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Labor

152
Sales Tax
Fact Sheet

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 Streamlined 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 project. Installation labor provided by the seller of a taxable item
is now included as part of the taxable sales price. Also, installation 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 installation 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 labor 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.

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

Stock No. 2800152, Revised 2/04

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.
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 installation charge is taxable because it would be taxable if provided by the seller of the item.
Example 3. A store sells and installs modular workstations. 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 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 software and computer equipment. The developer installs
both the hardware and software. If there is one installation 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.
Example 1.

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 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.

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.
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 process 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 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 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 furnishes 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 labor). The labor is for removing the old fabric and replacing 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 exempt for resale.
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.

Example.

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 property, 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. For more information on contractors and construction 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 component. For more information on the following taxable services, 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, Landscaping, #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
Minnesota Revenue, Labor