Thursday, August 04, 2005

FAQ: Are repair services taxable?

Are repair services taxable?

It depends on what state you're in. The default position is, in most states, that services aren't taxable.

There are two situations, however, where repair services are taxable:

1. Lumping parts and labor together. Even in states where repair labor isn't taxable, you will make the service taxable by lumping the charge for the parts (which is pretty much always taxable) with the labor. Lumping a taxable item with a non-taxable item pretty much makes the entire charge taxable. In other words, labor becomes taxable, just like the parts it's been lumped with.

This is why, in Illinois for example, they break out labor and parts separately when I have my car repaired (which is often). By doing that, the mechanic doesn't have to charge me tax on the labor. But if he lumped them together, I'd pay tax on the whole charge.

2. You're in a state where repairs services are taxable. This may be news to folks in many states (like Illinois), but in many OTHER states, the charge for repair labor is taxable. And it's taxable all the time, even if the labor is shown separately.


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Jim Frazier said...