Washington taxes · 3 minute read

Washington sales tax and B&O tax basics for contractors

In Washington, a prime contractor doing construction for a consumer collects retail sales tax on the total contract price, labor included, and reports under the retailing B&O classification. A subcontractor who receives the prime contractor's reseller permit doesn't collect sales tax and reports under wholesaling instead.

Washington taxes construction as a retail sale

In many states, a contractor pays sales tax on materials and charges none to the customer.

Washington works the other way. When you build, remodel or repair for a consumer, the Department of Revenue treats the job as a retail sale. Sales tax applies to the full contract price, including labor.

That surprises contractors who move here from other states, and it's one of the most common reasons Washington books go sideways.

Prime contractors collect sales tax on the total contract price

If you contract directly with the property owner, you are the prime contractor. According to the Department of Revenue's construction tax matrix:

• Sales tax is collected on the total contract price.
• The job is reported under the retailing B&O tax classification.

The sales tax rate depends on where the work happens, not where your shop is.

Subcontractors depend on the prime's reseller permit

If you work for another contractor, the answer depends on paperwork:

• If the prime contractor gives you a copy of its reseller permit, you don't collect sales tax, and you report under the wholesaling B&O classification.
• If they don't, you collect sales tax on your total charge to them, and you report under retailing.

Keep a copy of every prime contractor's reseller permit on file. Without it, the tax is yours to collect.

Materials that become part of the building are bought tax-free

Lumber, drywall, fixtures and flooring that become a permanent part of the structure can be bought with a reseller permit, because the tax gets collected later on the full contract price.

Consumables are different. Tools, equipment rentals, sandpaper and masking tape don't become part of the building, so you pay sales or use tax on them yourself.

The reseller permit is free, lasts two years, and requires you to be doing retail or wholesale construction. Apply through the Department of Revenue.

Some jobs follow different rules

• Speculative building: if you build on land you own and then sell it, you don't collect sales tax on the sale, but you pay sales or use tax on all materials and on what other contractors bill you.
• Public road construction: its own B&O classification, with no retail sales tax on city, county or federal roads.
• Government contracting: its own B&O classification, and you pay sales or use tax on the materials you install.

Your bookkeeping has to keep sales tax separate from income

Sales tax you collect isn't your money. It belongs to the state the moment the customer pays it.

If your invoices lump sales tax into the job price, your income looks bigger than it is and your job costing margins look better than they are. Set sales tax up as its own line on every invoice so QuickBooks tracks what you owe.

On the Back Office plan, we prepare and file your sales and excise tax returns after you approve them. On every plan, the monthly close reconciles the sales tax you collected against what's due.

What to do next

Look at your last three invoices. If sales tax isn't on its own line, start there.

Then confirm your setup against the Department of Revenue's construction tax matrix. If your sales tax history is a mess, a catch-up project can sort it out before it becomes an audit problem. Contractors outside Washington can skip this one and start with the 1099-NEC rules, which apply everywhere.

This article is general information based on Washington Department of Revenue guidance as of October 2026, not tax advice. Confirm your situation with your CPA or the Department of Revenue.