Do Contractors Charge Sales Tax on Labor in Ohio?

In Ohio, contractors charge sales tax on labor only when the job involves tangible personal property or a business fixture. Labor performed under a real property construction contract — new construction, remodels, additions, and permanent repairs — is not taxable to the customer. So the answer to whether contractors charge sales tax on labor in Ohio depends entirely on what the labor is attached to.

The Test That Decides Everything

Ohio splits contractor work into two tax worlds, and the line between them controls how every dollar on the invoice is treated.

A “construction contract” is any agreement where materials are incorporated into real property and become part of it. Work under a construction contract is not a sale for tax purposes, so the labor is not taxable.¹ The contractor is treated as the consumer of the materials, pays sales tax when buying them from the supplier, and charges the customer nothing extra for tax.

Tangible personal property is the opposite category: movable items that don’t become part of the real estate. When a contractor installs, repairs, or services tangible personal property, the whole transaction is a taxable sale and the contractor charges tax on the full invoice, labor included.²

There’s a third category that trips contractors up: business fixtures. A business fixture is tangible personal property that gets permanently attached to real estate but primarily benefits the business operating on the premises rather than the building itself. A commercial walk-in cooler bolted to a restaurant floor is the standard example. Even though it’s permanently installed, Ohio treats it as personal property, so installing a business fixture is a taxable sale and labor is taxed.¹

When Labor Is Taxable

A contractor charges Ohio sales tax on the entire invoice — labor, materials, overhead, and profit — whenever the job involves installing, repairing, or maintaining tangible personal property or business fixtures. Repairing a freestanding refrigerator, installing a window air conditioning unit, and servicing a motor vehicle are standard examples.²

Ohio statute also calls out specific work that is always a taxable sale, no matter how firmly the materials are attached to the building:¹

Carpeting, including padding, tack strips, adhesive, and similar installation components.
Landscaping and lawn care, including trees, shrubs, sod, seed, fertilizer, and mulch.
Agricultural land tile and portable grain bins.

Carpeting and landscaping catch contractors off guard most often. The installer may assume a wall-to-wall carpet is a permanent improvement, but Ohio law says otherwise. Full sales tax applies to the whole job.

Temporary items affixed during construction also stay in the personal property column. Temporary electrical hookups, construction fencing, shoring lumber, and concrete forms count as personal property for tax purposes even when they remain in place after the project is finished.¹

When Labor Is Not Taxable

Labor performed under a real property construction contract is not subject to Ohio sales tax. New construction, remodeling, additions, and repairs that become a permanent part of a building or structure all fall here. Installing new plumbing, framing an addition, replacing a roof, pouring a foundation — the customer owes no sales tax on the labor.²

Materials still carry tax, though. Under a construction contract, the contractor is the consumer of the materials and pays sales or use tax when purchasing them from the supplier.¹ That cost gets passed through in the price the customer pays, but it never shows up as a separate tax line on the invoice.

Subcontractors get the same treatment as the prime. A plumbing sub working under a general contractor on a real property improvement is the consumer of the pipes and fittings, and the sub’s labor is not taxable to anyone up the chain.¹

Mixed Projects on One Invoice

Plenty of jobs cross the line. A restaurant buildout might include framing walls (real property) and installing commercial kitchen equipment (business fixtures). Ohio requires different tax treatment for each portion, which means the contractor has to know which parts fall where.

The common practice is to have the customer issue a Contractee Certification of Property Type identifying which portions are real property and which are business fixtures. On the real property portion, the contractor pays tax on materials at purchase and bills the customer no tax. On the business fixture portion, the contractor buys materials tax-free under a resale certificate and charges the customer sales tax on the full amount, labor included. Getting the split wrong is a common source of audit assessments.

Exemption Certificates

Two Ohio exemption certificates come up repeatedly in construction work.

STEC CC for the Property Owner

The STEC CC is the Construction Contract Exemption Certificate. The property owner (the “contractee”) completes it and gives it to the contractor when the project qualifies for an exemption on materials. Qualifying projects include work for government entities, buildings used exclusively for exempt purposes by 501(c)(3) organizations, houses of public worship, hospital facilities, and qualifying convention centers, among others.¹

When the contractor holds a properly completed STEC CC and the exemption later turns out to be invalid, the tax liability shifts to the property owner. Without the certificate on file, the contractor bears that liability.¹

STEC CO for the Contractor

Once the contractor has a valid STEC CC from the owner, the contractor uses the STEC CO — the Contractor’s Exemption Certificate — when buying materials from suppliers. It tells the supplier the materials are going into an exempt project and should be sold tax-free. The certificate covers materials for that one project and must identify the project, the location, and the exempt owner.³ Subcontractors on an exempt project get the same treatment, but each sub needs documentation identifying the project and the exempt owner, and each sub issues its own STEC CO to its suppliers.

Do You Need a Vendor’s License?

Any contractor who makes taxable sales or provides taxable services in Ohio must obtain a vendor’s license first. That covers contractors who install tangible personal property, business fixtures, or do the always-taxable work like carpeting and landscaping. Registration is available immediately through OH|TAX eServices online or at the county auditor’s office.⁴

A contractor whose work is strictly real property improvements doesn’t need a vendor’s license, because no sales tax is ever being collected from customers. Many contractors do both kinds of work, though, and running taxable jobs without a license creates audit exposure.

Penalties and Personal Liability

Ohio’s penalties for mishandling sales tax are large enough to matter. A contractor who fails to collect sales tax when required, or who collects it and doesn’t remit it, faces a penalty of up to 50% of the tax owed on top of the tax itself. In other assessment situations, the penalty can reach 15%, with interest running from the due date.⁵

Personal liability is the sharpest edge. If a corporation, LLC, or business trust fails to file returns or remit sales tax, Ohio law makes responsible individuals personally liable. That reaches officers, members, managers, trustees, and any employee with control over tax filings or payments. Dissolving the business, terminating it, or filing for bankruptcy does not clear this liability.⁶ The state can pursue the individual directly.

Records to Keep

Ohio generally requires businesses to keep sales tax records for at least four years from the later of the filing date or the due date of the return. For contractors, the practical set includes:

Purchase invoices showing tax paid on materials.
Copies of every exemption certificate received (STEC CC) and issued (STEC CO).
Customer invoices showing tax collected on taxable jobs.
Documentation supporting how each project was classified — real property, tangible personal property, or a mix.

On a mixed project, the customer’s property-type certification is the key document to retain. Contractors handling exempt projects should hold exemption certificates well beyond four years. If an auditor questions an exemption and the certificate isn’t in the file, the contractor becomes liable for the tax that should have been collected.

1
Cornell Law Institute. Ohio Admin Code 5703-9-14 – Sales and Use Tax; Construction Contracts; Exemption Certificates
2
Ohio Legislative Service Commission. Ohio Revised Code 5739.01 – Sales Tax Definitions
3
Ohio Department of Taxation. Sales and Use Tax Contractor’s Exemption Certificate (STEC CO)
4
Ohio Department of Taxation. Sales and Use Tax
5
Ohio Legislative Service Commission. Ohio Revised Code 5739.133
6
Ohio Legislative Service Commission. Ohio Revised Code 5739.33 – Personal Liability for Tax