Sales tax and holiday lights

The Idaho State Tax Commission has received numerous questions from consumers and decorating businesses about sales tax and how it applies to holiday lights.

There are generally four types of transactions performed by decorating businesses that put up holiday lights. Three are taxable, one is not taxable:

Taxable

• Sales and rentals of tangible personal property.
  • Buying or renting lights and other decorations is taxable.
• Fabrication and assembly labor.
  • Adding lights to a string for the first time is fabrication. Replacing bulbs isn’t fabrication labor.
• Services agreed to be rendered as part of the sale.
  • Design services and other labor that don’t qualify as installation or repair are taxable.

Not taxable

• Installation and repair labor.
  • Installing lights or repairing decorations on a house is nontaxable labor if separately stated.

Below are a few examples:

Example 1: A homeowner buys holiday lights and hires a company to install the lights. There are no significant changes made to the provided lighting.

This transaction is a nontaxable installation service.

Example 2: A homeowner doesn’t own decorations and hires a company to provide decorations, install them, and remove the decorations at the end of the season. The homeowner doesn’t own the decorations at the end of the transaction.

This is a rental transaction and is taxable, except for separately stated installation if the charges aren’t exaggerated to reduce the taxable sales price.

Example 3: A property owner hires a company to design, fabricate, customize, and install a decoration package for their property. The property owner will own the decorations at the end of the transaction. At the end of the season, the company takes the decorations down and puts them in storage for the property owner. 

The entire transaction is taxable as fabrication labor and services agreed to be rendered as part of the sale, except for separately stated installation labor.

Example 4: A second transaction happens the following year from example 3. The homeowner hires the company to reinstall and set up the owner’s custom decorations purchased the previous year.

If no more modifications or fabrication occur, the second transaction for the second year is a nontaxable installation service.

For more information, please call the Tax Commission at (208) 334-7660 in the Boise area or toll free at (800) 972-7660.