Ohio Contractor Taxes and Licensing: Taxable Services, the CAT and BWC

Ohio contractors don't collect sales tax on real property work: they're the consumer of materials and pay tax when buying them. But Ohio taxes many services trades businesses sell, including repair and installation of personal property, lawn care and landscaping, janitorial work, exterminating and carpet installation. The state rate is 5.75%, with county add-ons.

What Ohio taxes that other states don't

Ohio's construction rule is ordinary. Its list of taxable services is not. The Ohio Department of Taxation says "contractors and home remodelers do not collect sales tax on their work," because a contractor that buys materials for incorporation into real property "is the consumer of those materials or services and needs to pay sales or use tax on their purchase price." But a company that also mows lawns, cleans buildings, kills bugs or installs carpet is selling services Ohio taxes.

The $5,000 threshold catches small operators off guard. A side snow-removal business that crosses $5,000 in a year has to start charging tax, and for building cleaning the department says the threshold "does not reset once reached." Neighbors like Michigan and Indiana set their own service rules, so don't carry Ohio habits across the line. See sales tax on labor vs. materials for the wider picture.

Is labor taxable on Ohio construction jobs?

No, not when the work improves real property. The contractor pays tax on the materials and the customer's construction invoice has no sales tax. The line Ohio draws is between real property and personal property: if what you install stays personal property, the department says the contractor "is selling tangible personal property and should charge sales tax." Repairing personal property, such as a freestanding appliance or a piece of equipment, is also taxable.

Materials, use tax and Ohio rates

Contractors "owe use tax on their untaxed purchases of tangible personal property used in Ohio." Exemption certificates for qualifying construction contracts use Form STEC CC, and direct pay permits are available. One useful rule for border contractors: "building and construction materials sold to a construction contractor for incorporation into real property outside this state are not subject to Ohio sales or use tax if the materials would be exempt from tax when sold to the contractor in the other state." See use tax for contractors.

The state rate is 5.75%. Counties and transit authorities can add up to 3%, for a combined maximum of 8.75%. Rates change only at the start of a quarter; for example, Warren County moved from 6.75% to 7.25% effective October 1, 2026. Check the department's county rate table for the job location.

Ohio contractor licensing (OCILB)

Ohio splits licensing between the state and local governments. The Ohio Construction Industry Licensing Board (OCILB), part of the Department of Commerce's Division of Industrial Compliance, licenses "Electrical, Heating Ventilating and Air Conditioning (HVAC), Plumbing, Hydronics and Refrigeration Contractors." It "regulates commercial contractors," and those licenses are also called master licenses. For homes, "all local building and health departments regulate residential contractors," though some require the state license anyway.

More on how licensing works in general: contractor license.

Ohio income tax, the CAT and city income taxes

Ohio can layer up to three taxes on a growing business. State income tax: under ORC 5747.02, for taxable years beginning in 2026, income above $26,050 is taxed at "$332.00 plus 2.75% of the amount in excess of $26,050." Owners of pass-through businesses get a separate treatment: "taxable business income is taxed at a flat rate of 3%," and your CPA can tell you how the business income deduction and that rate apply to you.

Commercial Activity Tax (CAT): "For tax years 2025 and forward: Businesses with more than $6 million a year in Ohio TGR need to pay the CAT," at ".26% (.0026) of Ohio Taxable Gross Receipts." It's a tax on receipts, not profit, and it "cannot be separately billed or invoiced" to customers. Most small trades shops fall under the $6 million exclusion, but a growing company should watch it.

Municipal and school district income tax: many Ohio cities levy a municipal net profit tax, "a local income tax levied on the net profit of businesses," and businesses can opt in to have the state administer it. Some school districts also levy an income tax. Ask your CPA which ones apply where you live and work. Quarterly estimates may need to cover all of these; see quarterly estimated taxes for contractors and the quarterly estimated tax calculator.

Workers' comp in Ohio: the state fund

Ohio is one of the few states where you can't buy workers' comp from a private insurer. Ohio.gov says "all businesses with employees must have workers' compensation coverage through the Bureau of Workers' Compensation (BWC)." Ohio law defines a covered employer to include private employers with "one or more employees or shared employees regularly in the same business." The alternative is BWC-approved self-insurance. Background: workers' compensation.

Local taxes in Ohio

• County and transit sales tax: up to 3% on top of 5.75%, changing only at the start of a quarter.
• Municipal net profit tax: levied by many cities on business profit.
• School district income tax: levied by some districts on residents.