax on it. Repairing real estate counts as a construction activity too, even when you transfer no materials. You are the ultimate consumer and owe tax on everything you install, and you may not show that tax as a line on the invoice. The catch is Pennsylvania's list of taxable services, which includes building maintenance and cleaning (residential and commercial) and lawn care. During new construction the rough-stage debris removal is construction labor, but the final clean before the certificate of occupancy is a taxable cleaning service.
Source: 61 Pa. Code § 31.11, § 60.1 and Letter Ruling SUT-08-010.
Illinois
Illinois does not tax services. A contractor who incorporates materials into real estate is the end user of those materials, owes use tax on what they cost, and collects nothing from the customer on the construction contract. Selling an item over the counter without installing it is a retail sale and is taxable. Installation labor agreed on separately from the price of the goods is not taxable. Labor bundled into the selling price of goods rides along with them and is. On repairs to equipment and vehicles only the parts are taxed, and if the invoice does not state a parts price, tax is figured on half the bill.
Source: 86 Ill. Adm. Code 130.1940, 130.450 and 140.106.
Ohio
A contractor who buys materials for incorporation into real property is the consumer and pays sales or use tax on the purchase price, so the construction contract itself is not taxed to the customer. Two exceptions bite. Property that is permanently affixed but mainly serves the business run on the premises is a business fixture, stays personal property, and installing it is a taxable sale. And Ohio taxes building maintenance and janitorial services, landscaping and lawn care, and snow removal by name, each with a $5,000 annual threshold for the last two.
Source: Ohio Rule 5703-9-14 and Ohio Dept. of Taxation on landscaping and snow removal.
Georgia
A contractor is deemed the consumer of all tangible personal property used in a real property contract and pays the tax at purchase. The rule to remember on your invoice: repair and installation labor is exempt when it is separately stated. Bundle labor into one line with the parts and the whole line becomes taxable. Fabrication labor, the work of making something before it goes in, is taxable regardless.
Source: Georgia DOR contractor FAQs.
North Carolina
North Carolina is the one that catches people out. The state taxes "repair, maintenance, and installation services" (RMI), and installation charges stay taxable even when you separate them on the invoice. A real property contract, meaning a capital improvement, is treated the other way: you are the consumer of the materials and charge no tax on the contract. A full roof replacement or a substantial remodel is generally a capital improvement. Repairing a leak or swapping a single fixture is generally RMI and taxable. Mixed jobs have to be allocated and documented.
Source: NCDOR repair, maintenance and installation services.
Michigan
Michigan taxes tangible personal property, and services only where the statute names them. A contractor who affixes materials to real estate is the consumer of those materials and owes sales or use tax on them, so nothing goes on the customer's invoice as tax. Parts that leave with the customer in a repair are a retail sale and are taxable. Straightforward, as long as you remember the tax was already paid on your side and should not be marked as tax on the bill.
Source: Michigan Treasury construction FAQ and the Contractor Manual.
What this means for how you write the invoice
- Itemize labor and materials on separate lines, everywhere. In Georgia it is the difference between exempt and taxable labor. In California and Illinois it decides how the parts are treated. In every other state it costs you nothing and makes an audit boring.
- Say what the work was, not just what it cost. "Replaced entire roof deck and shingles" and "repaired flashing at chimney" land on different sides of the capital improvement line in New York and North Carolina. Your invoice description is the evidence.
- Keep the certificates with the job. New York's ST-124, a resale certificate, an exemption certificate for a nonprofit or government job. File them against the invoice number so they are still findable in three years.
- Do not show tax you already paid as a tax line. If you are the consumer of the materials, that tax is part of your cost and belongs inside your marked-up material price. A separate "sales tax" line implies you collected it and owe it to the state.
- Watch the service lists if you clean, mow or plow. Cleaning and landscaping businesses in Texas, Pennsylvania, Ohio and Florida are far more likely to owe tax than a plumber in the same state.
Put the tax on the invoice correctly
The free InvoiceCraft editor has a tax rate field that applies to the subtotal, separate line items for labor and materials, and a notes field for the exemption reference. Fill it in, download a clean PDF, no account needed.
Frequently Asked Questions
Do contractors charge sales tax on labor?
In most states, no. Labor to build, install or repair real property is not taxed in California, Florida, Illinois, Michigan, Pennsylvania and Ohio, and the contractor pays tax on materials at purchase instead. The exceptions matter: Texas taxes repair and remodel work on nonresidential buildings including the labor, New York taxes repair and maintenance labor that is not a capital improvement, North Carolina taxes repair, maintenance and installation services, and Georgia only exempts repair and installation labor when it is separately stated on the invoice.
Should I charge my customer sales tax on materials?
Usually not, if you installed them into real property. Most states treat the contractor as the end consumer of those materials, which means you pay the tax when you buy them and build that cost into your marked-up price. Adding a separate sales tax line on top implies you collected tax you now owe the state. The main exceptions are New York repair work, Texas separated contracts, and any job where you sell an item without installing it.
What is the difference between a capital improvement and a repair?
A capital improvement substantially adds value or prolongs the useful life of the property, becomes permanently affixed to it, and is intended to be permanent. Building a deck, replacing a full roof or adding kitchen cabinets qualifies. Fixing broken steps, replacing a thermostat or repainting existing cabinets does not. New York and North Carolina both hang the tax treatment on this line, so describe the work precisely on the invoice and keep the customer certificate on file.
Do cleaning and landscaping businesses have to charge sales tax?
More often than the trades do. Texas taxes janitorial and custodial services, landscaping and lawn maintenance, and pest control as real property services. Ohio taxes building maintenance and janitorial work, landscaping and lawn care, and snow removal. Pennsylvania taxes building cleaning and lawn care. Florida taxes interior nonresidential cleaning and nonresidential pest control, so a commercial route is taxable while the same work in a house is not. Check your own state's taxable services list before you assume services are untaxed.
Related pages
- California Contractor Sales Tax on Labor, the full state guide
- Texas Contractor Sales Tax on Labor, the full state guide
- Florida Contractor Sales Tax on Labor, the full state guide
- New York Contractor Sales Tax on Labor, the full state guide
- Pennsylvania Contractor Sales Tax on Labor, the full state guide
- Illinois Contractor Sales Tax on Labor, the full state guide
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