Do You Charge Sales Tax on Labor in NJ?

Sales tax in New Jersey applies to the sale of tangible personal property. Its application to services, including labor, depends on specific statutory provisions. New Jersey’s sales and use tax rate is 6.625%. Services are generally non-taxable unless explicitly listed as taxable in the tax law. This article clarifies these distinctions for individuals and businesses.

New Jersey Sales Tax on Services

The fundamental principle governing sales tax on services in New Jersey is that most services are not subject to sales tax unless specifically listed as taxable in the New Jersey Sales and Use Tax Act. The New Jersey Division of Taxation outlines specific services that are taxable.

Professional services such as legal advice, accounting services (excluding electronic filing charges), medical treatments, and general consulting are not subject to sales tax. General cleaning services and personal care services like haircuts or manicures are also non-taxable, provided no taxable products are sold as part of the service.

A distinction exists between repair and maintenance services. Repairs on tangible personal property can be taxable, while routine maintenance is non-taxable unless part of a broader taxable service contract or performed on a taxable item.

Specific Taxable Labor and Services

New Jersey tax law enumerates certain types of labor and services that are subject to sales tax. This directly addresses when labor charges become taxable.

Labor charges for the repair, installation, and maintenance of tangible personal property are taxable if the property itself is subject to sales tax. This includes services like auto repair, appliance repair, and computer repair, where both the labor and any parts used are taxed. The installation of new taxable items, such as appliances or furniture assembly, also falls under this category, as the labor is considered an integral part of the taxable transaction.

Information services are subject to sales tax. This category encompasses the furnishing of compiled or analyzed information, such as credit reporting services, data processing services, and certain online information subscriptions. This excludes personal or individual information not incorporated into reports furnished to other people, and professional services where the information is incidental to the service, like an accountant preparing tax returns.

Telecommunications services, including charges for mobile phone services, landline services, and certain internet access, are taxable. This applies to intrastate, interstate, and international telecommunications services. The tax is imposed on the transmission charge, not the value of the message, and includes related equipment, maintenance, and repair.

Utility services, specifically gas and electricity for non-residential use, are subject to sales tax. Certain advertising services are also taxable. While the creation and design of advertising services are not taxed, charges for printed advertising material and related processing services for distribution within New Jersey are subject to tax.

Landscaping services, particularly non-residential services like lawn care, tree removal, seeding, and sodding, are taxable. This also applies to repair and maintenance landscaping services like lawn mowing and fertilizing.

Storage services for tangible personal property, such as self-storage or mini-warehouse units, are subject to sales tax. This applies if the space is secure and the provider is in the business of offering such space. This generally excludes storage of a business’s inventory.

Amusement and recreation services, including admission charges to places of amusement, entertainment events, or sporting activities, are taxable if the charge exceeds $0.75. This covers venues like amusement parks, movie theaters, and spectator sports, as well as membership fees for health or sporting clubs.

Combined Labor and Materials Transactions

When a transaction involves both labor and materials, New Jersey sales tax rules dictate how the tax is applied based on the nature of the service. If the primary service itself is taxable, then both the labor component and any tangible materials used and billed to the customer become subject to sales tax. For instance, an auto mechanic performing a repair charges sales tax on both the parts and the labor for the service. If a contractor installs a taxable fixture, both the cost of the fixture and the installation labor are taxed.

If the primary service is non-taxable, and any tangible materials used are merely incidental to the service and not separately charged, sales tax does not apply to those materials or the overall charge. This distinction is important for service providers who use supplies but do not primarily sell goods.

Contractors performing real property improvements follow distinct rules. They pay sales tax on the materials they purchase for the job as they are considered the end-user of these items. They do not charge sales tax to their customers on the labor or materials for the improvement itself, particularly if it qualifies as an exempt capital improvement.

An exempt capital improvement is an installation of tangible property that increases the value or useful life of the real property, such as a new roof or heating system. For such exempt projects, the property owner provides the contractor with a Certificate of Exempt Capital Improvement (Form ST-8) to document the tax exemption. If a contractor’s work is a repair or maintenance service that merely preserves the existing value of the property, then the labor portion of the bill is taxable to the customer. If the invoice does not separate labor from materials for a taxable service, the entire amount is subject to sales tax.