Sales tax on invoices in New Jersey

In New Jersey, you pay Sales Tax on your materials as a contractor, and the work decides whether your bill carries tax: an exempt capital improvement carries none, while a repair, maintenance, installation service or taxable capital improvement is taxed on the labor.

New Jersey Sales Tax and registration

Every seller of taxable property or services doing business in New Jersey must register with the State at least 15 business days before starting, by filing Form NJ-REG through the NJ Business Gateway Services website. Contractors working in New Jersey must be registered and collect Sales Tax on labor when it’s required.

The Division of Taxation’s bulletin S&U-3 names builders, plumbers, electricians, carpenters, painters, paper hangers, roofers, masons and landscapers as contractors. As the final consumer of your materials and supplies, you pay Sales Tax on them when you buy them, with no resale treatment.

Capital improvement, repair or maintenance

• Capital improvement: an installation of tangible personal property, permanently attached to the land or buildings, that increases the property’s capital value or useful life. It’s exempt, except the taxable ones below.
• Repair: work that restores property to working condition without adding value, such as fixing faulty plumbing or electrical outlets. The labor is taxable.
• Maintenance: work that preserves the property’s existing condition, such as repainting or power washing a house’s exterior. The labor is taxable.
• Taxable capital improvements: planting shrubbery, trees, hedges and plants; seeding, sodding or plugging a new lawn; installing hard-wired security, burglar or fire systems; and installing carpeting and other flooring are taxed even though they’re capital improvements.

The extent of the work can decide it: replacing a few loose bath tiles or part of a leaky roof is a repair, while replacing all the tiles or the entire roof with upgraded or improved materials is an exempt capital improvement.

Tax on the invoice: Form ST-8, or tax on the labor

New Jersey Sales Tax must be separately stated on any sales slip, invoice, receipt or other statement of the price.

• Exempt capital improvement: charge no Sales Tax, whether you itemize materials and labor or bill one amount, and keep the property owner’s completed Certificate of Exempt Capital Improvement (Form ST-8). The owner doesn’t need to be registered to issue it, but may not issue it for a taxable capital improvement such as planting or flooring.
• No tax on parts or labor: on an exempt owner’s property with its completed certificate, and on maintenance, service or repair of a qualifying residential heating system.
• Taxable job: on a taxable capital improvement, repair, maintenance or installation service, the only amount you can deduct from the taxable receipt is a separately stated pass-through of the actual cost of materials, which may include the Sales Tax you paid on them. The rest of the bill is labor and taxable. If you don’t itemize materials and labor, the entire receipt is taxable.

Illustrative example: a repair billed as $300 of materials at actual cost, stated separately, plus $500 of labor is taxed on the $500; the same job billed as one $800 amount is taxed on $800.

Subcontractors and exempt owners

A subcontractor doing taxable work for a prime contractor doesn’t bill it Sales Tax on labor; the prime contractor collects the tax from the property owner. The exceptions are a taxable capital improvement, where any contractor or subcontractor collects the tax from whoever it works for, and services merely related to the construction work in general, such as temporary lighting, temporary fencing, scaffolding and site cleanup.

On the property of an exempt owner, such as an exempt organization, a New Jersey or federal governmental agency, or a qualified housing sponsor, labor and materials are exempt whatever the work. You need the owner’s completed exemption certificate (a purchase order or official contract from a government) and give your suppliers Form ST-13, Contractor’s Exempt Purchase Certificate.

Heating, air conditioning and refrigeration

• Installation: a central heating, air conditioning or refrigeration system that’s permanently attached is an exempt capital improvement when the owner gives you Form ST-8. Window air conditioners and refrigerated display cases stay personal property, and both the unit and its installation are taxable.
• Residential heating: maintaining or repairing a residential heating system that serves no more than three families, living independently and doing their own cooking, is exempt without a certificate, and so is cleaning and servicing residential stoves, furnaces, fireplaces and chimneys. Never charge a customer tax on central heating parts you install; on a taxable central heating job, list them as a separately stated pass-through of their actual cost, because an unitemized bill is taxable in full.
• Taxable labor: maintaining, servicing or repairing central heating in any other kind of structure, and repairing, maintaining or servicing air conditioning and refrigeration units.

Landscaping, lawn care and cleaning

• Exempt capital improvements (Form ST-8): new fences, new underground sprinkler systems, hardscaping such as decks, paver patios, walkways, driveways and retaining walls, and clearing land for new construction.
• Taxable landscaping: planting trees, shrubs, hedges and plants; laying sod, seeding or grass plugging a new lawn; and the related clearing and filling, tree and stump removal included. A lump sum for plant material and its installation is taxed in full.
• Lawn and tree care: pruning, spraying and feeding trees, weed and insect control, reseeding, fertilizing and mowing lawns, and aerating and mulching are taxable on the labor, or on the whole invoice if materials and labor aren’t listed separately. A fixed-price contract for the regular care of lawns, gardens or plants is taxable.
• Janitorial and cleaning: these services work on real property without altering it, so they aren’t contractors. They charge Sales Tax on the total bill and may buy certain job supplies with a resale certificate.

Appliance repair isn’t contracting

Repairing refrigerators, washing machines, window air conditioners or TV sets is work on tangible personal property, not real property. Collect Sales Tax on both labor and parts; as a repairer who isn’t a contractor, you may buy the parts with a resale certificate.

Local tax: half-rate areas and a Cape May County tax

The Division’s Sales Tax Guide describes reduced rates. Qualified Urban Enterprise Zone businesses and certain Salem County businesses may charge half the regular rate on some in-person sales of tangible personal property; Salem County’s half rate doesn’t cover services such as maintenance or repairs. The Guide also names businesses in Wildwood, Wildwood Crest and North Wildwood as collecting a 2% Cape May County Tourism Sales Tax on predominantly tourism-related retail sales.