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Construction-related installation labor (labor to affix or convert tangible personal property to realty) is taxable in 14 states to varying extents. Since repairs to realty (restoration of real property to its original condition) were featured in the previous installment, I’ll try to avoid covering similar ground to the extent possible.

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However, overlapping treatments of installation and repairs are built into the sales and use tax statutes of a few of the states, so some duplication of the applicable commentary is inevitable. The states that tax all construction-related installation labor are Arizona, Hawaii, New Mexico, and Washington. In Arizona, contractors are taxed under a separate transaction privilege (sales) and use tax category entitled the “prime contracting classification.” Within that classification, a flat 65 percent of gross proceeds derived from performing construction contracts are subject to the tax. Connecticut, Kansas, and Texas exempt installation labor when it results in new construction (subject to the individual definitions applicable to each state).

These states also exempt installation associated with remodeling or reconstructing owner-occupied residential realty. Installation involved in remodeling or reconstructing all other types of realty is taxable, with the exception of the reconstruction, remodeling, renovation, or repairs of bridges and highways in Kansas. In New Jersey, New York, and West Virginia, installation labor is not taxable if the project qualifies as a capital improvement (i.e., the result is a permanent addition that increases the value or useful life of the underlying realty). Of course, the criteria for capital improvement status vary somewhat among these states and occasionally even among individual audit districts within the same state.

In addition, New Jersey specifically taxes labor to install landscaping, floor covering, or alarm systems, whether or not the end result is a capital improvement. The following states apply their own individual variations: Arkansas: Neither installation nor repairs of “nonmechanical” materials and fixtures attached to realty (including plumbing and lighting fixtures) is taxable. The first-time installation of mechanical or electrical equipment (such as air conditioning units, elevators, and ceiling fans), or carpeting, is also exempt.

Any subsequent labor needed to replace or repair the latter items will be taxable. Mississippi: For contracts of $10,000 or less, and for all residential construction, certain enumerated construction services are taxable. Construction services that are not enumerated are exempt. This is true regardless of whether the services involve installation, remodeling, or repairs.

The taxable services include plumbing, heating, air conditioning, excavating, landscaping, electrical work, sheet metal work, insulating, elevator or escalator work, and welding. For nonresidential contracts over $10,000, a 3½ percent “contractor’s tax” (in lieu of sales or use tax) is imposed on the total amount of the contract, including any installation, repairs or maintenance services involved. South Dakota: Although construction services are not subject to sales or use tax, a special “realty improvement tax” is levied on construction contract gross receipts. Wisconsin: Certain specific units are treated as tangible personal property even after they are affixed to realty. Installation of these items is taxable, while the labor to install other types of property is exempt. For example, installation of the following items is taxed because their affixation to realty is not considered to change their classification as personal property: broadcasting towers; curtains; drapes; electric dust collectors; gas and electric logs; laundry and dry cleaning machines; manufactured homes on leased land (even when affixed to a foundation); railroad signs and signals; roof-mounted satellite dishes; temporary electrical service; traffic signs and signals; transformers (on easement/leased property); and above-ground utility transmission lines (on right-of-way). Wisconsin considers the installation of other property to result in a nontaxable addition to realty but regards the subsequent repair of the same (now affixed) property to be a taxable service to personal property.

This schizophrenic treatment applies to central air conditions; awnings; bathroom fixtures; boilers; burglar alarm fixtures; bathroom (but not non-bathroom) cabinets and counters; carpeting; internal walk-in coolers; dishwashers; electric signs; furnaces; garbage disposals; heating, cooling, and ventilation units; incinerators; intercoms; ovens; pumps; sinks; swimming pools; water heaters; and water softeners. James, If your contract is for a lump-sum amount, you'll only owe tax on your costs of the installed materials. (If you pay tax to your vendors on the materials, you'll have no further obligation. If you buy the materials without tax, you'll need to report their costs as purchases subject to use tax on your sales and use tax return for the applicable period.) The installation labor is not taxable. If your contract shows separate figures for labor and materials, you'll need to report sales tax on the greater of the amount billed for materials or the materials' costs. Again, the installation labor will not be taxable.

Construction contracts involve labor to affix tangible personal property to real property. Since trucks are tangible personal property rather than real property, labor to install graphics on them is not really contract labor, at least in the construction sense. However, such labor is taxable in Washington in any case, and the California company must collect the Washington tax and remit it to the state. (The actual transaction took place in Washington, and that made it subject to the state's sales tax.). The tax treatments in New York and New Jersey depend on whether the job qualifies as a capital improvement, which is an installation that increases the value or useful life of the underlying real estate. In general (with a few specific exceptions in Jew Jersey), if a job qualifies as a capital improvement, the contractor only owes tax on its cost of materials and should not charge tax to the customer.

If the job does not qualify as a capital improvement (e.g., it's for repairs or maintenance), tax is generally due on the entire amount billed to the customer. This treatment is not typical for most other states. Casey, Virginia regards construction contractors as consumers of the materials they install and does not tax construction services such as installation. The labor involved in fabricating the materials is also exempt, unless you are also engaged in making retail sales of such fabricated items (which I'm assuming is not the case).

As a lump-sum contractor, your company is only responsible for paying Virginia sales or use tax on the costs of the materials consumed in the project. If you paid Texas sales tax when you bought the materials, you're entitled to offset the Texas tax paid against the Virginia use tax owed. (If you paid a higher rate to Texas, you could offset the entire VA tax owed, but you wouldn't get credit for the excess.). David, Whether or not you can deduct the tax depends on the nature of the underlying contract. If the contract was for a lump sum (with no breakdown of the materials, labor, etc. Within the contract itself), then the contractor would be regarded as the consumer of the materials.

In that case, the tax paid was the contractor's liability rather than yours, so you would not be able to deduct it. However, if the contract was 'separated' (showing separate figures for materials, labor and tax), the amount of tax billed would be considered your liability rather than the contractor's, so in that case you would be entitled to deduct it. I have a Commercial Millwork Installation company based in MD. We frequently work in DC, VA and occasionally DE. We primarily install custom Millwork on the behalf of MD fabricators for commercial clients (usually thru a GC). We pay MD sales tax on all of our purchases (specialty hardware, expendables, occasionally prefabricated or contract manufactured casework). Are we then required to charge the client an additional 6% on the finished product?

Is the Millwork fabricator required to do this? Isaac, If I understand you correctly, your company does not fabricate the cabinets but simply installs them. Sometimes you install cabinets provided by fabricators and sometimes you purchase the cabinets from the fabricators (tax-paid) and then install them. It appears you are handling your MD sales taxes correctly, with one stipulation: although installation labor is not taxable in MD, the labor charge should be separately stated to your customer.

In cases where you've purchased the manufactured casework, I recommend making one charge for installation and another along the lines of, 'Prefabricated cabinets at cost (includes MD sales tax).' You then should not have to bill the customer for any additional tax. (Note that this advice applies to MD only.).

Steve, It depends on the circumstances. If the cabinets were prefabricated before installation (which would mean 90% or more of the total charges for labor and materials was incurred before the cabinets were affixed to the walls), then the tax would apply to all of the pre-installation charges for building the cabinets. The labor to actually affix the cabinets to the walls would be exempt. If the cabinets were not prefabricated, tax would only apply to the costs of the component materials. If the contract was lump-sum, however, the tax should have been included in the lump-sum amount specified in the contract, whether or not the cabinets were prefabricated. You might want to review the terms of the contract to see if it allows for the addition of tax over and above the lump-sum amount specified. If it doesn't, you might have an argument for withholding the tax under commercial law.

(The taxing agency Board of Equalization won't help you with this.). Ellen, The prime contractor is responsible for charging sales tax to the customer on both the materials and labor, since this is not a capital improvement project.

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The prime should issue you a Contractor's Exempt Purchase Certificate, which would relieve you of the responsibility for charging tax to the prime or paying tax on your materials costs. (If you were contracting directly with the hotel, you'd have to charge tax on the materials and labor, but since you're a sub, the tax is the prime's responsibility.). On capital improvement projects where you install your products, you would owe tax on the cost of the component materials. Since you're already paying tax to your suppliers (I'm assuming you're paying the NYC tax for materials used in NYC), you would not have any further liability and would not have to collect tax from the contractors. (I'm also assuming that you're not in the business of selling identical products to others at retail.) 2.

On a capital improvement project where you sell your products to the contractor and the contractor installs the products, you need to charge tax to the contractor on your selling price. You'd then be entitled to a credit or refund of the tax you paid on the materials costs. On non-capital improvement projects, you need to obtain a Contractor's Exempt Purchase Certificate from the prime.

This relieves you of the need to charge tax to the contractor or pay tax on the materials costs. (If you do pay tax on the costs, you'll be able to claim a refund or credit.) The prime contractor will be responsible for charging tax on his entire billing to the customer. Sara, I apologize for not responding sooner; I remember your post and thought I had responded, but obviously I was mistaken.

In Kansas, construction installation labor is generally exempt when applied to residential property and taxable when applied to commercial property. (Note that labor to perform original construction, rather than a remodel, is exempt regardless of the nature of the underlying property.) However, Kansas law regards some types of installation labor as components of taxable retail sales rather than construction.

Unfortunately, drapery installation falls within the retail sale (and therefore taxable) category. Whether or not blinds would be treated similarly would depend on the type of blinds and degree of installation required; for instance, mini-blinds would fall into the retail sale category, but custom wood blinds requiring a substantial amount of installation labor would probably fall into the construction category. In the latter case, the installation labor would be exempt, as long as the underlying property was a residence.

For purposes of this answer, I'm assuming you'll be building the garage and affixing it to the foundation yourselves rather than subcontracting out the labor. If that's the case, you'll be considered a consumer (end user) of the materials under Alabama law, and as such you would not charge any tax to the customer. You will owe state and local Alabama use tax on the materials, but you'll be entitled to claim a credit for any PA tax that you might have paid when you bought them.

(If the PA tax you paid was equal to or greater than the AL tax due, you won't owe any additional tax.). Contractors installing custom cabinets in California are generally considered consumers of the materials they install. This means you would owe tax on your cost of each physical item that becomes part of the installed product. If you pay tax on these materials to your vendors, you'll have no further liability (unless you actually specify a greater amount of tax as a line item in your contracts with your customers). If you don't pay tax to your vendors, you should report use tax on the costs of the installed materials on your sales and use tax returns. I also recommend contracting on a lump-sum basis, which means you would specify one lump-sum price in your contracts without breaking it down further into parts, labor, tax, etc.

Shelley, I apologize for my delay in responding. Your interpretation of Arizona tax law regarding contractors is correct. I'm assuming that this remodel does not include any sales of free-standing property such as furniture, refrigerator, washer/drier, etc.; those would not be considered part of the construction and would be fully taxable as retail sales. However, the tax amount of $7,533.11 is 8.5% of the $88,624.22 cost, which appears wrong for two reasons: (1) it evidently applies to the entire cost rather than 65%, and (2) the rate apparently does not apply to your location.

I'm in Texas we are a Electrical contractor - basically install electrical wiring for our computers. Mostly commericial. Question - We do work for an out of state home warranty company. We went out to service a call it took 3 hours to find dilama.(we did not fix )Do we charge taxes for labor? Second part of that question: The dilema was not covered by Warranty company.

So the customer (which is residential )now wants to go straight thru us. Do I charge sales tax on labor to her? Do I charge sales tax on material to her? Lori, I apologize for the late response. There seems to have been some kind of glitch in the system that forwards questions to me.

Texas taxes residential customers differently from commercial customers. All of your charges to a nonresidential customer (including labor) would be taxable.

With residential customers, you would not charge or report sales tax on the labor. If your contract with the residential customer is lump-sum, you would only owe tax on the cost of the materials you installed.

(If you've already paid tax to your vendor on the cost, no additional tax would be due.) If your contract with the residential customer is a 'separated' contract (time and materials), you would be required to collect tax from the customer on the greater of the cost of the materials or the amount stated in the contract. (You would, however, be entitled to claim a credit on your sales tax return for any tax you paid to your vendors on the materials costs.). Dan, I am about to review no residential real property contracts completed. I am trying to familiarize myself with the tax legislation in Mississippi. Where I am from, the contractor charges a sales tax included in the contract price and sometimes will charge the full sales tax on top of it, which is in error and can be claimed as a refund. Am I correct after reading that tax is included in a RP contract in addition to an additional tax shown in Miss? In other words, there aren't any potential refund opportunities with respect to RP contracts?

Many thanks, Arlenei. Arlene, I apologize for responding so late. Due to apparent forwarding glitches, I apparently missed several questions. Mississippi sales and use tax laws regarding construction contractors are unique. The amount and type of tax due can vary with the price of the contract, whether the contract is residential or non-residential, and the nature of the services provided.

Whether or not a refund of overpaid tax would be available would depend on the preceding variables plus the individual fact pattern (nature of contract, how tax was billed and/or remitted to the state, etc.). In addition, if sales tax was overcharged to the customer, you'd probably be required to return any refund you received from the state to that customer. Carla, You're right that AZ construction contractors are considered retail sellers. However, the privilege tax is due on 65% of the contractor's gross proceeds from the contract, so the contractor would either bill the customer tax on 65% of the gross or just bill the customer a lump-sum amount and then compute and report the tax on the 65%. (The state's website tells you how to compute the tax in this manner; just enter 'factoring' into their 'search' box.) Since the tax is computed on 65% of the gross amount billed (and not on materials purchased), the contractor should buy all construction materials for resale. I run a small HVAC company in Texas.

When we perform a residential repair are we to collect tax on materials from the customer if we paid the tax at the time of purchase for the materials? The reason I ask if that one of our supply houses did not have our re-seller number on file so we were being charged tax when we purchased materials from them. Additionally, we do work for an out-of-state home warranty company. Do we charge tax on materials for jobs we perform based on work orders from the home warranty company? Jeremy, The way Texas sales and use tax applies to residential repairs depends on how your contract with your customer is structured. (Unlike repairs to commercial real estate, labor on residential repairs is never taxable in Texas.) If you use a lump-sum contract, tax only applies to your costs of materials. In that case, if you paid tax to your supplier, you'd owe no further tax to the state and would not collect tax from the customer.

However, if you used a separated contract (time and materials), tax would be due on the greater of the cost of the materials or the amount you billed to the customer. Thus, if you paid tax to your supplier and billed your customer a marked-up amount for the materials, you'd owe additional tax on the markup. In that case the best approach probably would be to bill your customer the full tax on the billed price of the materials, report that amount to the state, and also claim a credit for the tax you paid to the supplier. The tax would work the same way on the home warranty repairs. Hi Barbara, For purposes of this answer, I'm assuming that you don't have a New York sales tax permit and don't normally do business in New York. If you're selling the computer and camera, you'll need to apply for a New York sales tax permit (at www.tax.ny.gov/bus/st/register.htm).

You'll then need to collect NY sales tax on the selling price, and report and remit the tax. You'll be regarded as the consumer of the materials used to install new in-wall or in-floor wiring (cables, etc.). This means you'll owe tax on your cost of those materials, and no tax will be due on the installation labor.

If all you're doing is the cable installation, and the customer is providing the computer and camera, I suggest that you buy the materials tax-paid from a New York vendor. Your liability will then be extinguished and you won't need to apply for a NY sales tax permit. Regards, Dan. Hiring subcontractors to install the property you're selling will create sales and use tax nexus in the state of installation (except, of course, for the five states that don't have a sales tax). If it's a one-time, short term job and there are no other installations expected in the state, you may be able to qualify for a temporary sales or use tax permit, which would mean you wouldn't be stuck with charging tax on your non-installed common carrier sales into the state.

Even if it's a long-term job, you should be able to cancel your sales tax permit after the job is completed if you don't anticipate future installation jobs in the state. However, as long as you're considered to have nexus in the state, you'll be required to tax your common carrier sales into the state as well as the installed products. Whether or not the subs will be liable for withholding state income tax from their employees' wages will depend on a variety of factors, such as the individual state, the sub's level of activity in that state, etc. (The subs should check with their own accountants regarding their individual requirements.

This should not be your responsibility.) As the prime contractor, you'll be liable for the state's sales or use tax on the installed property, regardless of whether the sub is registered in the state. In some states, you may also owe tax on the labor. (You shouldn't be liable for any withholding on the subs' employees.) You may want to look into just selling and shipping your products to the end users and arranging for the subs to contract separately with the customers if installation is desired.

We are a custom drapery manufacturer in TEXAS, I was wondering if the labor and install part of custom window treatments are taxable. I know the materials are texable, and I think the tax is on the total cost of what customers paid.

However, it seems that much of our competition does not include tax in the labor part of the invoice for customers. I was wondering if they are just including the sales tax in the total price they are quoting or is there a way to exempt the labor and installation part. Lucas, Generally Texas does not regard the sale and installation of draperies as improvements to realty. This means the whole charge for the draperies is taxable, including fabrication and installation labor. However, there are a couple of limited exceptions, which apply if (a) the removal of the drapery after installation would result in substantial damage to the underlying realty (which is rarely the case), or (b) the installation is pursuant to a construction contract involving new construction or a major remodel.

In these exceptional circumstances, if you use a lump-sum contract, you will be the consumer of the materials and pay tax to your supplier (or report use tax on the materials costs on your sales and use tax return), and the charge to your customer will not be taxable. If you use a separated contract (time and materials), you'll need to collect sales tax on the materials charge but not the labor. Unless you're sure that one of these exceptions applies, your safest approach is to charge and report tax on the entire amount that you bill. Regards, Dan Davis.

I'm a NYC manufacturer of custom millwork. Our customers are contractors and our jobs are capital improvements. We fabricate and install custom millwork cabinets, doors and paneling in commercial spaces, usually law firms and financial offices. My questions is about paying sales tax on our subcontractors charges. We often subcontract out the work we get. So i have three questions: If we buy the cabinets, doors and or paneling from a manufacturer, which we call a subcontractor, and do the install ourselves. Do we pay sales tax on the cabinets purchased from the subcontractor?

If the subcontractor also does the installation do we pay sales tax to the subcontractor for his services? If we buy the cabinets from a subcontractor and we buy the installation from another distinct subcontractor, who should we pay sales tax to? Oracle database tool. Jim, Please note that all of my answers are based on the assumption that the jobs are capital improvements. If you buy the cabinets, doors, or panels from a manufacturer and then install them yourselves, you should pay sales tax to the manufacturer on your purchases.

No other sales or use tax will be due. The same answer applies if you buy the materials from the manufacturer and a subcontractor installs it.

Since it's a capital improvement job, no tax is due on the subcontractor's services. If you buy the cabinets from a subcontractor and then have a different subcontractor install them, you should pay tax on your purchase of the cabinets only. No tax is due on the installation services. Note that in all cases involving capital improvements, sales or use tax is only due on your costs of materials.

The installation labor will be exempt regardless of who provides it. Regards, Dan Davis. Disclaimer: Access to any portion of SalesTaxSupport.com is contingent upon your acceptance of our. This Web Site and content provided by STS Publishing, LLC and its third party content providers, including, but not limited to information, documents, forms, comments, advice and opinions, is for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship. The Web-Site also includes advertisements, directory listings, job postings and links to third party web sites, all of which are provided for your convenience only and in no way constitute a referral, endorsement, or warranty by SalesTaxSupport.com of any product or service provided by such third parties. All content is provided “as is” with no guarantee regarding accuracy, suitability, or timeliness. Your reliance on any content accessed on or through the Web Site, or on any product or service provider is strictly at your own risk.