Sales tax and bookkeeping for HVAC, plumbing and electrical contractors in California

Regulation 1521 names the trades directly. A construction contract includes furnishing and installing the property that becomes part of a central heating, air-conditioning or electrical system of a building, and furnishing and installing wires, ducts, pipes, vents and other conduit affixed to a structure. The regulation then splits everything a contractor installs into materials and fixtures, and the two carry different tax.

• Materials are construction materials and components that, when combined with other property, lose their identity to become an integral and inseparable part of the real property. The regulation's own list includes conduit, ducts, electric wiring and connections, piping, valves and pipe fittings, insulation and sheet metal.

  Source: CDTFA Regulation 1521, Construction Contractors (Business Taxes Law Guide, Revision 2026)

• Fixtures are items accessory to a building that do not lose their identity as accessories when installed. The list includes air conditioning units; furnaces, boilers and heating units; lighting fixtures; plumbing fixtures; refrigeration units; transformers and switchgear; electric generators affixed to and accessory to a building; and burglar alarm and fire alarm fixtures.

  Source: CDTFA Regulation 1521, Construction Contractors (Business Taxes Law Guide, Revision 2026)

• Construction contractors are consumers of the materials they furnish and install, and sales or use tax applies to the sale of the materials to them or their use of the materials. They are retailers of the fixtures they furnish and install, and tax applies to their sales of the fixtures.

  Source: CDTFA Regulation 1521, Construction Contractors (Business Taxes Law Guide, Revision 2026)

• Publication 9 adds, in its list of items usually considered fixtures, water heaters and water softeners built into water systems, faucets, hoods, motors and refrigeration compressors, and names disposals among items built into the realty. Ducts installed in walls, ceilings and floors are materials. Thermostats, fans and panel boards are not named in any CDTFA list; we code them by the same test, whether the item keeps its identity after installation.

  Source: CDTFA Publication 9, Construction and Building Contractors (February 2025)

• Sales tax generally does not apply to charges for installation labor, and tax generally does not apply to itemized charges for repair labor. Fabrication labor is taxable: work done in creating, producing, processing or assembling a product, whether the labor is itemized or included in the price of the product.

  Source: CDTFA Publication 108, Labor Charges

• For a fixture, jobsite fabrication labor and its share of overhead must be included in the cost price or sales price of the fixture; jobsite fabrication labor includes assembly performed before the fixture is attached to the real property. When you are the consumer of materials and fabricate them before installation, no tax is due on your own labor, only on the material cost; fabrication you sublet to an outside firm is taxable to you as part of the cost of the materials.

  Source: CDTFA Publication 9, Construction and Building Contractors (February 2025)

• A contract to repair a fixture in place is a construction contract. You are the retailer of the parts, and charge tax on them, when you replace the fixture or when the sale price of the parts is billed separately from the repair labor. You are the consumer of the parts, with tax paid at purchase and nothing to add, under a lump sum contract to repair a fixture.

  Source: CDTFA Publication 9, Construction and Building Contractors (February 2025)

• Machinery and equipment, property used in production or in performing services that is not essential to the building itself and is readily removable, is sold at retail by the contractor even when furnished under a construction contract. If a contract calls only for furnishing and installing machinery and equipment, tax applies to the total contract price excluding installation labor.

  Source: CDTFA Tax Guide for Construction Contractors, Industry Topics

• The statewide tax rate is 7.25%. In most areas local jurisdictions have added district taxes, which range from 0.10% to 2.00%, and some areas have more than one district tax in effect. Rates effective October 1, 2026.

  Source: CDTFA, California City and County Sales and Use Tax Rates, effective October 1, 2026

• Combined rates on the CDTFA's county and city chart operative October 1, 2026 run from 7.25% in counties with no district tax, such as Alpine County, to 11.75% in the cities of Lancaster and Palmdale. Los Angeles County's county-wide rate rose from 9.75% to 10.25% on October 1, 2026 after a voter-approved change, with more than sixty of its cities moving up with it; Alameda County is also at 10.25%.

  Source: CDTFA Special Notice L-1037, New Sales and Use Tax Rates Effective October 1, 2026 (August 2026)

• The jobsite is regarded as a place of business of the contractor: it is the place of sale of fixtures and the place of use of materials. If the jobsite is in a district, the district sales tax applies to the fixtures and the district use tax to the materials, even if your shop is somewhere else.

  Source: CDTFA Regulation 1826, Construction Contractors (district taxes)

• You owe the rate in effect where you install. If you paid a lower rate where you bought the items than the rate where you install them, you owe the difference on your return. Materials bought tax-paid in a higher-rate area and installed in a lower-rate area earn no credit for the difference. Fixtures do: district tax paid on fixtures later installed where there is no district tax, or a lower one, is credited in full.

  Source: CDTFA Publication 44, District Taxes, Construction Contractors (Revision June 2026)

• A fixed-price contract signed before a district tax took effect can be exempt from the new tax if it is for a fixed amount, obligates all parties and states the sales tax amount or rate in the contract.

  Source: CDTFA Publication 44, District Taxes, Construction Contractors (Revision June 2026)

• Seller's permit: a contractor who makes sales of fixtures, materials, machinery and equipment or other tangible personal property, in connection with a construction contract or otherwise, must hold one. Contractors engaged solely in construction contracts that do not involve the sale and installation of fixtures, and who are not otherwise sellers, need not. The Tax Guide lists the three cases with no permit: contracts exclusively with the United States Government, a general contractor that hires subcontractors exclusively, and a contractor that exclusively furnishes and installs materials under lump sum contracts.

  Source: CDTFA Tax Guide for Construction Contractors, Industry Topics

• With a seller's permit you may buy fixtures and machinery and equipment for resale by issuing a resale certificate to the supplier. You may not buy materials for resale unless you are also in the business of selling materials, and you cannot avoid tax on materials or fixtures you install by taking a resale certificate from the prime contractor, the owner or a designer.

  Source: CDTFA Regulation 1521, Construction Contractors (Business Taxes Law Guide, Revision 2026)

• Use tax: items bought from an out-of-state vendor without California tax, or taken from inventory bought without tax, go on your return under Purchases Subject to Use Tax, at the jobsite rate. For materials bought without tax the liability arises when they are committed to a job, which includes withdrawal from inventory and delivery to the jobsite; for out-of-state purchases, when the materials enter California. It is not permissible to wait until the job is completed. A contractor with no seller's permit that makes more than $10,000 a year of purchases subject to use tax must register for a consumer use tax account, under the rule in force from 2024 through 2028.

  Source: CDTFA Publication 9, Construction and Building Contractors (February 2025)

• Filing frequency: the CDTFA assigns quarterly prepay, quarterly, monthly, fiscal yearly or yearly based on your reported sales tax or your anticipated taxable sales at registration, and a return is required by the due date even with no sales. Returns are due the last day of the month after the period: for quarterly filers April 30, July 31, October 31 and January 31. If the due date falls on a weekend or state holiday it moves to the next business day.

  Source: CDTFA, Filing Dates for Sales and Use Tax Returns

• Businesses with average taxable sales of $17,000 or more a month are required to make prepayments, after written notice from the CDTFA: at least 90% of the tax for the period, due on the 24th of the following month, with the quarterly return still due at the end of the quarter. Missing a prepayment can cost a 6% penalty.

  Source: CDTFA Publication 73, Your California Seller's Permit (October 2026)

• Late: a 10% penalty if you do not file by the due date and a 10% penalty if the payment is late, limited together to 10% of the tax due for the period, plus interest for each month or fraction of a month the payment is late. Businesses paying an average of $10,000 a month or more in sales and use tax must pay by electronic funds transfer.

  Source: CDTFA Publication 75, Interest, Penalties, and Collection Cost Recovery Fee (Revision June 2026)

• Local tax: the local share of the rate on materials consumed and fixtures sold by contractors is reported by the county of the jobsite rather than the shop's address. Contractors who report over $600 a year in local tax get a schedule on the return for it by jobsite, and a single contract of $5,000,000 or more may carry its own jobsite sub-permit so the tax goes straight to that jurisdiction.

  Source: CDTFA Publication 9, Construction and Building Contractors (February 2025)

• You must register with the Employment Development Department within 15 days once you hire employees and pay more than $100 in wages in a calendar quarter. Wages include cash, checks, electronic and payment-app payments and the cash value of meals and lodging.

  Source: Employment Development Department, Step 1: Register as an Employer

• Unemployment insurance: new employers are assigned a 3.4% rate for two to three years, on the first $7,000 of each employee's wages in a calendar year. The EDD notifies employers of their new rate each December.

  Source: Employment Development Department, Rates and Withholding (2026)

• Employment training tax: 0.1% for 2026, employer paid, on the same first $7,000 per employee.

  Source: Employment Development Department, Rates and Withholding (2026)

• State disability insurance: withheld from employees' wages at 1.3% for 2026. Since January 1, 2024 all wages are subject to it; there is no wage limit.

  Source: Employment Development Department, Rates and Withholding (2026)

• California has a state personal income tax. Residents, part-year residents and nonresidents with income from a California source generally must file, and employers withhold the tax from wages according to each employee's Form DE 4.

  Source: Franchise Tax Board, Do you need to file? (updated December 4, 2025)

• Every quarter you file the Quarterly Contribution Return and Report of Wages (DE 9) and the DE 9C of each employee's wages, due the first day of the month after the quarter and delinquent after its last day: for 2026, April 30, July 31, November 2 and February 1, 2027. Deposits of the withheld tax go on Form DE 88.

  Source: Employment Development Department, 2026 Payroll Tax Due Dates

• All employers must submit returns, wage reports and payroll tax deposits electronically. Paper carries penalties of $50 a return, $20 a wage item and 15% of the payment.

  Source: Employment Development Department, E-file and E-pay Mandate for Employers

1. 1Billing sales tax on marked-up materialsOn a time and material job, charging the customer sales tax on your marked-up materials line makes you the retailer of those materials in the CDTFA's eyes, and tax is due on the whole marked-up amount, not on what you paid at the supply house. We set the invoice templates so materials lines carry no tax unless the shop has chosen to be a retailer of materials and buys them on a resale certificate.
2. 2Treating a fixture like a materialPaying tax on a furnace or a water heater at the supply house does not settle it on a time and material job. You are the retailer of the fixture, tax is due on the price you billed, and the tax you paid at purchase comes back as a tax-paid purchases resold deduction. On a lump sum job the fixture's cost price is the measure, so the purchase tax usually does settle it. We mark each job's contract type and keep fixture items separate from material items in QuickBooks.
3. 3Using the shop's rate instead of the job's rateDistrict tax follows the job address. A shop in a 7.75% area installing in a 10.25% county owes the 2.5% difference on its return, and the CDTFA's examples show exactly that arithmetic. Since October 1, 2026 Los Angeles County alone is at 10.25%, with Lancaster and Palmdale at 11.75%. Every job in QuickBooks carries the service address and its rate, and Schedule A allocates the district tax by jobsite.
4. 4Waiting for the job to finish before reporting use taxMaterials bought without tax, online or out of state, are taxable in the period they enter California or leave inventory for a job, not when the job closes. We accrue use tax every month from the purchase records so nothing is reported late.