Tax Notes - Landscaping Services
(01/26/07)
Capital Improvements Performed by Landscapers and Similar Businesses Effective October 1, 2006, charges for certain defined landscaping services are subject to tax. See N.J.S.A. 54:32B-3(b)(2), as amended and P.L. 2006, c. 44. The tax is applicable to sales by a landscape contractor to a property owner, including a real estate developer. For purposes of the sales tax law, contractors and subcontractors are entities that work on the real property of others. See examples below.
Other services which may be performed by a landscaper such as the installation of a new fence, low-voltage lighting, a pond, underground sprinkler system, hardscaping (i.e., installation of deck, paver patio, walkway, driveway, swimming pool deck, retaining walls, etc.), and similar structures, remain capital improvements to real property and are unaffected by the new law. Thus, the installation labor is still exempt from sales tax
Examples
ABC Landscaper has a contract with a property owner for the installation of planting materials, such as trees and shrubs, on existing construction. ABC Landscaper hires a subcontractor to perform the taxable planting service. Since ABC is charging the property owner for a taxable service, ABC must collect tax from the property owner. The amount charged to ABC by the subcontractor is not a taxable receipt.
XYZ real estate developer is constructing a home to sell to the public. XYZ hires ABC Landscaper to perform taxable landscaping services. XYZ is the property owner and thus, the end-consumer of the landscaping services, and must pay tax on the amount charged by ABC Landscaper.
XYZ real estate developer is constructing a home to sell to the public. XYZ hires GC General Contractor. GC hires ABC Landscaper as a subcontractor to perform taxable landscaping services. XYZ is the property owner, and thus, the end-consumer of the landscaping services, and must pay tax on the amount charged by GC for the landscaping services. The amount charged to GC by ABC Landscaper is not a taxable receipt.
Transition from Exempt Capital Improvement to Taxable Service
If a landscaper performs a taxable service which was previously exempt as a capital improvement and such service began prior to October 1, and continues on and after October 1, 2006, the landscaper must charge 7% tax on the sale of the services that are completed on and after October 1, 2006. This rule applies whether or not payment has been made in whole or in part prior to the performance of the service.
Repair and Maintenance Services
The Sales and Use Tax Act currently imposes tax on charges for maintaining, servicing, and repairing real property. N.J.S.A. 54:32B-3(b)(4). Repair and maintenance services performed by landscapers are subject to tax under this provision. The following are examples of taxable repair and maintenance services performed by landscapers:
Material Purchases
Businesses which provide landscaping services are still considered contractors under the law. Thus, the landscaper is responsible for paying sales or use tax on the materials that are installed onto real property. The law has not changed in this regard.
Collecting Tax From Customers
A contractor performing “landscaping services” for an end-user must collect 7% sales tax on the gross sales receipt. However, at the option of the contractor, the actual cost of materials used and upon which the contractor paid tax may be separately stated on the invoice. The separate statement of the actual cost of materials would not be subject to the collection of tax. The law has not changed in this regard. Whenever a contractor performs a taxable service, if the customer is billed a lump sum amount, the entire receipt is taxable. If the contractor separately states the actual cost of materials from the taxable labor, the customer would only be charged tax on the labor portion.
For more information see publication ANJ-4, Landscapers & New Jersey Sales Tax.
Other services which may be performed by a landscaper such as the installation of a new fence, low-voltage lighting, a pond, underground sprinkler system, hardscaping (i.e., installation of deck, paver patio, walkway, driveway, swimming pool deck, retaining walls, etc.), and similar structures, remain capital improvements to real property and are unaffected by the new law. Thus, the installation labor is still exempt from sales tax
Examples
ABC Landscaper has a contract with a property owner for the installation of planting materials, such as trees and shrubs, on existing construction. ABC Landscaper hires a subcontractor to perform the taxable planting service. Since ABC is charging the property owner for a taxable service, ABC must collect tax from the property owner. The amount charged to ABC by the subcontractor is not a taxable receipt.
XYZ real estate developer is constructing a home to sell to the public. XYZ hires ABC Landscaper to perform taxable landscaping services. XYZ is the property owner and thus, the end-consumer of the landscaping services, and must pay tax on the amount charged by ABC Landscaper.
XYZ real estate developer is constructing a home to sell to the public. XYZ hires GC General Contractor. GC hires ABC Landscaper as a subcontractor to perform taxable landscaping services. XYZ is the property owner, and thus, the end-consumer of the landscaping services, and must pay tax on the amount charged by GC for the landscaping services. The amount charged to GC by ABC Landscaper is not a taxable receipt.
Transition from Exempt Capital Improvement to Taxable Service
If a landscaper performs a taxable service which was previously exempt as a capital improvement and such service began prior to October 1, and continues on and after October 1, 2006, the landscaper must charge 7% tax on the sale of the services that are completed on and after October 1, 2006. This rule applies whether or not payment has been made in whole or in part prior to the performance of the service.
Repair and Maintenance Services
The Sales and Use Tax Act currently imposes tax on charges for maintaining, servicing, and repairing real property. N.J.S.A. 54:32B-3(b)(4). Repair and maintenance services performed by landscapers are subject to tax under this provision. The following are examples of taxable repair and maintenance services performed by landscapers:
- Lawn mowing
- Lawn reseeding
- Lawn fertilizing
- Tree maintenance (trimming, pruning, spraying, bracing, cabling, grafting, coppicing, suckering and feeding)
- Weed/Insect control
- Soil aerating, sterilizing and mulching
Material Purchases
Businesses which provide landscaping services are still considered contractors under the law. Thus, the landscaper is responsible for paying sales or use tax on the materials that are installed onto real property. The law has not changed in this regard.
Collecting Tax From Customers
A contractor performing “landscaping services” for an end-user must collect 7% sales tax on the gross sales receipt. However, at the option of the contractor, the actual cost of materials used and upon which the contractor paid tax may be separately stated on the invoice. The separate statement of the actual cost of materials would not be subject to the collection of tax. The law has not changed in this regard. Whenever a contractor performs a taxable service, if the customer is billed a lump sum amount, the entire receipt is taxable. If the contractor separately states the actual cost of materials from the taxable labor, the customer would only be charged tax on the labor portion.
For more information see publication ANJ-4, Landscapers & New Jersey Sales Tax.
