Updates to Sales Tax Guidance for Indiana Construction Contractors

The go-to sales tax guidance for real property construction contractors working in the state of Indiana has been updated. The Indiana Department of Revenue made changes earlier this month to Indiana Sales Tax Information Bulletin #60, which now includes a section on charges for repairs.

While there does not appear to be any changes to the overall taxability of construction services, the updated bulletin provides new details on IDOR’s position on the applicability of sales tax to both repair work and service call, delivery, or transportation-type charges – and it seems the department is putting a lot of weight on the intent of the charge. For example, the new guidance distinguishes between a charge for service to evaluate the necessary repair from a charge for service when the repairperson is aware of the need for replacement parts. The former is not taxable, even if the service results in the use of taxable repair parts. In contrast, the latter is a taxable charge since it is generated from the intent to sell a taxable repair part.

The new guidance also reaffirms the IDOR’s long-standing position that separately stated service charges would be nontaxable. The bulletin provides three examples to help contractors work through taxability:

1. An appliance repair company receives a call from a customer whose washing machine is not working, but the customer can’t identify the issue. The washing machine is considered tangible personal property and not a fixture. The company sends a repairperson to investigate, with the understanding that the service call is $65. The repairperson identifies the issue, and he has the part in his vehicle in order to fix the problem. The part cost $10 when the company bought it. The company charges a $100 fee for the repair, which is inclusive of the part. The repair charge is exempt because the cost of the part is 10% of the overall charge of the service. The $65 is also exempt, because the charge is not associated with the delivery of tangible personal property. The repair company owes sales/use tax on the part used to perform the repair service.
2. An appliance repair company receives a call from a customer whose washing machine is not working, but the customer can’t identify the issue. The washing machine is considered tangible personal property and not a fixture. The company sends a repairperson to investigate, with the understanding that the service call is $65. The repairperson identifies the issue, and he has the part in his vehicle in order to fix the problem. The part cost $80 when the company bought it. The company charges a $200 fee for the repair, which is inclusive of the part. The repair charge is taxable because the cost of the part is more than 10% of the overall charge of the service. The $65 is also taxable, because the charge is associated with the delivery of tangible personal property.
3. A heating and cooling company receives a call from a customer whose furnace needs to be repaired because it is making an unusual noise. The furnace is considered a fixture to real property in this case. The company sends a repairperson to investigate, with the understanding that the service call is $65. The repairperson identifies the issue, and she has the part in her vehicle in order to fix the problem. The part cost $80 when the company bought it. The company charges a $200 fee for the repair, which is inclusive of the part. The repair charge is not taxable as long as the company paid sales tax on the part, since this is a repair of real property that is not a time and material contract. The $65 is exempt, because the charge is associated with a nontaxable transaction.

Despite the IDOR’s efforts to provide general guidelines for taxability of related repair services, the notion that taxability turns on intent potentially creates more room for interpretation than clarity. Should you have questions about this new guidance, please reach out to your KSM advisor or complete this form.