Service Contracts

Sales tax applies to some types of service contracts.

Mechanical Systems Cleaning Contracts

Contracts to clean mechanical systems, such as elevators and HVAC systems, are taxable building cleaning. You may purchase some items used to provide these services exempt from sales tax. See Exempt Purchases.

Repairing Mechanical Systems Contracts

Contracts to repair mechanical systems, such as elevators and HVAC systems, are not taxable. Repair services must be separately stated.

Repair includes services to:

• Restore an item that was broken, worn, damaged, defective, or malfunctioning, to working order or operating condition
• Sustain or support safe, efficient, and continuous operations
• Prevent decline, failure, lapse, or deterioration

Contractors owe sales or use tax on the parts used for contracted repairs. 

Home Health Care Service Contracts 

Home health care services that provide a combination of medical care, personal care, laundry, and cleaning services for one charge are not taxable. 

If a third party provides the residential cleaning services, the home health care provider cannot purchase those services exempt for resale.

Lighting Maintenance

Lighting maintenance, such as bulb and fuse replacement, is taxable. Ballast replacement is only taxable when it is plugged in. When ballasts are hard wired, maintenance to replace them is not taxable because it is an improvement to real property. 

Combination Contracts

Contracts to construct, repair, alter, or improve real property are not taxable. The contractor must pay sales or use tax on any materials, supplies, equipment, or taxable services used to complete the construction contract. See Contractors and Other Property Installers. 

A lump sum contract that includes items listed under “building cleaning and maintenance,” together with construction, alteration, or improvements to real property is considered a construction contract when 50% or more of the total cost of the contract is for improvement of real property.

Example 1

Fire damage requires you to wash walls, clean carpets and Venetian blinds, paint all rooms, and reconstruct several walls. Since 50% or more of the cost of the contract is for improving real property, the contract is not taxable.

Example 2

Fire damage requires you to wash walls, clean carpets and Venetian blinds, and paint rooms. The painting is not taxable if separately stated. Cleaning carpets, Venetian blinds, and washing walls are taxable. If the customer is billed a lump-sum amount for painting and the taxable services, the entire amount is taxable, since more than 50% of the contract is for taxable services.