# Indiana Contractor Taxes and Licensing: Lump-Sum vs. Time-and-Material Contracts

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."

**Indiana contractors: who pays the tax on materials?**

| 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 |

_Summarized from Indiana DOR Sales Tax Information Bulletin #60, checked 2026-10-19._

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](https://www.brix.so/learn/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.

> **Example: a $7,500 deck, priced two ways (illustrative)**
>
> **Time-and-material invoice:** $3,000 of lumber and hardware plus $4,500 of installation labor, separately stated. The contractor bought the lumber for resale and charges 7% sales tax on the $3,000 ($210). The installation labor isn't taxed.
>
> **Lump-sum contract:** one $7,500 price. The contractor paid tax on the lumber when buying it and charges no sales tax.
>
> If the lumber was cut and fabricated in the shop before delivery, that fabrication charge is part of the taxable materials price on the time-and-material 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](https://www.brix.so/learn/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.

**Indiana contractor licensing by trade**

| Trade | Who licenses it | License | Where to check |
| --- | --- | --- | --- |
| Plumbing | Indiana Plumbing Commission (IPLA) | State plumbing licenses under IC 25-28.5 | [IPLA plumbing](https://www.in.gov/pla/professions/plumbing-home/) |
| 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 |

_Checked 2026-10-19 and 2026-10-20 against IN.gov's business guide and IPLA._

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](https://www.brix.so/learn/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](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors) and the [quarterly estimated tax calculator](https://www.brix.so/tools/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](https://www.brix.so/learn/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.

> **Not tax advice**
>
> Contract format changes your sales tax obligations in Indiana. Have a CPA who works with Indiana contractors review your contract templates, and contact the Indiana Department of Revenue for written guidance on specific jobs.

BRIX quotes can show materials and installation as separate lines or as one lump-sum price, and every invoice syncs to QuickBooks, so your paperwork matches the contract type you chose. BRIX doesn't choose your contract type or file returns.

- [Quotes and estimates](https://www.brix.so/features/quotes-estimates): Builds accurate quotes on site and follows up on every open estimate.
- [Invoicing and payments](https://www.brix.so/features/invoicing-payments): Turns finished jobs into invoices and politely chases unpaid ones until the money is in your account.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

### Neighboring state guides

- [Ohio](https://www.brix.so/taxes/ohio): Commercial Activity Tax, state-fund comp
- [Illinois](https://www.brix.so/taxes/illinois): Service occupation tax on repairs
- [Michigan](https://www.brix.so/taxes/michigan): No local sales tax

## 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?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [Quarterly Estimated Taxes for Contractors: How They Work in 2026](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Ohio Contractor Taxes and Licensing: Taxable Services, the CAT and BWC](https://www.brix.so/taxes/ohio)
- [Illinois Contractor Taxes and Licensing: Use Tax, Service Occupation Tax and State Licenses](https://www.brix.so/taxes/illinois)
- [Michigan Contractor Taxes and Licensing: Use Tax, LARA Licenses and City Income Tax](https://www.brix.so/taxes/michigan)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [Indiana Department of Revenue — Sales Tax Information Bulletin #60, Construction Contractors](https://www.in.gov/dor/files/sib60.pdf) (checked 2026-10-19)
- [Indiana Department of Revenue — Sales tax](https://www.in.gov/dor/i-am-a/business-corp/sales-tax/) (checked 2026-10-19)
- [Indiana Department of Revenue — Departmental Notice #1 (2026 individual and county income tax rates)](https://www.in.gov/dor/files/dn01.pdf) (checked 2026-10-19)
- [IN.gov — Business guide (contractor licensing)](https://www.in.gov/core/business_guide.html) (checked 2026-10-20)
- [Indiana Professional Licensing Agency — Plumbing Commission](https://www.in.gov/pla/professions/plumbing-home/) (checked 2026-10-20)
- [Worker's Compensation Board of Indiana](https://www.in.gov/wcb/) (checked 2026-10-20)
- [Worker's Compensation Board of Indiana — Independent contractors](https://www.in.gov/wcb/independent-contractors/) (checked 2026-10-19)

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Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/indiana