Sales tax on invoices in Ohio

In Ohio, a construction contract that incorporates property into real property isn’t a sale of that property: the contractor is its consumer and pays the tax when buying it. Landscaping and lawn care are never construction contracts, and when you do collect tax, Ohio law bars any statement that you’re selling at a price including it.

Vendor’s license and who collects Ohio sales tax

Ohio sales tax applies to the retail sale, lease and rental of tangible personal property and to some selected services. It’s a trust tax: retailers and service providers collect it for the state, and a buyer who isn’t charged pays the use tax directly.

Anyone making taxable sales or providing taxable services must first get a vendor’s license, through OH|TAX eServices or from the county auditor. Each fixed location needs its own license; a transient vendor’s license, valid statewide, covers temporary locations such as shows and flea markets. A new vendor’s license application costs $50.

Construction contracts: you’re the consumer

Under section 5739.01 of the Ohio Revised Code, a construction contract that incorporates tangible personal property into a structure or improvement on real property isn’t a sale of that property, and the construction contractor is its consumer. Rule 5703-9-14 of the Ohio Administrative Code covers written and oral agreements, new construction and additions or alterations, and prime contractors and subcontractors alike.

You pay sales or use tax on the purchase price of the materials and taxable services you incorporate into real property, even when a subcontractor does the labor. The machinery, equipment, tools and supplies you use on any construction contract are taxable too.

These are sales, never construction contracts:

• selling and installing carpeting, with its padding, tack strips and adhesive: taxable on materials and labor;
• transferring and installing a business fixture, property permanently affixed that primarily benefits the business conducted on the premises;
• affixing property when title doesn’t pass to the owner or lessee;
• selling and installing agricultural land tile, or portable grain bins;
• landscaping and lawn care, with the trees, shrubs, sod, seed, fertilizer and mulch transferred as part of it.

Other floor coverings, such as wood, vinyl and tile, are taxable, and under a construction contract the contractor pays the tax on the materials.

You may buy exempt the materials and services you’ll incorporate into, among others, a building used exclusively for charitable purposes by a nonprofit operated exclusively for them; real property owned, or to be accepted, by the United States, Ohio or an Ohio political subdivision, or built under contract with them; a building used exclusively for a 501(c)(3) organization’s exempt purposes; and a house of public worship or religious education. You and your customer exchange exemption certificates, and the customer is liable for the tax if it wasn’t entitled to the exemption.

Services: a listed set

Ohio taxes a listed set of services. They include repairing and installing tangible personal property, unless the property itself would be exempt; landscaping and lawn care; private investigation and security; building maintenance and janitorial service; exterminating; and snow removal. A business selling one of these services is the consumer of the property it uses to perform it.

Tax line on your invoice: in addition to the price

Your customer pays the tax to you, and you collect the full and exact amount as a trustee for the state of Ohio: with the price when paid in cash at the time of sale, otherwise charged to the customer’s account and collected in addition to the price. Section 5739.29 bars any advertising or statement implying that you’re absorbing the tax, paying it for the customer by adjusting prices, selling at a price including the tax, or rebating it.

On a construction contract, you collect no sales tax from your customer. The Department of Taxation’s landscaping release shows the line on golf courses: cart paths, bridges and catch basins there are real property, so a contractor installing them pays tax on its materials and collects none, while a golf course’s drainage and irrigation systems stay personal property once installed, so the installer collects sales tax.

If a janitorial or landscaping job also includes nontaxable services, separate the nontaxable charges on the invoice, or the whole charge is taxable.

County and transit rates

Ohio’s sales tax boundaries almost always follow county borders: each county has a combined state and county rate, and seven regional transit authorities levy their own tax. Counties and transit authorities can add tax in multiples of 0.05%, up to 3%, and may change rates only at the start of a calendar quarter. For building maintenance and janitorial service, the rate is that of the county where the building is, so a customer with buildings in several counties is billed separately for each county at its rate.

Landscaping, lawn care and snow removal

Planting, seeding, laying sod, trimming, pruning, mulching, aerating, applying chemicals, watering and fertilizing are taxable landscaping and lawn care. Snow removal with machines is taxable too; shoveling by hand isn’t.

• The $5,000 threshold: each service has its own. With less than $5,000 of it in a calendar year, you charge no tax; once you reach $5,000, register and collect tax on all your later sales of that service.
• What counts: installing a stone or wooden wall around a flowerbed and delivering and spreading topsoil are taxable landscaping. Installing an underground sprinkling system, driveways, sidewalks, patios, gazebos or decks, or retaining walls for erosion, isn’t taxable landscaping, though other rules may still tax it. Clearing land before building, or to make room for a driveway, addition, deck or patio, isn’t landscaping.
• Your purchases: items you permanently give the customer, such as plants, soil, seed and fertilizer, can be bought exempt; tools can’t.
• Your customers: developers, landlords, building managers, condo associations and construction contractors are end users of these services.

Janitorial, power washing and the building trades

Building maintenance and janitorial service means cleaning the interior or exterior of a building and the property in it, such as washing, vacuuming, dusting, polishing and waxing in offices, houses and other buildings, maid service, cleaning carpeting and upholstery, and cleaning windows, walls, ceilings and indoor pools. It’s taxable once your sales of it reach $5,000 in a calendar year, and from then on the threshold doesn’t reset. You need a vendor’s license for it unless you’re the customer’s employee.

• Power washing building exteriors, including siding, roofs, chimneys and gutters, is janitorial service. Washing a driveway isn’t: state the driveway charge separately and no tax is due on it; otherwise the whole amount is taxable. Sandblasting or chemical cleaning of building exteriors isn’t janitorial service.
• HVAC: a clean-and-check tune-up of a residential or commercial heating and air conditioning system isn’t janitorial service, because the cleaning is incidental. A service call solely to clean a system, such as ductwork cleaning, is taxable.
• Not janitorial service: plumbing, electrical and HVAC repair or maintenance, unclogging drains and pipes, repairing roofs and other real property, painting building surfaces, cleaning outdoor pools, and industrial cleaning such as grease traps and sludge pits. Ask the Department of Taxation how those are taxed.