Sales tax on invoices in West Virginia

In West Virginia, the end result of the work decides the tax. A capital improvement is contracting, which isn’t taxed, while repair, maintenance or other work on real property that isn’t a capital improvement is a taxable service, on labor and materials alike.

Registration and who owes the tax

West Virginia’s consumers sales and service tax, with the use tax that complements it, requires vendors to collect the tax from purchasers and remit it to the Tax Division. It applies to the sale, lease or rental of tangible personal property and certain services, and every sale is presumed taxable unless an exemption is clearly established. All vendors must register with the West Virginia Tax Division, and a vendor that fails to collect the tax is personally liable for it.

Services: nearly all are taxed

West Virginia’s tax reaches the furnishing of all services, except professional and personal services and those of businesses controlled by the Public Service Commission when the service or the way it’s delivered is regulated by the Commission.

Capital improvements: contracting isn’t taxed

Under the Tax Division’s TSD 310, people in the construction trades collect sales tax on their labor and on the appliances, equipment or materials they sell with the work, unless the work is a capital improvement. A capital improvement is an addition or alteration to real property that:

• substantially adds to its value or appreciably prolongs its useful life;
• becomes part of it, or is permanently affixed so that removal would cause material damage; and
• is intended to be permanent or to remain there indefinitely.

If the end result is a capital improvement, the service is contracting and isn’t taxable, and you generally pay sales or use tax on the machinery, equipment, tools and materials you buy for it. If the end result is a non-capital improvement, repair, alteration or maintenance, you collect sales tax from your customer on both the labor and the materials. On that taxable work, you may buy parts, materials and appliances tax-free only when you resell them and physically transfer them to your customer; your other business purchases are taxable.

West Virginia’s statute defines contracting as work, or materials and work, by a sole, general or prime contractor, subcontractor or construction manager, whatever the contract form: lump sum, cost-plus, time and materials or any other. Within it, a repair, alteration or improvement counts only if it’s a capital improvement, and “relatively permanent” means lasting at least a year without regularly scheduled recurring service. The tax doesn’t apply to contracting services, but a contractor’s purchases of tangible personal property or taxable services to provide them are taxable.

A retail dealer that installs wall-to-wall carpeting, certain household appliances, drapery rods, window shades, venetian blinds, canvas awnings or mobile homes from its own inventory collects tax on the product and on the installation labor and materials when the installation is incidental to the sale. Under TSD 325, that rule doesn’t apply to contractors who aren’t retail dealers.

Trade by trade: TSD 310’s examples

TSD 310 is written for the construction trades, landscapers included, and sorts common jobs into taxable repair, maintenance or installation work and exempt capital improvements:

• HVAC. Taxable: central air maintenance contracts; repairing or replacing parts such as blowers, coils and compressors; installing or replacing window air conditioners. Exempt: installing a central air conditioning system, original or required additional ductwork, and replacing a complete central unit.
• Plumbing. Taxable: fixing leaking pipes, removing roots from sewer pipes and unclogging drains. Exempt: additions to piping systems, installing or replacing piping systems and garbage disposals, and installing or replacing sinks, toilets and shower stalls with their fixtures.
• Electrical. Taxable: installing dimmer switches, repairing lighting fixtures, and repairing or replacing circuit breakers, outlets, switches, fuses and wiring. Exempt: complete wiring or rewiring of a structure, upgrading a service, and original installation of items such as add-on panels and ceiling fixtures.
• Roofing. Taxable: coating existing roofs, cleaning roofs, gutters and downspouts, and repairing or replacing roof items such as shingles or part of a gutter system. Exempt: original installation of a roof system, installing or replacing a complete gutter and downspout system, and completely replacing a roof, one complete side of it, or the complete roof on a wing, turret or dormer.
• Landscaping and lawn care. Taxable: lawn care, mowing, fertilizing lawns and gardens, garden care, insect control, pruning or removing trees or shrubs, and repairing sprinkler systems and fences. Exempt: original installation or complete replacement of fences, underground lawn sprinkler systems and lawns, and planting shrubs and trees.

Tax line: separately stated, or “Tax included”

The Tax Division’s vendor publication, TSD-345, says that as a rule you state the sales tax separately from the price, typically on the invoice, receipt or billing document. When the tax is in the price, a ticket or receipt must show the tax collected or say “West Virginia sales tax included in price” or something substantially similar.

You may also absorb the tax. Under §11-15A-8, a retailer may say it will assume or absorb the tax as long as it separately states the selling price and the full amount of tax, and TSD 100 says the full tax must be remitted and “Tax included” must be shown on the invoice.

On a capital improvement you aren’t required to collect sales tax from your customer, because the work isn’t taxable. On repair, maintenance or installation work that isn’t a capital improvement, you collect it on labor and materials, and if you fail to collect tax that was due, you’re personally liable for it.

Municipal tax: where the work is done

Municipalities may impose a municipal sales and use tax, administered by the Tax Division, on taxable goods, custom software and services provided within their boundaries; it covers the same items as the state tax, with a few limited exceptions. The combined rate is the state rate on this page plus the municipal rate. For the construction trades, municipal tax may also apply when the work is done inside a municipality that imposes one.

Watch-outs: exemptions that don’t pass through

• Your customer’s exemption. Generally, a contractor can’t claim an exemption its customer would have had. The exceptions include qualified purchases for listed kinds of business, such as manufacturing, transportation, communication, natural resource production and public utility service.
• Public school jobs. Under HB 4028, services and building materials directly used or consumed in constructing, altering, repairing or improving a new or existing public school facility are exempt from state, local and municipal sales tax. Present Exemption Certificate F0003 when you buy, or get a refund of the tax paid on form CST-240.