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It varies state-to-state. I used to work for a chain of auto parts stores in Illinois and Iowa. The Iowa stores charged sales tax on turning brake drums and rotors, the Iowa stores didn't.
Although it varies by location I have found sales tax is charged on EVERYTHING. I challenged the fact that I was charged the tax on the expensive building permits for a project and found that the permits have been judged a 'service' and are fully taxable.
Why do contractors charge sales tax for capital improvement work like remodeling a kitchen/bath?
Is this shady, or do they truly not know it's not legal to do so? I'm in NJ and I read that capital improvement labor is exempt from taxes...
I think even charging sales tax on labor is abit much. Shouldn't they have accounted for sales tax when they estimated for material costs?
Just so you know, in some states you can claim an overpayment of sales tax as an exemption on your state income tax filing. This also varies from state to state so you would need to check if its allowed in NJ.
I'm a contractor in NJ and a bathroom or kitchen remodel over an existing bath or kitchen is not a capital improvement and is considered maintenance. If you were putting a new bathroom or kitchen where none existed before then it is a capital improvement. It sucks but that's the way it is....IN OTHER WORDS THATS JERSEY...the fee, fine fo me state! Hope this helps clarify.
Tax on labor is not a sales tax, it's a service tax. They vary widely from state to state (for instance Illinois has no service tax) and can even vary from industry to industry. Sales taxes do need to be paid on any materials used, but most contractors pay the sales tax at time of purchase and simply list the costs you agreed to pay for the materials.
Check the laws in your state to see what service and sales taxes should apply, and then check the invoice to make sure everything is broken out correctly on the invoice. Frequently contractors don't worry too much about an accurate breakout of the numbers, they just want to do the job at the agreed upon price. A good contractor will include any taxes in the estimate you agree to, so you don't get a surprise when you get the bill. Any breakout of taxes is usually done for their tax reporting purposes.
Not sure how applicable, but I have owned businesses in MA and SC. When the labor was more then 50% the total charge, then sales tax sales tax was on the material portion only. Typical example might be to prep and paint a room. Labor would exceed material costs so charge sales tax on the materials alone.
Many will sales tax the entire job then make the "adjustments to their advantage" when paying sales tax to the state.
Examples:
1. The bill to the consumer. Prep and paint a room. $1,000.00 plus 6% sale tax for a total of $1,060.00.
2. Reported to the state on the same job $800 labor, $200 material so 6% collected ($12) on the $200 and reported/paid to the state. An extra $48 made.
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