In the majority of states, services related to construction are not subject to sales tax. In a large minority, however, one or more construction services are specifically included in the sales tax base.
The two major forms of labor (services) associated with construction contracting are installation (affixation of tangible personal property to realty) and repairs to real property. In some states, installation labor that results in new construction is treated differently from installation associated with a remodel or reconstruction. In addition, the dividing lines among repairs, reconstruction, and new construction may vary from state to state.
Other common construction services include project management, engineering and architecture, and trash removal. These services will be addressed in a future installment.
In this installment we’ll focus on repair labor, the most commonly taxed construction service. We’ll also look at building maintenance, since the distinctions between repairs and maintenance vary from state to state, and the concepts sometimes overlap.
Repairs are any services needed to restore property to its original condition. Since an extensive repair project can approach the level of a remodel or even new construction, each state’s criteria should be carefully reviewed where the tax treatments of these categories differ.
In some states, repairs to real estate are treated differently from repairs to tangible personal property. Therefore, it’s important to note that unless otherwise stated, our discussion will be limited to real estate repairs. The same limitation will apply to our discussion of maintenance, which is the act of keeping property in good condition, and which may or may not be deemed to include specified minor repairs.
The states that tax all real estate repairs are: Arizona, Hawaii, New Jersey, New Mexico, New York, Washington, and West Virginia. Of those states, Hawaii, New Jersey, New Mexico, and New York also tax maintenance services. Washington taxes some maintenance but exempts ordinary janitorial services such as vacuuming, dusting, and sweeping. West Virginia exempts maintenance services that are integral to the construction of a capital improvement but taxes all others.
States that tax some types of repairs and maintenance but exempt others include the following:
Arkansas: Neither installation nor repairs of “nonmechanical” materials and fixtures attached to realty (including plumbing and lighting fixtures) are taxable. Repairs of electrical or mechanical equipment such as air conditioning units, elevators, and ceiling fans are taxable, as are repairs and replacements of carpet. Cleaning and janitorial work is taxable, although cleaning performed by a contractor (rather than a third party) in the course of carrying out a contract is exempt. Other forms of building maintenance are nontaxable.
Connecticut: Reconstruction, remodeling, and repair services to owner-occupied residences are generally nontaxable, but services to other types of realty are taxable. The following services are taxed regardless of the nature of the property: locksmith, landscaping, maintenance (including janitorial services), cleaning, and extermination.
District of Columbia: Maintenance, landscaping, and minor repairs are taxable. Major repairs, including plumbing, wiring, and brickwork, are exempt.
Iowa: Certain services are enumerated as taxable, including carpentry, electrical work, excavating and grading, landscaping, tree services, painting, wallpapering, decorating, pipe fitting, plumbing, welding, and well drilling. Other repairs to realty are exempt. Maintenance is generally taxable.
Kansas: Tax does not apply to the reconstruction, renovation, or repair of a bridge, highway, or residence. Other repairs to realty are generally taxable. Maintenance is also taxable, with the exception of cleaning and trash removal, which are exempt.
Mississippi: For contracts of $10,000 or less, and for all residential construction, certain types of services are taxable and others are not. The taxable services are 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 3% “contractor’s tax” is imposed on the total amount of the contract, including any repairs or maintenance services involved.
Texas: Labor to repair, remodel, or restore residential real estate is exempt. Labor to repair, remodel, or restore nonresidential real estate is taxable. Maintenance charges applicable to realty are generally exempt.
Wisconsin: Certain specific units are treated as tangible personal property even after they are affixed to realty. Repairs of these items are taxable. (The items are listed in Wisconsin Tax Publication 207, which is available at the Wisconsin Department of Revenue website.) Repairs to all other real property components are exempt. Maintenance to realty is generally taxable regardless of the character of the affixed property.
In the next segment, we’ll focus on the different types of installation services.