You don’t say where you live – sales tax is different by state. Ask the contractor.

The contractor should quote you a full price for the job. It should include all his costs, material–including any sales tax he has to pay, labor, overhead, profit margin. Nothing should be added to it.

Without knowing where you are it’s impossible to say. Some states levy sales tax on labor and some do not. If tax is levied on labor, the entire bill from the contractor will be subject to tax. If labor is not taxed, it will only apply to the materials. If the regular sales tax rate for your locale is 8.5%, that’s what the tax rate will be.

Under most conditions, you will not pay the taxes due on a contractors job. You pay a total for the job, based on the bid price. He pays all the taxes and cost for material, labor and permits. All of this should be built into the price he quoted you for the job. The only exception to this, would be any change orders that come about after the job is started, which would be from making changes to work because you changed your mind about what you wanted done, or changes needed because some unforeseen or hidden problem, causes a need for extra work to be done. An example of these is: You decide after the contract is signed that you want kitchen cabinets with lights built into the underside – and no wiring was included in the original quote. Or when going to install the kitchen cabinets that were planned with lights that would connect to an existing electrical circuit – he finds that the existing circuit is not installed to code, and must be rewired to meet code inspections, at an additional cost.

If you check with the local and state tax people, and they say that the tax is indeed only 8.5%. I would run from this contractor unless he can come up with one hell of a good explanation why he is trying to hold you up for more. I would also make sure that no materials are delivered to your house, without signed lien wavers, showing that the material were paid for. That would also apply to any subcontractors that are brought in on the job. If the contractor is trying to scam you on taxes, he is just as likely to not pay the trades and the suppliers, all of who will come after YOU and not the contractor for the monies owed to them. It is then up to you to have to try to hunt down the contractor and get your money back.

Bottom line – if you think something funny is going on – find another contractor. This is your house your talking about, and you should not risk being taken.