"So how does it work with home improvments, does the contractor pay the tax with the material costs and than get taxed again on the total contract price ?"
Only the end user pays the tax. If a contractor buys materials, he does so tax-free. When he bills his customer, the end using consumer, he tacks it on and remits to the state (probably).
When you go to Home Depot and buy the same materials, you would pay the tax if you are an end using consumer.
Ok, so you will need a business license to be exempt from the taxes on the materials and your effective payroll tax will be whatever the Fair Tax rate is, am I close ?