Free guide for contractors
Do contractors charge sales tax in Indiana?
General information, not tax advice. Tax rules change and depend on the details of each job. Confirm how they apply to your business with your accountant or the state's revenue department before relying on them.
IN Indiana
Depends on the jobIt depends on how the contract is priced. One-price jobs carry no sales tax; with materials and labor stated separately, materials are taxed.
Indiana's Department of Revenue treats a contract that states the cost of materials and the cost of labor separately as a time-and-material contract. On those, the contractor collects sales tax on the materials and must hold a Registered Retail Merchant Certificate.
A contractor working for one price pays tax on materials when buying them and does not charge the customer sales tax.
Installation charges stated separately on an invoice are not taxed. On a time-and-material contract, though, work done on the material before it is handed over, such as shop fabrication or delivery, is taxable. A general labor charge that includes such fabrication can make the whole labor charge taxable.
Refrigerators, stoves, dishwashers, clothes washers and dryers and window air conditioners usually stay personal property, so selling one is taxable.
It turns on: how the contract is priced (one price or materials and labor stated separately); whether labor includes shop fabrication or delivery; whether the repair is to real property or to a free-standing item.
Watch out for
- For a repair to a free-standing item, such as a refrigerator or washer, the contractor rule does not apply. Labor is exempt only if stated separately; otherwise, if parts are more than 10% of the charge, the whole charge is taxable (SIB #60, Repair Charges).
- A time-and-material contractor may accept an exemption certificate from nonprofits and from federal or Indiana government customers and charge no tax (SIB #60).
- A prime contractor on a time-and-material contract does not charge its customer tax on materials furnished by a lump-sum subcontractor (SIB #60, Contracts Between Contractors).
“a contract in which the cost of construction material and the cost of labor or other charges are stated separately”Indiana SIB #60, definition of a Time and Material Contract