Corporate and Sales Tax Division Mail Station 6330 St. Paul, MN 55146-6330 Phone: Twin Cities 651-296-6181 or toll-free 1-800-657-3777 For TDD, contact Minnesota Relay at 1-800-627-3529, ask for 1-800-657-3777

Labor Sales Tax Fact Sheet

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This fact sheet is intended to help you become more familiar with Minnesota tax laws and your rights and responsibilities under the laws. Nothing in this fact sheet supersedes, alters, or otherwise changes any provisions of the tax law, administrative rules, court decisions, or revenue notices. Alternative formats available upon request.

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1Stock No. 2800152, Revised 2/04 Minnesota Revenue, Labor

This fact sheet describes the different kinds of labor and how Minnesota sales and use tax applies to each.

Legislation was passed adopting the Uniform Sales and Use Tax Administration Act proposed by the multistate Stream-lined Sales Tax Project. The Act allows Minnesota to enter into the Streamlined Sales and Use Tax Agreement that sets out uniform definitions for administration of the sales and use tax law. Minnesota has adopted those definitions necessary to bring our law into conformance with the agreement.

The definition of sales price has changed as part of this pro-ject. Installation labor provided by the seller of a taxable item is now included as part of the taxable sales price. Also, in-stallation labor provided by a third party is a taxable service.

Installation labor Installation is labor to set an item into position, or to connect, adjust or program it for use. Beginning January 1, 2002, if the item being sold is taxable, charges by the seller to install it are also taxable. Installation charges are part of the sales price of the item, even if separately stated. Before January 1, 2002, separately stated installa-tion charges were not taxable.

Beginning July 1, 2002, installation charges by a third party became a taxable service if the installation would be taxable if provided by the seller of the taxable item.

Repair labor is not taxable. Installation is labor to add something new or different to an item, while repair labor restores an item to its original condition (see Repair la-bor on page two). For example, a charge to install a trailer hitch on a car that didnt have a trailer hitch is installation labor, while a charge to change oil and filter or to replace a broken radio in a car is repair labor.

Labor to install tangible personal property into real property remains exempt. See Construction labor on page two for more information.

Charges for installing nontaxable items are not taxable.

Capital equipment may require installation. If the capital equipment qualifies for a refund of tax, tax paid on the installation charges also qualifies for the refund.

Example 1. A department store sells drapes and charges to install them. The drapes are taxable and beginning January 1, 2002, the installation charge is also taxable.

Example 2. A department store sells blinds but the installation is done by an independent contractor who bills the customer directly for the installation. The in-stallation charge is taxable because it would be tax-able if provided by the seller of the item.

Example 3. A store sells and installs modular worksta-tions. Two separate contracts are drawn up by the storeone for the sale of modular workstations, one for installation. Sales tax applies to both the sale and the installation. Separate invoices do not make the in-stallation charges exempt.

Example 4. A software developer sells and installs custom software. Since custom software is not tax-able, installation charges are also not taxable.

Example 5. A software developer sells custom soft-ware and computer equipment. The developer installs both the hardware and software. If there is one instal-lation charge for both the taxable hardware and the exempt custom software, the entire charge is taxable. If there is a separate installation charge for each, only installation of the hardware is taxable.

Fabrication labor Fabrication labor is taxable. Fabrication labor makes or creates a product or alters an existing product into a new or changed product. Fabrication labor is taxable even when the customer provides the materials for the prod-ucts that will be created or altered. Taxable fabrication labor includes, but is not limited to, sawing, cutting, sewing, combining, assembling, boring, grinding, heat-ing, cooling, dehydrating and printing.

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2 Minnesota Revenue, Labor

Examples of taxable fabrication labor: bending, cutting, and drilling holes in steel, aluminum,

plastic, glass, or other materials bookbinding collating and assembling by stapling or a similar proc-

ess to join items together converting a vehicle into a stretch limousine crushing and screening gravel and aggregates cutting and milling and custom sawing wood drilling holes in bowling balls electroplating or heat treating firing ceramics or china laminating identification cards making curtains, drapes, pillows, slipcovers, rugs,

towels, quilts, or other household furnishings matting and framing artwork painting of tangible items photocopying and printing photography and videotaping pipe cutting or threading producing sound recordings or motion pictures taxidermy welding additions onto tangible personal property

Fabrication labor may be purchased exempt if the pur-chaser gives the seller an exemption certificate. Example: A furniture manufacturer hires a lumber yard to custom saw some lumber. The manufacturer uses the sawed lum-ber to make tables that will be sold to retail stores. The fabrication labor (sawing) may be purchased exempt for industrial production if the manufacturer gives the lum-ber yard a Certificate of Exemption, Form ST3.

Engraving Engraving that is billed along with or included in the sales price of a product is taxable. If the customer fur-nishes the item, the engraving labor is not taxable.

Repair labor Repair labor is labor to restore an item so that it can be used for its original purpose. Separately stated charges for repair labor are not taxable. For example, the charge to reupholster a sofa is $400 ($200 materials, $200 la-bor). The labor is for removing the old fabric and replac-ing it with new. Since the sofa is being restored to its original form, tax must be charged only on the $200 for materials. (If the material and labor charges are lumped together, the entire charge is taxable.)

If the customer furnishes the material for the sofa, the charge for the repair labor is not taxable.

Sometimes the cost of parts or materials is insignificant compared to the total charge for labor. When the parts are insignificant and there is one lump sum price for the repair, the charge is not taxable. In this case, the repairer

must pay sales or use tax on the cost of parts used to make the repair. If the amounts are separately stated, charge tax only on the materials and purchase them ex-empt for resale.

Example. A jeweler uses a $1 spring to repair a watch and bills the customer $10. Since the cost of the spring is insignificant compared to the charge for the repair service, the jeweler does not charge tax on the $10. However, the charge for the spring is taxable if it is itemized on the bill.

Examples of nontaxable repair labor: Changing a safe combination or lock tumblers by a

locksmith so a different key can be used Recapping tires furnished by the customer Removing dents or replacing fenders at a body shop Repairing an engine Replacing a heat element in a clothes dryer

Construction labor If an item becomes a permanent attachment to real prop-erty, installation labor is not taxable because it is an im-provement to real property. These are items that gener-ally stay with the building when it is sold to another party. Examples include hot water heaters, furnaces, ga-rage doors, doors, windows, gutters, roof, carpet, and deck. For more information on contractors and construc-tion labor, see Sales Tax Fact Sheet 128, Contractors.

Services Certain services are specified by the law as taxable. Many of these services have a substantial labor compo-nent. For more information on the following taxable ser-vices, see the fact sheet indicated.

Building Cleaning and Maintenance, #112 Detective and Security Services, #114 Laundry and Cleaning Services, #120 Lawn and Garden Care, Tree and Bush Service, Land-

scaping, #121 Massages, #162 Motor Vehicle Towing, Washing, Rustproofing, #113 Parking Services, #166 Pet Grooming, Boarding, and Care Services, #122

References M. S. 297A.61, Subd. 3(c), Definitions M. S. 297A.61, Subd. 7, Sales price M. S. 297A.61, Subds. 3(g) & 3(j), Services Other fact sheets you may need: Automotive Repairs and Service, #131 Local Sales and Use Taxes, #164 Sales to Government, #142 Use Tax for Businesses, #146 Use Tax for Individuals, #156 A Step-by-Step Guide to Filing and Paying Sales and Use Tax

Electronically, #170