IMPORTANT: This article is outdated. See guide to Minnesota Sales Tax for Labor, Installation, Construction, and Fabrication, which was updated in 2013.
This article explains how Minnesota sales and use tax applies to different types of labor.
Installation is labor to set an item into position, or to connect, adjust or program it for use. 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.
Installation charges by a third party are a taxable service if the installation would be taxable if provided by the seller of the taxable item.
Installation is labor to add something new or different to an item, while repair labor restores an item to its original condition (see Fact Sheet 152B, Labor – Repair). For example, a charge to install a trailer hitch on a car that didn’t have a trailer hitch is installation labor, while a charge to change oil and filter or to replace a broken ra- dio in a car is repair labor.
Labor to install tangible personal property into real property is 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 charg- es to install them. The drapes are taxable and 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 taxable if provided by the seller of the item.
Example 3. A store sells and installs modular work-stations. Two separate contracts are drawn up by the store—one 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 installation charges exempt.
Example 4. A software developer sells and installs custom software. Since custom software is not taxable, 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 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 products that will be created or altered. Taxable fabrication labor includes, but is not limited to, sawing, cutting, sewing, combining, assembling, boring, grinding, heating, cooling, dehydrating and printing.
Examples of taxable fabrication labor:
- bending, cutting, and drilling holes in steel, aluminum, plastic, glass, or other materials
- collating and assembling by stapling or a similar pro- cess 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
- making curtains, drapes, pillows, slipcovers, rugs, towels, quilts, or other household furnishings
- laminating identification cards
- •matting and framing artwork
- painting of tangible items
- photocopying and printing
- photography and videotaping
- pipe cutting or threading
- producing sound recordings or motion pictures
- welding additions onto tangible personal property
Fabrication labor may be purchased exempt if the purchaser gives the seller an exemption certificate. Example: A furniture manufacturer hires a lumber yard to custom saw some lumber. The manufacturer uses the sawed lumber 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 lumber yard a fully completed Form ST3, Certificate of Ex- emption.
Engraving that is billed along with or included in the sales price of a product is taxable. If the customer furnishes the item, the engraving labor is not taxable.
If an item becomes a permanent attachment to real prop- erty, installation labor is not taxable because it is an improvement to real property. These are items that generally stay with the building when it is sold to another party. Examples include hot water heaters, furnaces, garage doors, doors, windows, gutters, roof, carpet, and deck.
Labor to repair electronic and precision equipment that is attached to real property is construction labor. For more information, see Fact Sheet 152B, Labor – Repair for Businesses, and Fact Sheet 128, Contractors.
Labor to repair manufacturing or production equipment is subject to sales tax even if that equipment is attached to real property.
For more information on contractors and construction labor, see Sales Tax Fact Sheet 128, Contractors.
Certain services are specified by the law as taxable. Many of these services have a substantial labor component. For more information on the following taxable services, see the fact sheet indicated.
- 112, Building Cleaning and Maintenance 114, Detective and Security Services 120, Laundry and Cleaning Services
- 121, Lawn and Garden Care, Tree and Bush Service, Landscaping
- 162, Massages
- 113, Motor Vehicle Towing, Washing, Rustproofing 166, Parking Services
- 122, Pet Grooming, Boarding, and Care Services
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.
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The content of this and any related posts has been copied or adopted from the Minnesota Department of Revenue Sales Tax Fact Sheet #152A