Labor Charges (Publication 108)
Nontaxable Charges

Labor or service charges related to a nontaxable sale are not taxable

Tax does not apply to labor or services related to nontaxable sales, including sales for resale. For example, if you design and build a custom computer for a retailer who will sell it in a computer store, none of your charges are taxable—provided you obtain a timely and properly completed resale certificate from the retailer.

Nontaxable types of labor repair

Tax generally does not apply to your itemized charges for repair labor. Repair labor is work performed on a product to repair or restore it to its intended use. Examples include:

• Replacing a broken water pump on a customer's used car
• Replacing a hard drive in a used computer
• Restoring a damaged painting
• Altering a customer's used suit to fit better

Parts

As a Retailer
If the retail value of the parts and materials furnished in connection with repair work is more than ten percent of the total charge, or if the repair person makes a separate charge for such property, the repair person is the retailer and tax applies to the fair retail selling price of the property.

If the retail value of the parts and materials furnished in connection with repair work is more than ten percent of the total charge, then the repair person must segregate on the invoices to the customers and in his or her records the fair retail selling price of the parts and materials furnished and the charges for the repair or installation labor or other services performed, with tax due on the sale of the parts and materials. "Total charge" means the aggregate of the retail value of the parts and materials furnished or consumed in making the repairs, charges for installation, and charges for labor of repair or other services performed in making the repairs, including charges for in-plant or on-location handling, disassembly and reassembly. It does not include pick-up or delivery charges.

As a Consumer
If the retail value of the parts and materials furnished in connection with the repair work is ten percent or less of the total charge and if no separate charge is made for such property, the repair person is the consumer of the property, and tax applies to the sale of the property to the repair person.

As the consumer, when purchasing parts or materials, do not provide a resale certificate to your supplier. The supplier should collect sales tax on your purchase. If items are bought from an out-of-state retailer who does not charge California use tax, or if you purchased items for resale, without tax and then used the items for a repair job, the cost of the purchase must be reported on your sales and use tax return, under Purchases Subject to Use Tax.

Installation. Sales tax generally does not apply to charges for installation labor. For example, tax would not apply to your itemized charges for installing a car stereo in a used car. Please note that it can be difficult to tell the difference between nontaxable installation and taxable fabrication on site. For information on fabrication labor, please see Taxable Labor.