Indiana Contractor Taxes and Licensing: Lump-Sum vs. Time-and-Material Contracts
By BRIX Editorial Team · Updated
In Indiana, the type of contract decides who handles sales tax. Time-and-material contractors are retail merchants of construction material: they register and collect the 7% tax on materials. Lump-sum contractors pay tax on materials when buying them. Separately stated installation charges aren't taxed. Only plumbers are licensed by the state.
Key takeaways
- Time-and-material contractors collect sales tax on materials and can buy them for resale on Form ST-105.
- Lump-sum contractors aren't retail merchants; they pay sales or use tax on their construction material.
- Installation charges separately stated on the invoice aren't taxed.
- The only construction contractors licensed by the State of Indiana are plumbers; other licensing is local.
- The 2026 state individual income tax rate is 2.95%, plus a county income tax based on where you live.
How your contract type sets your Indiana sales tax
Indiana splits contractors by how they price the job. The Department of Revenue's Sales Tax Information Bulletin #60 says time-and-material contractors "are retail merchants selling construction material." They register to collect sales tax, buy materials exempt for resale using Form ST-105, and charge the customer tax on the materials. Lump-sum contractors "are not acting as retail merchants" and "must pay sales or use tax on their construction material."
| Contract type | Status under Bulletin #60 | Tax on materials | Customer's invoice |
|---|---|---|---|
| Time and material | Retail merchant selling construction material | Bought for resale (Form ST-105) | Sales tax charged on materials |
| Lump sum | Not a retail merchant | Contractor pays sales or use tax at purchase | No sales tax line |
Many contractors write both kinds of contracts, so the treatment can change job by job. Decide your contract format on purpose, with your CPA, and make sure your invoices match it. For how other states use similar splits, see sales tax on labor vs. materials.
Is labor taxable in Indiana?
Installation labor generally isn't, if you state it separately. Bulletin #60 says "installation charges separately stated on an invoice are not included in gross retail income." Charges for fabrication, delivery and similar work done before the material is transferred to the customer are a different story: they're part of the taxable price. If you're a time-and-material contractor, split installation from materials and pre-installation charges on every invoice.
Use tax and the 7% rate
Indiana businesses "register to collect a seven percent sales tax," according to the Department of Revenue. Lump-sum contractors who buy materials without paying Indiana tax, for example from an out-of-state supplier, owe use tax. Bulletin #60 says use tax is reported on Form ST-115 with the income tax return or on Form ST-103. It also notes that protective equipment like hard hats isn't exempt. See use tax for contractors for the common situations.
Indiana contractor licensing
Indiana's official business guide says "the only construction contractors licensed by the State of Indiana are plumbers," and that "contractor licensing (for contractors other than plumbers) is also a local option." Plumbers are licensed by the Indiana Plumbing Commission under the Professional Licensing Agency (IPLA), under Indiana Code Title 25, Article 28.5. Electrical, HVAC, roofing and general contractors deal with city and county licensing, which can mean separate registrations, bonds and exams in each place you work.
| Trade | Who licenses it | License | Where to check |
|---|---|---|---|
| Plumbing | Indiana Plumbing Commission (IPLA) | State plumbing licenses under IC 25-28.5 | IPLA plumbing |
| Electrical | City or county (local option) | Local registration or license where required | Your city or county building department |
| HVAC | City or county (local option) | Local registration or license where required | Your city or county building department |
| Roofing, general, remodeling | City or county (local option) | Local registration or license where required | Your city or county building department |
If you work across county lines, keep a list of which jurisdictions you're registered in and when each renews. More on how licensing works: contractor license.
Indiana income tax: state plus county
The Department of Revenue's Departmental Notice #1 says "for 2026, the state adjusted gross income tax rate for individuals is 2.95%." Indiana counties also levy local income taxes, based on your county of residence on January 1. Examples from the notice: Allen 1.59%, Hamilton 1.1%, Lake 1.5%, Madison 2.25% and White 2.32%. So a sole proprietor living in Madison County pays 2.95% state plus 2.25% county on Indiana taxable income.
Corporations file under Indiana's corporate adjusted gross income tax; ask your CPA for the current rate and whether a C corp makes sense. Pass-through owners generally make quarterly estimated payments that cover both state and county tax. See quarterly estimated taxes for contractors and the quarterly estimated tax calculator.
Workers' comp in Indiana
The Worker's Compensation Board of Indiana oversees the system, and it notes that "in Indiana, workers' compensation benefits are paid by employers, not the State," through insurance carriers or approved self-insurance. For who must carry coverage and which owners are exempt, check with the Board. Indiana also has a process for independent contractors: a person is an independent contractor "if the person is an independent contractor under the guidelines of the United States Internal Revenue Service," and the Board issues certificates of exemption to independent contractors. If you hire subs who don't carry their own coverage, ask your CPA and insurer about collecting those certificates. Background: workers' compensation.
Local taxes in Indiana
For most Indiana contractors, the local tax that matters is the county income tax, which follows where you live on January 1, not where you work. Local licensing and permit fees are the other local cost; check the rules for each city and county before you bid there.
Neighboring state guides
Frequently asked questions
Do contractors charge sales tax in Indiana?
It depends on the contract. Time-and-material contractors are retail merchants and charge sales tax on materials. Lump-sum contractors pay sales or use tax on materials when buying them and don't charge customers sales tax.
Is labor taxable in Indiana?
Installation charges separately stated on an invoice aren't included in gross retail income, so they aren't taxed. Fabrication, delivery and similar charges before the material is transferred to the customer are taxable.
What is the Indiana sales tax rate?
Indiana's sales tax rate is 7%, according to the Indiana Department of Revenue. Time-and-material contractors collect it on materials; lump-sum contractors pay it on their purchases.
Does Indiana require a contractor license?
Indiana licenses only plumbers at the state level, through the Plumbing Commission. Licensing for electricians, HVAC, roofing and general contractors is a local option, so check with each city and county.
What is Indiana's income tax rate for 2026?
The 2026 state individual income tax rate is 2.95%. Each county adds its own income tax based on your county of residence on January 1, such as 1.59% in Allen County or 2.25% in Madison County.
Do Indiana subcontractors need workers' comp?
Rules depend on whether they have employees and how they're structured. The Worker's Compensation Board issues certificates of exemption to independent contractors who qualify under IRS guidelines. Check with the Board and your insurer before hiring uninsured subs.
Related
- Do Contractors Charge Sales Tax on Labor or Materials?Do contractors charge sales tax on labor, materials or both? The main state models, with California, Texas, New York, Washington and Florida rules.
- What Is Use Tax for Contractors?Use tax explained for trades businesses: out-of-state material orders, resale certificate misuse, tools and equipment, and how to track and report it.
- What Is a Contractor License?What a contractor license is, when you need one, and how six states set dollar thresholds, bonds and insurance, with links to each licensing board.
- What Is Workers' Compensation Insurance?When contractors must carry workers' compensation, how employee thresholds differ by state, and how premiums are calculated from payroll and class rates.
- Quarterly Estimated Taxes for Contractors: How They Work in 20262026 estimated tax due dates, who has to pay, the 90%/100%/110% safe harbors and how to size each payment, with a worked contractor example.
- Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)Free 2026 quarterly estimated tax calculator for self-employed contractors. See your safe-harbor payment, each due date, and what to set aside.
- Ohio Contractor Taxes and Licensing: Taxable Services, the CAT and BWCOhio contractors pay tax on materials for real property jobs, but lawn care, janitorial and carpet installs are taxable. CAT, city income tax and BWC comp.
- Illinois Contractor Taxes and Licensing: Use Tax, Service Occupation Tax and State LicensesIllinois contractors pay use tax on materials and don't charge sales tax on construction. Repair SOT, plumbing and roofing licenses.
- Michigan Contractor Taxes and Licensing: Use Tax, LARA Licenses and City Income TaxMichigan real property contractors owe 6% use tax on materials and need no sales tax license. LARA builder licenses, the $600 rule, city income tax, comp.
- Self-Employment Tax Calculator (2026)Free 2026 self-employment tax calculator for contractors. See your Social Security and Medicare tax, the deductible half, and what to save monthly.
Sources
- Indiana Department of Revenue — Sales Tax Information Bulletin #60, Construction Contractors (checked October 19, 2026)
- Indiana Department of Revenue — Sales tax (checked October 19, 2026)
- Indiana Department of Revenue — Departmental Notice #1 (2026 individual and county income tax rates) (checked October 19, 2026)
- IN.gov — Business guide (contractor licensing) (checked October 20, 2026)
- Indiana Professional Licensing Agency — Plumbing Commission (checked October 20, 2026)
- Worker's Compensation Board of Indiana (checked October 20, 2026)
- Worker's Compensation Board of Indiana — Independent contractors (checked October 19, 2026)