I have pondered this one for years and suddenly the light bulb just went on. I'm sure someone else has come up with this idea before, I've just never seen it..

Go to sales tax class maintenance. By default there is NT for non-taxable, TF for Taxable Freight, TX for taxable. Create a code TL for taxable labor.

Then go to sales tax code maintenance. You will see the three default tax classes listed with their own individual rates Ad TL and put in the appropriate rate.

Then on your sales codes , inventory items, put in the appropriate tax class.

Test carefully as I have never implemented this before, but it should work. It's really no different than TF and TX.