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 on a real property improvement — new construction, an addition, a roof replacement, a remodel that becomes a permanent part of the building — is not taxed. The state base rate is 5.75%, and combined state and county rates run from 6.50% to 8.25% depending on where the work is done.¹ The classification decides everything, because the tax treatment flips: on a taxable job the contractor collects sales tax from you on the full invoice including labor, and on a real property improvement the contractor pays tax on the materials and charges you nothing extra for tax.

The Dividing Line: Real Property vs. Personal Property

Ohio law defines a “construction contract” as an agreement where materials are transferred and incorporated into real property so they become part of it. That covers new construction, additions, and permanent alterations to buildings and structures.² Work under a construction contract is not a “sale” for tax purposes, so the labor portion is not taxable.

Tangible personal property is any movable item that doesn’t become part of the real estate: freestanding appliances, removable window treatments, portable equipment. When a contractor repairs or installs tangible personal property, the whole transaction is a taxable sale, labor included.³

A middle category catches many contractors and customers by surprise: business fixtures. A business fixture is tangible personal property that gets permanently attached to real property but primarily benefits the business conducted there rather than the building itself. A commercial walk-in cooler bolted to a restaurant floor is the classic example. Even permanently affixed, Ohio treats it as personal property after installation, and an agreement to install it is a taxable sale.²

When the Labor Is Taxable

Ohio sales tax applies to the total invoice — labor, materials, overhead, and profit — whenever the job installs, repairs, or maintains tangible personal property or a business fixture. Repairing a freestanding refrigerator, installing a window air conditioning unit, and servicing a motor vehicle are all fully taxable.³

Ohio also designates certain jobs as taxable sales no matter how permanently the work is attached. These are never treated as construction contracts, even when the material is built into the structure:²

Carpeting, including padding, tack strips, adhesive, and similar installation components.
Landscaping and lawn care, covering trees, shrubs, sod, seed, fertilizer, mulch, and other materials transferred as part of the service.
Agricultural land tile and portable grain bins.

Carpet and landscaping are the traps. Homeowners often assume a new carpet installation is a permanent home improvement, but the statute says otherwise. The contractor charges sales tax on the whole job.

Temporary items affixed during construction don’t create a real property improvement either. Temporary electrical hookups, construction fencing, shoring lumber, and concrete forms remain personal property for tax purposes even if they linger on site after the project finishes.²

When the Labor Is Not Taxable

Labor performed under a real property construction contract is not subject to Ohio sales tax. That includes new construction, remodeling, additions, and repairs that become a permanent part of a building or structure. Installing new plumbing, framing a garage addition, replacing a roof, and pouring a foundation are all real property improvements where the customer owes no sales tax on the labor.³

The reason sits in the structure of the law. Under a construction contract, the contractor is classified as the consumer of the materials, not as a seller. The contractor buys the materials, pays sales tax on them at purchase, and incorporates them into your property. The customer never enters the sales tax equation directly. Subcontractors get the same treatment. 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.²

How Materials Get Taxed on Either Side

Materials always get taxed somewhere. On a real property improvement, the contractor pays Ohio sales or use tax on the materials when buying them from the supplier.² Your invoice won’t show a separate sales tax line, but the material cost the contractor passes through already includes the tax.

On a job involving tangible personal property or a business fixture, the dynamic reverses. The contractor is treated as a retailer and can buy the materials tax-free using a resale certificate, then charges you sales tax on the full invoice amount.

Delivery charges from the vendor on taxable materials are part of the taxable price, including shipping, postage, handling, crating, and packing fees. If instead the customer separately hires an independent delivery company unconnected to the seller, those charges are not subject to sales tax.⁴

Mixed Jobs on the Same Project

Plenty of projects combine both kinds of work. A restaurant buildout might include framing walls (real property) and installing commercial kitchen equipment (business fixtures). Ohio requires different tax treatment for each portion.

The recommended practice is for the customer to 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 charges 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 including labor. Getting the split wrong can produce a large surprise assessment during an audit.

Exemption Certificates You Might See

Two Ohio certificates come up on exempt projects, and it helps to know what each one does.

STEC CC: Construction Contract Exemption Certificate

The STEC CC is issued by the property owner (the “contractee”) to the contractor when the owner qualifies for an exemption that removes the material tax on the project. Qualifying situations include projects for government entities, buildings for 501(c)(3) organizations used exclusively for exempt purposes, houses of public worship, hospital facilities, and qualifying convention centers, among others.² With a properly completed STEC CC in hand, the tax liability shifts to the property owner if the exemption later proves invalid. Without it, the contractor carries that risk.

STEC CO: Contractor’s Exemption Certificate

The STEC CO runs the other way. Once the contractor has a valid exemption claim from the property owner, the contractor uses the STEC CO when buying materials from suppliers, telling the supplier the materials are going into an exempt construction project and should be sold without sales tax. The certificate covers materials for that specific project only and must identify the project, location, and exempt owner.⁵ Subcontractors receive the same treatment on an exempt project; each one needs to keep documentation identifying the project and the exempt owner and issue its own STEC CO to suppliers.

What Happens if the Classification Is Wrong

Ohio’s penalties turn the classification question from academic into concrete. A contractor who fails to collect sales tax when required, or collects it but doesn’t remit it, faces a penalty of up to 50% of the tax owed on top of the original amount. Other assessments can reach a 15% penalty. Interest accrues on unpaid balances from the due date.⁶

Personal liability sharpens the exposure. If a corporation, LLC, or business trust fails to file returns or remit sales tax, Ohio law makes responsible individuals personally liable, including 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 eliminate that personal liability.⁷ Walking away from the company does not clear the debt; the state can pursue the individual directly.

If you’re a customer and the invoice treatment doesn’t match the work — sales tax charged on labor for what looks like a permanent addition, or no tax charged on a carpet installation — ask the contractor which category the job falls into and why. Getting that answered before you pay is easier than sorting it out after.

1
Ohio Department of Taxation. Sales and Use Tax
2
Cornell Law Institute. Ohio Admin Code 5703-9-14 – Sales and Use Tax; Construction Contracts; Exemption Certificates
3
Ohio Legislative Service Commission. Ohio Revised Code 5739.01 – Sales Tax Definitions
4
Ohio Legislative Service Commission. Ohio Admin Code Rule 5703-9-52 – Delivery Charges
5
Ohio Department of Taxation. Sales and Use Tax Contractor’s Exemption Certificate (STEC CO)
6
Ohio Legislative Service Commission. Ohio Revised Code 5739.133
7
Ohio Legislative Service Commission. Ohio Revised Code 5739.33 – Personal Liability for Tax