New Jersey Contractor Taxes and Licensing: A Guide for Trades

New Jersey taxes contractor labor on repairs, maintenance, installations and some capital improvements at 6.625%, while you pay tax on all materials when you buy them. Labor on an exempt capital improvement is not taxed if the owner gives you Form ST-8. Home improvement contractors must register with the Division of Consumer Affairs.

What sets New Jersey apart for contractors?

New Jersey is one of the states where your labor is often taxable. The Division of Taxation's contractor bulletin (S&U-3) says contractors working in the state must register for tax purposes and "collect New Jersey Sales Tax on charges for labor when required." A furnace repair, a gutter fix or a fixture swap all put tax on your bill. A full kitchen remodel may not. One rate covers the whole state, 6.625%, effective January 1, 2018, per the Division's sales tax page.

The second difference is paperwork with Newark, not just Trenton. The Contractor's Registration Act requires home improvement contractors to register with the Division of Consumer Affairs and show their NJHIC number, and your local construction office will ask for that number on residential permits.

When is contractor labor taxable in New Jersey?

Labor is taxable on repairs, maintenance, installations and a short list of "taxable capital improvements." Labor is exempt on other capital improvements. Form ST-8 explains the line: work that "only maintains the existing value of the property" is a repair, while work that increases the property's capital value is generally a capital improvement. The Division suggests federal income tax treatment as a guide when you're unsure.

How you bill matters on taxable jobs. S&U-3 says the only amount you can subtract before figuring tax is a separately stated pass-through of your actual material cost (which can include the tax you paid on it). The rest is labor and is taxable. If you don't itemize, "the entire receipt is subject to tax." On an exempt capital improvement with a signed ST-8, you charge no tax whether or not you itemize.

One break worth knowing: S&U-3 says you don't charge tax on parts or labor to maintain, service or repair a residential heating system serving no more than three families living independently. For how other states handle labor, see sales tax on labor vs. materials.

How do materials, ST-8 and use tax work in New Jersey?

The Division treats you as "the actual consumer" of materials and supplies used to improve, alter or repair someone else's real property. You pay sales tax when you buy, "irrespective of whether the work constitutes a repair or a capital improvement," as Form ST-8 puts it. Subcontractors are treated the same way.

• Form ST-8, Certificate of Exempt Capital Improvement: completed by the property owner and kept by you; don't send it to the Division. It can't be used to buy materials.
• Form ST-13, Contractor's Exempt Purchase Certificate (or UZ-4 in an Urban Enterprise Zone): lets you buy materials tax-free for exclusive use on property of an exempt organization, a qualified UEZ business or a qualified housing sponsor.
• Subcontractors: a sub doesn't bill the prime for tax on labor for taxable work; the prime collects it from the owner. The exception is a taxable capital improvement, where the sub collects from whoever hired it.

Out-of-state purchases trigger use tax. S&U-3's example: if you buy lumber in another state, pay 4% there and use it on a New Jersey job, you owe the 2.625% difference to New Jersey (assuming no refund right in the other state and a reciprocal credit). Our use tax for contractors guide walks through tracking it.

Which licenses and registrations does New Jersey require?

Licensed electrical contractors and master plumbers working within their license don't need a separate HIC registration, per the construction code. Also watch for a change: a 2024 law (P.L.2023, c.237) creates a state board to license individual home improvement and home elevation contractors, but its licensing sections stay inoperative until six months after the board adopts rules. Check with the Division of Consumer Affairs for current status. Towns can also require mercantile licenses. More in our contractor license guide.

What income and business taxes do New Jersey contractors pay?

Profit from a sole proprietorship, LLC or S corporation flows to the owner's Gross Income Tax return. The Division's rate schedules for 2020 and later run from 1.4% to 10.75% on taxable income over $1,000,000.

• BAIT: partnerships, New Jersey S corporations and multi-member LLCs taxed as either can elect the Business Alternative Income Tax if at least one member is subject to Gross Income Tax. Elect every year by March 15 (calendar year). Rates are 5.675% up to $250,000, 6.52% to $1,000,000 and 10.9% above. Members get a refundable credit. Single-member LLCs and sole proprietors aren't eligible.
• S corporations: federal S status doesn't carry over automatically; you need a New Jersey election. S corps owe a minimum tax from $375 (under $100,000 of New Jersey gross receipts) to $1,500 ($1,000,000 or more), per the Division's corporation tax overview.
• C corporations: Corporation Business Tax of 6.5%, 7.5% or 9% depending on income, with a $500 to $2,000 minimum.
• Estimated payments: the 2026 NJ-1040-ES vouchers are due April 15, June 15 and September 15, 2026, and January 15, 2027.

For setting aside quarterly payments, see quarterly estimated taxes for contractors and the quarterly estimated tax calculator.

Do New Jersey contractors have to carry workers' comp?

Yes, once one person besides the owners works for pay. The Department of Labor's workers' compensation office says corporations must carry it if anyone, including corporate officers, performs services for pay. Partnerships and LLCs must carry it if anyone other than partners or members works for them, and sole proprietors once anyone besides the owner does. So a one-person S corp where the owner works in the business needs a policy, while a one-member LLC doesn't.

The stakes are high. The department says failing to insure is a disorderly persons offense, penalties can reach $5,000 for the first ten days and $5,000 for each later ten-day period, and corporate officers can be held personally liable. HIC registration also requires proof of workers' comp unless you document an exemption. See workers' compensation basics.

Taking jobs across the Hudson or the Delaware? See the New York guide and the Pennsylvania guide.