When Is Sales Tax Required on Contractor Work?

Sales tax rules for contractors are complex and vary by state. Here is a practical guide to the most common scenarios.

Labor-Only Services

In most states, labor-only services are not taxable. If you charge only for your time and expertise — no materials included — you typically do not need to collect sales tax.

Example: An electrician charges $200 to diagnose and repair an existing circuit. Labor only → no sales tax in most states.

Materials You Supply

When you purchase materials and sell them to a customer as part of a job, those materials are generally taxable. The tax applies to the selling price of the materials.

Example: A plumber charges $150 for labor + $80 for a new water heater. The $80 materials portion is taxable; the labor may not be.

Lump-Sum Contracts

Many contractors charge a single price without separating labor and materials. Rules for lump-sum contracts vary by state:

• Some states tax the entire contract
• Some states tax only the materials portion (estimated)
• Some states have different rules for new construction vs repair work

New Construction vs Repair Work

Many states treat new construction differently from repair, maintenance, and installation work. New construction is often taxed on the full contract value; repair work may be exempt.

Check Your State

Use the Lien Notice & Tax Checker tool at jobspaid.ai/resources/tools to look up your state's specific rules.

Important: This is a general guide, not legal or tax advice. Consult a CPA or your state's department of revenue for definitive guidance on your specific situation.