Is Labor Taxable in Michigan? Sales Tax on Contractor Labor

Construction and repair of real estate: you are the consumer

A contractor, in Michigan's rules, is anyone "directly engaged in the business of constructing, altering, repairing, or improving real estate for others," whether prime, general or subcontractor. A state license has nothing to do with it. Treasury's Construction FAQ states the consequence in one line: such a contractor "is considered the consumer of the materials used by them."

Being the consumer means the 6% is yours to pay. In most cases it is settled at the counter, because the lumber yard or supply house charges you sales tax. If a seller charges no Michigan tax, for example a Washington vendor who ships you deck railing, you owe 6% use tax on the purchase price yourself. The same goes for tools, rented equipment, fuel and supplies, whoever the customer is.

Then comes the rule most likely to trip up a Michigan contractor. The FAQ says the contractor "may not break out the tax as though tax was being billed to their customer." The bulletin puts it the same way: a contractor who pays sales or use tax on what it uses "may not charge sales or use tax directly to its customer," although it "may include the amount of the tax in the total contract price as an overhead cost." You recover the tax through your price, the way you recover fuel. A line reading "Sales tax 6% on materials" is wrong even when the math is right.

Take a $14,000 bathroom remodel with $5,200 of tile, fixtures, a vanity and drywall bought at the supply house. You paid $312 of sales tax on those purchases. The customer's invoice can show labor, materials, the total, and nothing labeled tax. Mark up the materials enough to cover the $312, and keep the supplier receipts. Treasury says a contractor must keep documentation that shows the sales tax was paid, and without it you can end up owing use tax on the same materials.

Repairs to a building count as construction. A furnace, a water heater, central air, ductwork, carpeting, cabinets, countertops and fencing all appear as real property in the Contractor Manual's chart of common items. A plumber replacing a water heater or an HVAC technician fixing a furnace is a contractor on that job, not a retailer of the parts.

Do not hand your supplier a resale certificate for job materials. Treasury's own example: a home builder buys materials with a resale exemption, sells nothing at retail, and ends up owing use tax on everything it bought that way. Resale certificates are for goods you actually resell.

A contractor who only installs and never sells at retail does not need a sales tax license. Use tax on untaxed purchases still has to be reported, and the Contractor Manual says contractors without a sales license are required to maintain a use tax registration.

Source: Michigan Treasury Construction FAQ, RAB 2025-18, sections 1.A to 1.E, Contractor Manual, chapters 1 and 2 and Who Needs a Sales Tax License?

Lump sum or itemized, and the retailer option

For an ordinary contractor, it makes no difference to the tax whether the customer sees one price or a breakdown. You already paid the tax on your cost, so there is nothing to collect either way. Itemize if your customers like detail, but do not add tax to the material lines.

Michigan offers a second way of working that does turn on itemizing. A contractor that consistently holds itself out as a retailer may buy job materials for resale, charge sales tax on the materials' selling price, and leave labor untaxed, as long as labor and materials are separately itemized. The Contractor Manual is direct about the alternative: "A lump sum billing that does not separately itemize installation labor and materials is subject to sales tax on the total charge."

The option has strings attached. You need a sales tax license. You must apply it consistently, although separate lines of business, such as repair work and new installations, may be handled differently. And the tax you remit can never be less than the tax you would have paid on your material cost; Treasury collects the difference if it is. A one-truck remodeler who never sells over the counter usually has no reason to take this on.

Source: Contractor Manual, "Contractors Acting as Retailers" and RAB 2025-18, section 3.B.

Items that stay personal property, and the 2023 installation rule

Some things you put in a house are never part of the house. RAB 2025-18 lists the items most likely to stay personal property: free-standing appliances, window unit air conditioners, freestanding lockers, generators and fire suppression systems that serve a piece of equipment, fire extinguishers and window treatments. Selling one of these, even during a construction job, is a retail sale, and you charge 6% on its selling price.

The Manual's chart shows how the line falls for one product. A built-in appliance is real property; a freestanding one is personal. Central air is real; a window unit is personal. A portable fan is personal; a built-in ventilation fan is real. Treasury describes the test as annexation, adaptation to the building's use, and intent, decided job by job, so describe on the invoice what you actually did.

Delivery and installation on those retail sales are now untaxed if you bill them correctly. Since April 26, 2023, under Public Acts 20 and 21 of 2023, the statute excludes delivery and installation charges from the sales price when they are "separately stated on the invoice" and your books show the transaction the same way. Treasury's example: a $3,000 refrigerator with a $150 delivery charge and a $100 installation charge carries $180 of tax. Fold the two charges into a $3,250 refrigerator line and the tax becomes $195.

Treasury also shows the trap on the other side. Shifting price out of the item and into a bloated "installation" charge, so the books do not match the invoice, loses the exclusion, and tax is owed on the full $3,250. Bill installation at what it really is.

A custom home builder who sells appliances to the buyer can treat them as retail sales: list each appliance's price in the contract and state that the buyer pays sales tax on them. Treasury accepts that as enough to document the tax, even if the appliances turn out to be built in.

Source: RAB 2025-18, section 3.A and Example 16, Contractor Manual, Real vs Personal Property Chart, Michigan Treasury: Delivery and Installation Charges and MCL 205.51(1)(d)(xv).

Repairing equipment and vehicles: tax the parts, itemize the labor

Repair work on anything that is not part of a building, such as a truck, a riding mower, a snowblower, a window air conditioner or a commercial mixer, is a different situation. Treasury's licensing page puts it this way: "Any property which goes with the customer in connection with the repair or service is considered a sale at retail and subject to sales tax." A shop that sells parts along with its labor needs a sales tax license, buys parts for resale, and collects 6% on the parts it installs.

Labor stays out only if you separate it. The statute's definition of sales price excludes "labor or service charges involved in maintenance and repair work on tangible personal property of others if separately itemized." Leave the labor inside a single repair price and it falls back into the sales price. A second rule backs this up: a business that makes retail sales and also does untaxed work must keep books showing the two apart, or the 6% applies to the gross proceeds of both.

Here is the difference on a $600 mower rebuild with $240 of parts. Itemized, the tax is 6% of $240, which is $14.40. Billed as one $600 "repair" line, the exclusion is gone and the tax is $36.00.

Keep the two kinds of repair separate in your head. Fixing the furnace in a customer's basement is construction work, and you pay tax on the parts as their consumer. Fixing the window unit in the bedroom is a retail parts sale, and the customer pays tax on the parts. Same technician, same afternoon, two different invoices.

Source: Who Needs a Sales Tax License?, MCL 205.51(1)(d)(iii)(B) and MCL 205.52(3).

Cleaning, lawn care and landscaping

House cleaning, office janitorial routes, mowing and snow plowing are services, and none of them is on the Use Tax Act's list of taxed services, so a Michigan cleaning crew or lawn route puts no sales tax on its bills. You pay tax on the cleaning products, fuel, blades and equipment you buy, because you are the one using them.

One item on that list matters to a few cleaning businesses: laundering or cleaning textiles under a sale, rental or service agreement of at least 5 days is taxed, except for textiles used by a restaurant or a retail business. A recurring linen, mop or mat service can fall in that category. Cleaning someone's floors does not.

Landscaping that installs something is treated as construction. Treasury's FAQ says "a landscaper in Michigan is considered to be a contractor," pays tax on "all materials, equipment and supplies used to fulfill the contract," and "would not charge sales tax to their customers." The Contractor Manual lists installed landscaping materials as real property. A $9,500 patio and planting job therefore carries no tax line, and the tax you paid on pavers, shrubs and mulch is built into your price.

Bagged mulch, potted plants or stone sold over the counter without installation are a different matter: that is a retail sale, and it needs a sales tax license and 6% on the selling price.

Source: MCL 205.93a(1)(d), Construction FAQ, "Landscaping" and RAB 2025-18, section 3.A.

Schools, governments and charities: the exemption usually stops at the owner

This is where Michigan is stricter than many states. A public school, a city or a charity can often buy supplies tax free for its own use. When it hires you to build or renovate, its exemption does not pass to you. You affix the materials, so you are the consumer, and the 6% is due.

In Treasury's own example, a nonprofit school buys building materials tax free and hands them to the contractor, and the contractor still owes use tax on what the school paid for them.

The Construction FAQ says the exemptions that do flow through to a contractor's purchases cover materials affixed to and made a structural part of four kinds of property:

• A nonprofit hospital, meaning the portion of a building where medical care is provided, owned or operated by a qualifying nonprofit or government unit. Nursing homes, hospices and homes for the aged do not qualify, and neither does space run for a private owner's profit, such as a gift shop.
• Qualified nonprofit housing that holds an exemption from the Michigan State Housing Development Authority. Public housing does not qualify.
• A church sanctuary, meaning the part of a building owned and occupied by a 501(c)(3) religious organization and used predominantly and regularly for public worship, plus the structure that holds it up. Gymnasiums, offices, classrooms, restrooms, hallways and parking lots are taxable. A furnace or roof serving both is split by square footage: sanctuary area divided by total building area.
• An air or water pollution control facility certified by the State Tax Commission. The exemption is not available until the certificate is issued.

RAB 2025-18 adds narrower cases such as qualified data centers, foundations for industrial processing machinery, property under a tribal tax agreement, and transformational brownfield projects, which use Form 5555 instead.

The paperwork: the property owner fills in Form 3520, Contractor Eligibility Statement. You keep a copy and give your supplier that copy together with Form 3372, Certificate of Exemption. A signed Form 3520 does not protect you. In Treasury's church example, an audit finds 40% of the new building is not sanctuary, and the contractor owes use tax on those materials. Check the floor plan before you buy everything exempt.

One narrow exception: a contractor that consistently acts as a retailer, charging sales tax on its materials, may be allowed to accept an exemption claim from a customer such as the federal government. The Contractor Manual says Treasury "will generally allow" it. That depends on how you run your whole business, so confirm it with your accountant before you bid on it.

Source: Construction FAQ, RAB 2025-18, sections 1.D and 2.A to 2.C and Contractor Manual, chapters 1 and 3.

Which rate applies

One rate, statewide. Treasury's licensing page says it plainly: "Michigan has no city, local, or county sales tax. The state sales tax rate is 6%." Use tax is also 6% of the purchase price. There is no address lookup to do, and a Detroit job and a job in the Upper Peninsula are taxed the same.

Jobs across the state line follow their own rule. Materials affixed to real estate in another state are exempt from Michigan use tax, but there is no matching sales tax exemption. If you buy from a Michigan supplier for an Ohio or Indiana job, expect the supplier to charge Michigan sales tax, and check what the other state expects on the same materials.

Source: Who Needs a Sales Tax License?, MCL 205.52(1) and RAB 2025-18, sections 1.A, 1.E and 2.A.9.