Written for plumbers, electricians, water heater and heat pump installers, drain and sewer shops, and small multi-trade firms serving homeowners and property managers, with Texas, California, Florida and New York in detail.
The short version
- Sort each job by two questions.Is it a repair or an improvement? Is the property a home or a business? The answer changes from state to state.
- Set the tax rule for each job type.Note whether the contract is lump-sum or separated. Keep exemption paperwork, such as the customer's Form ST-124 for a New York capital improvement.
- Fix a wrong practice right away.Start charging correctly now, add up the tax past invoices should have carried, and talk to a CPA about a voluntary disclosure.
Sales tax for trade contractors turns on two questions: does this job repair real property or improve it, and is the property a home or a business? The answer changes from state to state. The same home repair can be taxable in New York and not in Texas.
The rule in the big four states
Texas
Labor to repair or remodel residential real property is not taxable; repair, remodeling and maintenance of nonresidential real property is. On a lump-sum contract you pay tax on materials as the consumer; on a separated contract you may buy materials for resale and charge tax on them. The state rate is 6.25% with local tax up to 2%, so at most 8.25% in total. As of Oct 2026.
34 Tex. Admin. Code secs. 3.357 and 3.291
California
A contractor installing materials in real property is usually their consumer and pays the tax when buying them, and installation labor is not taxable. The same regulation sets the rules for fixtures. As of Oct 2026.
Cal. Code Regs. tit. 18, sec. 1521; CDTFA Publication 9
Florida
Contractors pay tax on materials they buy for real property jobs, and repair labor on real property is generally not taxable. As of Oct 2026.
Fla. Admin. Code r. 12A-1.051
New York
Repairing or maintaining real property is a taxable service. A capital improvement is not, and you keep the customer's Form ST-124 to prove it. As of Oct 2026.
N.Y. Tax Law sec. 1105(c)(5); Publication 862
| Repair | $4,200 |
| Sales tax at 8.25% (6.25% state plus 2% local) | $346.50 |
| Invoice | $4,546.50 |
The same repair on a home carries no tax on the labor. The shop in this example had charged its commercial customers no tax for two years: start charging now, quantify the past exposure, and talk to a CPA about a voluntary disclosure to the Comptroller.
In Texas, nonresidential repair is taxable while home repair labor is not, and years of untaxed commercial invoices become past exposure you have to quantify.
Paying subs: W-9 first, 1099-NEC by January 31
Form 1099-NEC and backup withholding
File Form 1099-NEC with the IRS and send it to each unincorporated sub or service provider paid at or above the current threshold, by January 31 for the prior year. Get a W-9 before the first payment, and backup withhold 24% if the taxpayer identification number is missing. The old $600 threshold is out of date for payments made from January 1, 2026, so ask your specialist for the current figure. As of Oct 2026.
IRC sec. 3406
The tax credits your customers can no longer claim
25C and 25D have ended
The 25C energy efficient home improvement credit and the 25D residential clean energy credit ended for property placed in service, or expenditures made, after December 31, 2025. What remains is utility rebates, state programs, and the HEAR and HOMES rebates where a state energy office has launched them, with eligibility and amounts that differ by state and income. As of Oct 2026.
IRC secs. 25C and 25D
The credit ended for property placed in service after December 31, 2025, so a quote that relies on it misleads the customer.
Asked in Greymill
Repair: $4,200
Sales tax at 8.25%: $346.50
Invoice total: $4,546.50
That 8.25% assumes local tax is the full 2% on top of the 6.25% state rate (As of Oct 2026).
The two years behind you:
Start charging tax on commercial repairs today.
Add up the tax every past commercial invoice should have carried. That is your past exposure.
Take that figure to a CPA and ask about a voluntary disclosure (coming forward yourself) to the Texas Comptroller.
For every job type, ask: repair or improvement? Home or business? The answer changes from state to state. Keep the exemption paperwork too.
List your job types and I will set the tax treatment for each.
Ask it about your own business
Paste this into Greymill with your own figures, and Tax & Bookkeeping works it through for your business.
I run a plumbing, heating or electrical business in [state], in the US. We do [our mix of residential and commercial, repair and replacement or new work] and use [lump-sum or separated] contracts. Tell me which of our job types carry sales tax, on labor or on materials, what paperwork to keep, and whether our past invoices to [customer type] have left us exposed.
More for plumbing, heating and electrical in the US
- My flat-rate book came from a competitor: is it paying after drive time and callbacks?Flat-rate prices only work if the hourly rate inside them is built from the hours your techs actually sell, not the hours you pay.Read the lesson
- Service pays at the truck, warranty companies and GCs pay late: can I afford another truck?Service work pays on the spot, but installs, home warranty companies, property managers and commercial pay apps do not, so plan cash by the week and test any new loan against what is left.Read the lesson
- Who can pull the permit, and what happens if a helper runs the gas line?The license holder of record carries the work, so who does the job, who pulls the permit and who supervises decide whether you keep the license and can enforce the contract.Read the lesson
- How much can I take up front on a home job, and when can the customer cancel?Down payment limits, cancellation rights and required contract wording all change by state, and getting them wrong can mean refunds, misdemeanor charges or license discipline.Read the lesson
- I pay techs flat rate and helpers on 1099s: am I building up back pay?Flat-rate and commission pay, drive time, on-call and 1099 helpers are where shops in this trade build up back pay without noticing.Read the lesson
- Selling the replacement at the kitchen table: options, financing and what I can claimPresent replacements as clear priced options with honest financing, and know the rules on dealer fees, fear selling and reviews before you start.Read the lesson
- A customer says my work flooded their house months later: what do I do?When a leak or failure is blamed on your work, report it, keep the evidence and watch the deadline on any defect notice, or you can lose the right to fix it first.Read the lesson
Open the interactive lesson · Every plumbing, heating and electrical lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- 34 Tex. Admin. Code secs. 3.291, 3.357 (Tax: sales tax on repairs, 1099S and entity choice)
- Sales and use tax rates (Tax: sales tax on repairs, 1099S and entity choice)
- Regulation 1521; Publication 9 (Tax: sales tax on repairs, 1099S and entity choice)
- Rule 12A-1.051 (Tax: sales tax on repairs, 1099S and entity choice)
- Tax Law sec. 1105(c)(5); Publication 862 (Tax: sales tax on repairs, 1099S and entity choice)
- IRC sec. 3406; sec. 6041A as amended (Tax: sales tax on repairs, 1099S and entity choice)
- sec. 7159.5 (Hard cases: money, CONTRACTS and people)
- Texas Occ. Code ch. 1304; TDLR provider registration and financial security (Hard cases: money, CONTRACTS and people)
- secs. 17600 to 17606 (Hard cases: money, CONTRACTS and people)
- 12 C.F.R. 1026.4 (Hard cases: money, CONTRACTS and people)
- Lab. Code secs. 226.2, 510 (Hard cases: money, CONTRACTS and people)
- Credit termination (Public Law 119-21) (Pitfalls that embarrass the product)
- Public Law 119-21 sec. 70433 (Pitfalls that embarrass the product)
- May 2026 final rule (Pitfalls that embarrass the product)
- Custom Communications, Inc. v. FTC (8th Cir. July 8, 2025) (Pitfalls that embarrass the product)
- Credit termination (Water heaters, heat pumps, refrigerant, EV and solar)
- Home Energy Rebates (Water heaters, heat pumps, refrigerant, EV and solar)
- 40 C.F.R. 82.161; Clean Air Act sec. 608(c) (Water heaters, heat pumps, refrigerant, EV and solar)
- EPA final rule, 91 FR 31284 (May 26, 2026), effective July 27, 2026, Executive Summary item 8 (Water heaters, heat pumps, refrigerant, EV and solar)
- NFPA 70 (2023) (Water heaters, heat pumps, refrigerant, EV and solar)
- NEM and net billing tariff (Water heaters, heat pumps, refrigerant, EV and solar)