Publication 108, Labor Charges

May 2016

  • Labor Charges In General
  • Taxable Labor
  • Nontaxable Charges
  • Additional Information

Labor Charges In General

Labor Charges

Many sellers believe there is a general exemption from sales tax for labor charges. However, in California many types of labor charges are subject to tax. Tax applies to charges for producing, fabricating, or processing tangible personal property for your customers. Generally, if you perform taxable labor in California, you must obtain a seller’s permit and report and pay tax on your taxable sales.

You can register on our website at by selecting New Registration, and then select Register a business activity with BOE. You can also register in person at any of our field offices. Please contact our Customer Service Center for assistance at 1-800-400-7115 (TTY:711).

Special rules apply to labor when you perform work on houses, buildings, and other real property. For additional information, please see publication 9, Construction and Building Contractors, or Regulation 1521, Construction Contractors, available on our website or by calling our Customer Service Center at 1-800-400-7115.

Note: This publication summarizes the law and applicable regulations in effect when the publication was written as noted above. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publicationand the law, decisions will be based on the law and not on this publication.

Taxable Labor

Fabrication labor is taxable

Fabrication is considered to be work done in creating, producing, processing, or assembling a product. Modifying an item or system as part of a sale is also considered fabrication. Charges for fabrication labor are generally taxable, whether you itemize your labor charges or include them in the price of the product. This is true whether you supply the materials for the job or your customer supplies the materials.

Examples of fabrication labor include:

  • Manufacturing a new piece of machinery.
  • Sizing and engraving a new ring you are selling to a customer.
  • Altering a customer’s cutting die so that it will produce a new and different item.
  • Cutting metal or lumber provided by a customer.
  • Assembling a customer’s new barbecue or new bicycle that came in parts.
  • Altering a new suit to better fit the buyer (unless you are considered a clothes cleaner or dyer establishment [see below]).

Alteration of new items includes any work performed upon new items of tangible personal property (merchandise) to meet your customer’s specific needs. Your work may involve adding or removing material from the item, rearranging, restyling or otherwise altering the item. Alterations such as these result in the creation or production of a new item or constitute a step in the creation or production of a new item for your customer and charges for such labor are subject to tax.

Please see Regulation 1506, Miscellaneous Service Enterprises, and publication 125, Dry Cleaners, for information concerning clothes cleaner or dyer establishments. If an establishment is not considered a clothes cleaner or dyer as described in Regulation 1506, tax applies to the charges for altering garments as explained in Regulation 1524, Manufacturers of Personal Property.

Reconditioning and rebuilding parts

The application of tax to charges for reconditioning or rebuilding a part will depend on whether you:

  • Return to the customer the same part brought in for repair, or
  • Substitute a different part.

If you repair and return the customer’s original part, tax generally applies only to the charge for parts and materials furnished in reconditioning or repairing the part. Repair labor is not taxable. For example, you charge $2,800 to rebuild a transmission: $2,000 for parts and $800 for the repair labor. Tax would apply to the $2,000 charge for the parts.

If a different part is returned to the customer, you are considered the retailer of the rebuilt part and tax applies to the entire charge. Using the above example, sales tax is due on the entire $2,800 charge if the transmission returned to the customer was not the same one brought in for repair. If a credit for a core charge is given, you should subtract the core charge credit from the $2,800 before calculating sales tax.

For additional information on labor charges, please see Regulation 1546, Installing, Repairing, Reconditioning in General, and publication 25, Auto Repair Garages and Service Stations.

Services related to a taxable sale

Your charges for services related to a taxable sale are generally taxable. This is true whether you itemize the charges or include them in the price of the product. For example, suppose your taxable sale of a computer program includes 20 hours of training, and the customer cannot buy the program without the training services. The training is taxable as part of the sale whether you show a separate charge for it on your invoice or charge one amount for the program and training together.

Another example of a taxable service charge would be a “trip charge” you make in association with a taxable sale. Please note that if your bill includes taxable and nontaxable charges along with an itemized service charge, part of the service charge may not be taxable. For help determining how tax applies to charges by locksmiths, please see publication 62, Locksmiths.

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


As a Retailer
If the retail value of the parts and materials furnished in connection with repair work is more than 10 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 10 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 10 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.

Additional Information

To help you learn how tax applies to your own charges for labor, you may wish to obtain one of the regulations listed below or one of our industry-specific publications. You can easily download publications and regulations from our website at or order them from our Customer Service Center at 1-800-400-7115 (TTY:711).


9 Construction and Building Contractors

25 Auto Repair Garages and Service Stations

34 Motor Vehicle Dealers

35 Interior Designers and Decorators

37 Graphic Design, Printing, and Publishing

62 Locksmiths

125 Dry Cleaners


1506 Miscellaneous Service Enterprises

1521 Construction Contractors

1524 Manufacturers of Personal Property

1526 Producing, Fabricating, and Processing Property Furnished by Consumers—General Rules

1546 Installing, Repairing, Reconditioning in General

1548 Retreading and Recapping Tires

1549 Fur Repairers, Alterers, and Remodelers

1550 Reupholsterers

1551 Repainting and Refinishing

1553 Miscellaneous Repair Operations