Determining whether sales tax should be charged on labor services can be confusing, as sales tax laws vary by state and municipality. This comprehensive guide examines sales tax on labor, all its requirements and costs in all 50 states and major cities in 2024.
Overview of Sales Tax on Labor
In general, sales tax is charged on sales of tangible goods but not on services. However, many states tax select services like auto repairs, landscaping, and construction labor. The taxability of labor depends on:
- The type of service provided
- Whether materials are included
- The state in which the service is performed
We’ll explore the specific rules in each state below. But first, here are some key things to know about charging sales tax on labor:
- Tangible goods: Sales tax is usually charged on labor if it produces a tangible product like an auto repair or tailoring service. The labor is considered part of the sales price of the tangible good.
- Materials vs labor: If materials are included, sales tax is generally charged on the entire invoice. If labor is separately stated, only the materials may be taxable.
- Service-only labor: Purely labor-based services with no materials are often not taxable. Common examples are massage therapy, web design, and consulting.
- Local taxes: Cities, counties and other districts may have different tax rules than their state. Always check rates and regulations at the zip code level.
Now let’s look at the sales tax requirements for labor services in each state.
Sales Tax on Labor by State
Alabama
- Repair labor is taxable if it is connected to a taxable tangible good like an auto repair.
- Labor to install or apply taxable tangible property is also taxable.
- Standalone labor services without materials are not taxable.
Alaska
- Alaska does not have a statewide sales tax. However, local sales taxes may apply.
- Anchorage taxes repair and maintenance labor for vehicles, electronics, appliances, and commercial equipment. Other labor is exempt.
Arizona
- Repair labor is taxable when connected to tangible property like auto or electronics repair.
- Installation and application labor for taxable property is also taxable.
- Standalone labor is exempt unless specifically taxed by city or county.
Arkansas
- Labor to produce or repair tangible property is taxable.
- Labor to install or apply tangible property is also taxable.
- Purely labor-based services are not taxable.
California
- Labor for repairs, renovations, and installations on real property (buildings and land) is taxable.
- Auto repair, appliance repair, and electronics repair labor is taxable.
- Most other standalone labor services are not taxable.
Colorado
- Repair, maintenance, and installation labor is taxable if it produces a tangible end product.
- Labor on real property construction and building projects is also taxable.
- Purely labor-based services without materials are exempt.
Connecticut
- Repair and maintenance labor is taxable when connected to tangible goods.
- Installation labor for taxable property like equipment and fixtures is also taxable.
- Standalone labor services without materials are exempt.
Delaware
- Labor services are not taxable in Delaware.
- There is no state sales tax, but businesses may charge local tax.
Florida
- Repair labor on tangible property is taxable.
- Installation, maintenance, and service labor on tangible goods is taxable.
- Standalone labor is exempt unless specifically taxed locally.
Georgia
- Labor to repair or maintain tangible property is taxable.
- Installation and service labor on tangible goods is also taxable.
- Pure labor services without materials are generally not taxable.
Hawaii
- Hawaii charges sales tax on all labor services, regardless of materials.
- This includes repair, maintenance, installation, and standalone services.
Idaho
- Labor to produce or repair tangible property is taxable.
- Installation and fabrication labor on tangible goods is also taxable.
- Most other standalone labor services are not taxable.
Illinois
- Repair and maintenance labor on tangible goods is taxable.
- Installation labor for taxable property is also taxable.
- Most standalone labor is exempt, besides some services taxed locally.
Indiana
- Labor on motor vehicles, appliances, computers, electronics, and industrial equipment is taxable.
- Other repair and installation labor may also be taxable if connected to tangible goods.
- Purely labor-based services without materials are exempt.
Iowa
- Labor to maintain, repair, restore, or remodel property is taxable.
- Installation and assembly labor is also taxable if it produces tangible property.
- Standalone labor services are exempt unless taxed locally.
Kansas
- Labor services to repair, restore, service, alter, or maintain tangible property are taxable.
- Installation and construction labor on real property is also taxable.
- Most standalone labor is exempt, besides some services taxed locally.
Kentucky
- Repair and replacement labor on motor vehicles, aircraft, trailers, appliances, and commercial equipment is taxable.
- Installation, maintenance, and repair labor on real property is also taxable.
- Other standalone labor is exempt.
Louisiana
- Repair, renovating, and converting labor on tangible goods is taxable.
- Installation labor for tangible property is also taxable.
- Most standalone services are exempt.
Maine
- Repair, installation, and maintenance labor for personal property is taxable.
- Construction labor on real property is exempt.
- Standalone labor services without materials are exempt.
Maryland
- Labor to produce, assemble, process, repair, or renovate tangible property is taxable.
- Construction, improvement, or maintenance labor on real property is taxable.
- Standalone labor may be taxable locally even if no materials are involved.
Massachusetts
- Repair labor on tangible goods like vehicles, appliances, electronics, and commercial equipment is taxable.
- Installation, maintenance, and construction labor is also taxable.
- Purely labor-based services are exempt.
Michigan
- Labor to produce or repair tangible goods is taxable.
- Installation, assembly, and construction labor on real property is also taxable.
- Standalone services are exempt.
Minnesota
- Labor on residential or commercial construction projects is taxable.
- Repair, installation, and maintenance labor for tangible goods may also be taxable.
- Purely labor-based services are exempt.
Mississippi
- Labor to repair or renovate tangible personal property is taxable.
- Labor to construct, repair, or renovate real property is also taxable.
- Standalone labor services are exempt.
Missouri
- Labor services to produce or repair tangible property are taxable.
- Installation charges on tangible personal property may also be taxable.
- Most standalone labor is exempt, besides some services taxed locally.
Montana
- There is no statewide sales tax in Montana.
- Some resort cities and counties charge local sales and lodging taxes.
Nebraska
- Repair and installation labor on tangible goods is taxable.
- Construction labor on real property improvement projects is also taxable.
- Standalone labor services are exempt.
Nevada
- Nevada has no state sales tax, but local taxes may apply.
- Common taxable services include auto repair, electronics repair, and maintenance labor.
New Hampshire
- New Hampshire has no statewide sales tax.
- Meals and lodging taxes may apply locally.
New Jersey
- Labor to repair, install, maintain, service, or alter tangible or real property is taxable.
- Taxes also apply to laundry and dry cleaning services.
- Most other standalone services are exempt.
New Mexico
- Services to construct, improve, or repair real property are taxable.
- Tangible personal property like vehicles and electronics are also taxed on full invoice, including parts and labor.
- Professional standalone services are exempt.
New York
- Labor to produce tangible property, like tailoring or auto repairs, is taxable.
- Installation, maintenance, and repair labor for real property is also taxable.
- Professional standalone services are exempt.
North Carolina
- Repair, maintenance, and installation labor on tangible personal property is taxable if materials are used.
- Construction labor on real property is taxable.
- Professional standalone services are not taxable.
North Dakota
- Repair labor on farm machinery, vehicles, and other tangible property is taxable.
- Installation and construction labor is taxable if materials are used.
- Professional standalone services are exempt.
Ohio
- Any production or repair labor on motor vehicles, appliances, electronics etc. is taxable.
- Real property installation, maintenance, and repair is also taxable.
- Most standalone services are exempt.
Oklahoma
- Labor for vehicle repair and maintenance is always taxable.
- Other repair and installation labor is taxable if connected to parts and materials.
- Most standalone professional services are not taxable.
Oregon
- Labor to repair, maintain, or install tangible personal property is taxable.
- Construction labor on real property improvement projects is also taxable.
- Most standalone services are exempt.
Pennsylvania
- Labor on auto repairs and service is taxable.
- Maintenance charges for appliances and electronics may also be taxable.
- Most other repair and standalone services are exempt.
Rhode Island
- Labor to repair or alter tangible property is taxable.
- Installation labor on appliances, electronics, and equipment is also taxable.
- Most standalone services are exempt.
South Carolina
- Labor to repair or maintain tangible goods is taxable.
- Construction labor on real property projects is also taxable.
- Professional standalone services are exempt.
South Dakota
- South Dakota does not have a statewide sales tax.
- Tourism and municipal taxes may apply locally.
Tennessee
- Labor to produce or repair tangible property is taxable.
- Construction, remodeling, and repair labor on real property is also taxable.
- Most standalone services are exempt.
Texas
- Labor services are not taxable in Texas.
- Some city and county sales taxes still apply to goods.
Utah
- Labor to repair or renovate tangible personal property is taxable.
- Installation and construction labor on real property is also taxable.
- Professional standalone services are exempt.
Vermont
- Labor charges on vehicle repairs and service are taxable.
- Maintenance and installation labor may also be taxable for appliances, computers, etc.
- Most standalone services are not taxable.
Virginia
- Vehicle repair, appliance repair, and equipment maintenance labor are taxable.
- Installation charges for tangible personal property may also be taxable.
- Most standalone professional services are exempt.
Washington
- Labor and installation services for real property construction are taxable.
- Repair labor for vehicles, equipment, and electronics is also taxable.
- Most standalone professional services are exempt.
West Virginia
- Labor to repair, alter, or improve tangible personal property is taxable.
- Installation and construction labor on real property is also taxable.
- Most standalone services are exempt.
Wisconsin
- Repair and installation labor on motor vehicles, appliances, electronics, and commercial equipment is taxable.
- Maintenance and construction labor on real property may also be taxable.
- Standalone professional services are exempt.
Wyoming
- Wyoming has no state sales tax.
- Local taxes on lodging, food, and amenities apply in cities and towns.
Key Takeaways
- Sales tax laws for labor services vary widely by state and city. Carefully research the rules in all areas you serve.
- Taxability usually depends on the type of labor and whether materials are included.
- Repair, maintenance and installation labor is often taxable if connected to tangible goods.
- Construction labor for real property improvements is broadly taxable.
- Standalone “pure” services may be exempt, but some states and cities tax all labor.
- When in doubt, contact your state and local revenue authority for clarification.
Conclusion
Determining if sales tax applies to labor requires carefully researching state and local laws. In general, labor with tangible goods or real property is more likely to be taxable, while standalone services are often exempt. However, regulations can vary even within the same state. When expanding to new markets, take time to fully understand the taxability of your services to remain compliant. With this state-by-state breakdown and other resources, you can make informed decisions and properly set pricing, invoices, and tax collection processes.
Frequently Asked Questions
1. Should I charge sales tax on labor for a car repair?
Yes, auto repair labor is taxable in most states, even if parts are listed separately. The labor is considered part of the total repair service.
2. Is labor taxable when installing new equipment or appliances?
Usually yes. Most states consider installation labor on store-bought items to be part of the total retail sale, which is taxable.
3. What if I only charge for labor and provide no materials or parts?
Purely labor-based services with no materials are exempt from sales tax in many states. However, some states and cities do tax all labor services regardless of materials.
4. Can I deduct the sales tax I pay on business services from my sales tax liability?
Yes, in most states you can deduct sales tax paid to vendors from the sales tax you collect from customers. Keep detailed invoices as proof of tax paid.
5. How should I charge tax in cities or counties with different rates from the state?
You must collect sales tax at the applicable combined state and local rate based on the customer’s location. Use zip code level tools to verify rates.
