A contractor is anyone in the business of working on the real property of others. The term "contractor" also includes those who manufacture, sell, and install items which become part of real property. These contractors are known as fabricator/contractors.
Contractors are required to pay sales tax on the materials, supplies, equipment and services they purchase, rent or use, when performing work on the real property of others.
The work performed by a contractor can be a capital improvement
, a repair
, or a maintenance service
. Contractors working in New Jersey must register with the State of New Jersey and collect New Jersey sales tax on charges for labor as required.
Capital improvements are exempt from tax with the exception of the following, which became subject to tax as of October 1, 2006: certain landscaping services, carpet and other floor covering installations, and hard-wired alarm or security system installations.
When a contractor performs work that results in an exempt capital improvement, no sales tax is charged on the labor portion of the bill if the property owner supplies a properly completed Certificate of Exempt Capital Improvement, Form ST-8
. The contractor must keep a copy of the form on file to document why no sales tax was collected on the labor portion of the bill.
When a contractor performs a taxable capital improvement, repair, maintenance, or installation service, sales tax must be charged on the labor portion of the bill.
If the labor and material charges are not separately stated on a bill, the contractor must collect sales tax on the total amount of the bill.
is a contractor who performs specific tasks for a prime contractor. Purchases of materials by a subcontractor are subject to sales tax in the same manner as purchases made by a prime contractor. A subcontractor who performs taxable services for a prime contractor does not charge the prime contractor sales tax on the labor portion of the bill. The prime contractor is responsible for collecting any sales tax due from the property owner for work performed by the subcontractor.
However, any contractor or subcontractor who performs a taxable capital improvement, such as certain landscaping services, carpet and other floor covering installations, and hard-wired alarm or security system installations, must charge and collect the sales tax from the person that they are performing the service for, regardless of whether the person is another contractor, a property owner, etc. For more information on this topic, please see the Construction Notice
For more information about contractors request our Tax Topic Bulletin, S&U-3
, Contractors and New Jersey Taxes. Publication S&U-3
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