In general, the taxable sales price for an item of tangible personal property in Georgia includes the cost of materials used and the labor. However, there is an opportunity for some potentially big sales tax savings if these charges are listed separately by your vendors on invoices. Here are some basic tips:
1) First, it is important to know that the GA DOR separates labor into different categories. The most common types of labor are repair, installation, and fabrication labor, defined as follows:
- Repair labor is labor to repair or restore an item to its original form
- Installation labor is labor to affix, connect, or make an item ready for use
- Fabrication labor is labor to make a new item or change an existing item into a new item
2) Next, check to see if the type of labor is clearly defined by the vendor. In Georgia, repair and installation labor for tangible personal property is exempt from sales tax; however, it must be separately stated from the material charges on an invoice. This is an opportunity for significant tax savings!
3) Unfortunately, if fabrication labor is being provided, the entire charge will be taxable regardless of whether or not the labor charges are separately stated.
Example: If a vendor is charging you $3,000 to repair tangible personal property and bills you in a lump sum, you could pay as much as $240 in tax (8% x $3000). If the labor is $2500 and the material is $500, AND these charges are separated on the invoice, the tax charge will only be $40 (8% x $500). That is a $200 savings, and these sales tax savings will only increase with larger dollar invoices.
So what should you do if you have a repair or installation invoice for tangible personal property from a vendor that is just a lump sum? You can easily request a material/labor breakdown from the vendor; thus, making only the material charge taxable. As illustrated above, this can lead to big sales tax savings since labor is usually a much larger portion of an invoice.
Do your vendors typically lump materials and labor together on your repair invoices?
Has anyone had trouble getting a vendor to separate the charges?
Any examples of how much money you have saved by not paying sales tax on repair labor charges?
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Other recent “Georgia (GA)” posts by Lauren Stinson, CMI:
- Sales Tax on Labor: In Georgia, Not All is Created Equal
- A Review of Georgia's Sales Tax Exemption Certificates
- Georgia's New Rule for Itemization of Sales and Use Tax
- Georgia FBA Sellers: Your Sales Tax Registration Obligations
- Georgia DOR Is Making Big Changes to Direct Pay Permit Rules