Overview of Tax Rules for Fence Installation
Sales tax does not apply to services to initially install, alter, add, clean, refinish, replace, or repair nonmechanical, passive, or manually operated components of buildings or other improvements or structures affixed to real estate.
This is considered a contractor service, and the contractor is regarded as the consumer of all tangible property used or consumed by the contractor. A person performing contractor services must pay tax on the materials consumed in the services.
Tax Treatment for Fence Installation
- Installation of fencing is a non-taxable contractor service.
- Regardless of whether a markup is built into the sales price to the customer, tax would not be collected on the sales price charged to the customer for the installation of fencing.
- Instead, tax is paid on the materials used or consumed in the performance of the service.
How Contractors Handle Sales Tax on Materials
- Tax on the materials is paid by the contractor:
- At the time the materials are purchased,
- Or, if the contractor has a sales tax permit, at the time the materials are withdrawn from stock for use in the fencing installation project.
Tax Treatment for Materials Sold Without Installation
When fencing materials are sold without a fencing installation performed, tax is collected on the total consideration paid for those sales of tangible personal property, including any markup charged.
If a sales tax permit is held, the materials can be purchased tax-free as a sale for resale. At the time the materials are sold to the customer, tax is collected.
Suggested Additional Section (Highly Relevant Clarification):
Summary of Responsibilities for Contractors
Contractors Must:
- Pay sales tax on materials purchased for installation projects (unless withdrawn from tax-free stock with a permit).
- Not charge sales tax on the labor portion of fence installation services.
- Collect sales tax on any sale of materials alone, even if marked up.
Frequently Asked Questions
Is fence installation labor subject to sales tax?
No, labor for fence installation is not subject to sales tax. It is categorized as a non-taxable contractor service under state tax rules. However, contractors are responsible for paying sales tax on the materials used in the installation.
When is sales tax collected on fencing materials?
Sales tax is collected when fencing materials are sold without installation services. The contractor or seller must charge tax on the total price, including any markup, unless the sale qualifies as a tax-free resale with a valid sales tax permit.
How do contractors handle sales tax on materials used in fence installation?
Contractors pay sales tax on materials either at the time of purchase or when materials are withdrawn from stock, if they hold a sales tax permit. This ensures that tax is paid on the materials consumed in the non-taxable service.
Can contractors avoid paying sales tax on materials?
Only if the contractor has a valid sales tax permit and is purchasing materials exclusively for resale. In installation cases, the contractor is considered the end-user and must pay tax on the materials, not the customer.
What responsibilities do contractors have regarding tax compliance for fence projects?
Contractors must pay sales tax on all materials used in installation projects and should not collect tax on the labor portion. However, they must collect and remit tax when selling fencing materials separately from any installation services.