Minnesota Contractor Taxes and Licensing: Taxable Services, DLI Licenses and 2026 Rates

Minnesota doesn't tax construction labor, and contractors pay sales or use tax on all the materials they use. But several services trades businesses sell are taxable, including lawn care, landscape maintenance and building cleaning. The state rate is 6.875%, plus local taxes. Residential builders, remodelers and roofers need a Department of Labor and Industry license.

Is labor taxable in Minnesota?

Construction labor isn't, but some service labor is. The Minnesota Department of Revenue's guide for construction contractors says plainly: "Construction labor is not taxable." Installing furnaces, water heaters, central air, plumbing and electrical systems counts as improving real property, so the customer's contract isn't taxed. Where Minnesota differs from neighbors like North Dakota and Iowa is its list of taxable services that many trades companies also sell.

So a landscaping company that installs a patio and plants trees in spring, then mows weekly all summer, has a nontaxable improvement job and a taxable service contract with the same customer. Keep them on separate invoices or line items. For how other states split this, see sales tax on labor vs. materials.

Materials and use tax for Minnesota contractors

On real property jobs, the department says "you must pay sales and use tax on the cost of all materials, supplies, and equipment." If a supplier didn't charge Minnesota tax, for example an out-of-state online order, you owe use tax on it. The state rate is 6.875%, and local and special local taxes are added on top. Use the department's sales tax rate calculator for an address, and see use tax for contractors for the common traps.

Minnesota contractor licensing

Minnesota licenses residential contractors at the state level through the Department of Labor and Industry (DLI). A license is required for anyone contracting with the owner of a one- to four-unit residence for "more than one special skill"; remodelers are limited to existing structures. Roofing has its own rule: "Residential contractors who perform roofing work must be licensed," with an exemption for gross receipts under $15,000 a year that requires an annual certificate of exemption. Commercial contractors and subcontractors register through DLI's construction contractor registration program.

DLI says "businesses and individuals that contract to perform plumbing work in Minnesota must have a plumbing contractor license." Solar installers should note that solar PV contracts need a residential building contractor or remodeler license, and the electrical work must be done by a licensed electrical contractor. For more on licensing, see contractor license.

Minnesota income tax for 2026

Minnesota has four individual brackets, adjusted for inflation each year. The Department of Revenue's December 2025 announcement set these for tax year 2026:

Minnesota also charges certain businesses a minimum fee, which for 2026 is $0 below $1,280,000 of Minnesota property, payroll and sales and rises to $12,830 at $51.28 million or more. Ask your CPA whether it applies to your entity. Owners with no withholding make quarterly estimated payments; see quarterly estimated taxes for contractors and the quarterly estimated tax calculator.

Workers' comp in Minnesota

Minnesota requires coverage from the first employee. DLI says Minn. Stat. 176.181 "requires all employers to either purchase workers' compensation insurance" or self-insure, and "there is no minimum number of employees an employer must have before insurance is required." DLI's plumbing contractor license also asks for proof of workers' comp. Background: workers' compensation.

Local taxes in Minnesota

Cities and counties add local and special local sales taxes on top of 6.875%, which matters both for what you pay on materials and for what you charge on taxable services like lawn care and building cleaning. The department publishes updated local rates, so recheck them regularly.