Do Pennsylvania Contractors Charge Sales Tax on Labor?

Construction work: you pay the tax, and it cannot go on the invoice

The rule is one sentence long. "A contractor shall pay tax upon the purchase price of all property, including materials, equipment, components and supplies, which he furnishes and installs in the performance of his construction activities." You pay it to the supplier at the counter. If the supplier is out of state and not registered here, you owe use tax directly to the Department under a use tax number, which is the one prefixed with 89.

Now the part that gets contractors in trouble with customers. You may build that tax into your price, and you may not show it as its own line. The Department's own example runs the numbers on a built-in dishwasher: the contractor pays $150 plus $9 tax to the supplier, installs it in a house he is building, charges the customer nothing in tax, and "may include the tax he must pay in his bid proposal but not as a separately stated item." A line reading "PA sales tax 6%" on a construction invoice is wrong even when your cost really did include the tax. Call it what it is and fold it into the price.

Your tools are yours to pay for as well. Backhoes, saws, drills, trucks and anything else you use but do not hand over are taxable to you, and a contract for a public utility does not change that.

Source: 61 Pa. Code § 31.12, Imposition of tax.

When you are a retailer instead

Sell something that stays movable and you switch roles. Get a sales tax license, buy that item on a resale certificate, and charge tax on the full installed price. Labor and delivery ride along: since 1971, "charges for labor or transportation in conjunction with the sale at retail and installation of tangible personal property are subject to tax even though the labor or delivery charges are separately stated on the billing."

The worked example is a portable dishwasher bought for $150 and billed to the customer at $200 including delivery, unpacking and installation. Tax is $12, on the whole $200, not on the $150 of hardware.

A contractor who does both kinds of work needs the sales tax license and has to sort purchases at the counter: resale certificate for what will be resold, tax paid up front on everything else.

Source: 61 Pa. Code § 31.12.

Equipment and vehicle repair is fully taxable

Work on tangible personal property is a taxable service in Pennsylvania whether or not you supply parts. Repairing, altering, mending or cleaning somebody's property is taxable, and so is installing a part in it. Replace a tire and both the tire and the installation charge are taxable. Fit the customer's own spare and the labor is still taxable.

Motor vehicles get named directly: inspecting, altering, cleaning, lubricating, polishing, repairing or waxing them is taxable. Clothing and footwear repair is the notable exemption. Service and maintenance agreements on taxable property are taxable on the entire charge, with no deduction for separately stated items, whatever the agreement is titled.

Source: 61 Pa. Code § 31.5, Persons rendering taxable services.

Cleaning: taxable in Pennsylvania, and houses are not exempt

Since October 1, 1991 building maintenance and building cleaning services performed in Pennsylvania are taxable. Building cleaning covers janitorial, maid and housekeeping work, window cleaning, floor waxing, carpet cleaning, chimney and fireplace cleaning, duct cleaning, light fixture cleaning, indoor pool cleaning, venetian blind cleaning, and the pressure washing of a building. Residential work counts. A house cleaner in Pennsylvania charges sales tax where a house cleaner in Florida does not.

Plenty of adjacent work stays untaxed, and the list is worth pinning above the desk: building repairs, interior painting and wallpapering, exterior painting, sandblasting and pointing bricks, snow plowing, driveway sealing, plumbing repairs such as opening a drain, cleaning outdoor in-ground pools, carpet dyeing, boiler and furnace maintenance since January 1, 1992, and the maintenance or repair of residential air conditioning equipment since July 1, 2000.

Two of those pairings catch HVAC crews out. Cleaning ducts is taxable cleaning, cleaning the furnace they run off is not. Maintaining central air in an office building is taxable, maintaining the same equipment in a house is not.

The office building discount. If you clean the interior of an office building, separately stated employee costs come out of the taxable amount. Wages, benefits, payroll taxes and expense reimbursements can be itemized on the invoice and only the service fee left over is taxed. This only applies to office buildings, meaning buildings where more than 50% of the square footage is used for business, and the Department's example is pointed: an attorney working from a home office that is under half the house pays tax on the full cleaning charge, itemized employee costs and all. Sole proprietors compute the taxable share from last year's Schedule C net profit.

Fire restoration and new construction. On a restoration job, state the cleaning charges and the repair charges separately or the whole invoice is taxable. On a new house, the rough-stage debris removal that keeps the site safe and the trades moving is construction labor and not taxable, while the final clean before the certificate of occupancy is a taxable building cleaning service. The Department drew that line in a 2008 letter ruling, and the boundary is exactly where dumping scrap lumber ends and dusting cabinets begins.

Source: 61 Pa. Code § 60.1, Building maintenance or building cleaning services and Letter Ruling SUT-08-010, Cleaning Services on Houses Under Construction.

Lawn care: the mower is taxable, the new lawn is not

Lawn care services are taxable, and the regulation lists them: fertilizing, mowing, trimming, cutting or edging, dethatching, aerating, watering, liming, raking grass, applying herbicides, insecticides, fungicides or other treatments, and overseeding or sodding an existing lawn. Trimming shrubbery is taxable when it is done alongside other lawn care.

The untaxed column is just as specific: seeding, sodding or plugging to establish a new lawn (and anything done in conjunction with building construction is presumed to be a new lawn), trimming, pruning or fertilizing trees, planting or removing shrubbery and trees, mulching, tilling, weeding or fertilizing shrubbery, flower and vegetable beds, designing lawns and landscapes, and separately stated leaf raking.

Then the sentence that costs people money: "The failure to separately state charges for lawn care services from other nontaxable charges on the same invoice requires the charging of tax on the total invoice amount." Bill a spring visit as one line covering the mow, the bed mulching and the tree pruning, and all of it is taxable. Split it into three lines and only the mow is.

On purchases, you take resale on what you actually apply to the lawn: chemicals, seed, sod, straw, fertilizer, lime. You pay tax on what you use, which means mowers, edgers, aerators, spray applicators, rakes, testing kits and the gas and oil that run the equipment.

Source: 61 Pa. Code § 55.6, Lawn care services.

Exempt customers: the certificate is yours to hand over, not theirs

Start from the default. On materials that become part of real estate, you cannot borrow your customer's exemption. The regulation says so in the flat: a contractor erecting a building, repairing a roof or replacing a door for a government agency, school district, manufacturer or charity "shall pay tax upon the property which he consumes and is not entitled to use the exemption of the ultimate customer."

Act 45 of 1998 carved out the exception that matters on institutional work. Items that qualify as building machinery and equipment, broadly the generation, storage, conditioning and distribution equipment of a building along with its HVAC, electrical, plumbing, communications and alarm systems, can be bought exempt when the project is for a purely public charity, the federal government, the Commonwealth or its instrumentalities, a political subdivision such as a county, city, township or school district, a state university, or a qualified business in a Keystone Opportunity Zone. You claim it by giving your supplier a completed exemption certificate, Form REV-1220, citing the exemption. Everything on the job that is not building machinery and equipment stays taxable to you.

For items that never become part of the real estate and are resold to an exempt customer, the ordinary resale route applies instead, and it needs a sales tax license. A use tax number cannot be used to buy for resale.

Source: 61 Pa. Code § 31.13, Claims for exemptions and PA Department of Revenue, Building Machinery and Equipment.

Which rate, and which county's rate

The state rate is 6%. Allegheny County adds 1% for a combined 7%, and Philadelphia adds 2% for a combined 8%. Nowhere else in Pennsylvania has a local sales tax, which makes this the simplest rate table in the ten largest states.

Where those two extra points apply is less obvious. For a taxable service such as building cleaning or lawn care, the local tax follows the county the sale originates in, not the county the work happens in. A cleaning company based in Philadelphia collects 8% on a job in Bucks County. A Bucks County company cleaning a Philadelphia office collects 6%, and the customer may owe local use tax directly. For construction work, the local tax rides on your purchases: a contractor performing a construction contract in Allegheny County or Philadelphia pays the local tax on the materials and services used or installed under that contract.

Where a sale originates is a judgment call for a business that works across county lines, and it is worth ten minutes with your accountant rather than a guess repeated on every invoice for a year.

Source: 61 Pa. Code § 60.16, Local Sales, Use and Hotel Occupancy Tax and PA Department of Revenue, Sales, Use and Hotel Occupancy Tax.