The basis for a taxable sales price for an item sold in Georgia includes both the cost of materials used and the labor involved.
Categories of Labor in Georgia
The Georgia Department of Revenue (GDOR) separates labor into different categories. Below are the most common types of labor, each defined clearly:
1. Repair Labor
Labor to repair or restore an item to its original form.
2. Installation Labor
Labor to affix, connect, or make an item ready for use.
3. Fabrication Labor
Labor to make a new item or change an existing item into a new item.
Taxability of Labor Charges
Is the Type of Labor Clearly Defined by the Vendor?
In Georgia:
- Repair and installation labor for tangible personal property is exempt from sales tax when it is separately stated from the material charges on an invoice.
- Fabrication labor is fully taxable, regardless of whether or not the labor charges are separately stated.
Example: How Invoicing Affects Tax
If a vendor charges you $1,000 to repair tangible personal property and provides a lump sum bill, you could pay up to $70 in tax.
However, if the breakdown is as follows:
- Labor: $700
- Materials: $300
And these charges are separately stated on the invoice, the tax will apply only to the materials charge.
Sales Tax Calculation Example:
$300 (Materials) x 7% Sales Tax = $21 Tax
These sales tax savings increase with larger invoices because labor is often the largest portion of a repair or installation bill.
Best Practices for Invoicing
What should you do if you receive a lump sum invoice for repair or installation of tangible personal property?
Action Step:
Request a detailed breakdown from the vendor separating materials and labor. This ensures that only the materials charge is taxable.
As illustrated, this can lead to significant sales tax savings since labor typically represents a larger share of the invoice.
Frequently Asked Questions
What types of labor are taxable in Georgia?
In Georgia, fabrication labor is fully taxable, even if it’s listed separately on an invoice. However, repair and installation labor are not subject to sales tax as long as they are clearly separated from material charges on the invoice.
Why does it matter if labor and materials are listed separately on an invoice?
Separating labor from materials on an invoice determines taxability. If the labor is not itemized, the entire invoice could be taxed. Clearly breaking out labor—especially repair and installation—ensures that only the material portion is taxed, potentially reducing the total sales tax.
How much can I save by itemizing labor on invoices?
Savings can be substantial, especially on larger invoices. For example, itemizing $700 in labor and $300 in materials would result in tax applied only to the $300, saving tax on the larger labor amount. This reduces the taxable base and lowers your final bill.
What should I do if I receive a lump sum invoice for repair work?
You should request a detailed invoice from the vendor that separates material and labor charges. This ensures you only pay sales tax on the material portion and avoid unnecessary taxation on exempt labor.
Is installation labor ever taxable in Georgia?
No, installation labor is not taxable when separately stated on an invoice. However, if it’s bundled with materials in a single charge, the entire invoice may be taxed, so always ask for a breakdown.