Sales tax on invoices in Washington

In Washington, custom construction is a retail sale. On a custom job, the prime contractor hired by the landowner collects retail sales tax on the gross contract price, labor included, and must state the tax separately: writing “tax included” doesn’t meet the requirement.

Retail sales tax, B&O tax and your business license

Two Washington taxes apply to a contracting business:

• Retail sales tax: businesses selling goods at retail or performing retail services, such as custom prime construction, collect and remit it on their total charges unless a specific exemption applies.
• Business and occupation (B&O) tax: it’s based on your gross receipts, with no deductions for labor, materials, taxes or other costs. The nature of your activity decides your B&O classification, and each classification has its own rate.

If you’re subject to any of Washington’s excise taxes, register with the Department of Revenue by completing a Business License Application.

Custom construction: tax on the gross contract price

Custom construction is every construction job except speculative building, federal government contracting, public road and logging road construction, radioactive waste cleanup on federal lands, and construction services in Indian Country for enrolled members. The prime contractor is generally the one the landowner, or someone with ownership rights such as a lessee, hires to complete the entire job.

As the prime contractor, you report under the Retailing B&O classification and collect retail sales tax from the landowner on the gross contract price, without deducting your costs, unless a specific exemption applies. The taxable amount includes permits and other fees, labor, profit, materials and subcontractors’ charges, and your billings for building permits, engineering and architectural fees, tools and tax expenses.

Materials that become part of the completed project are purchases for resale: give your supplier a reseller permit and you don’t pay retail sales tax on them. You’re the consumer of the tools, equipment and supplies you use, and pay retail sales tax or use tax on them.

Washington’s construction activities include installing, repairing, cleaning, improving, constructing and decorating real property, and cleaning and repairing furnaces and septic tanks. The Department names general contracting, landscaping, painting, plumbing, electrical wiring, heating, ventilation and air conditioning, roofing, flooring, masonry, drywall and carpentry among them.

Subcontractors, speculative builders and reseller permits

• Subcontractors: if a custom prime contractor hires you for part of the job, report under the Wholesaling B&O classification and get a reseller permit from the prime contractor or another subcontractor instead of collecting sales tax. The prime contractor stays taxable on its whole contract: in the Department’s example, on a $100,000 contract with a $20,000 subcontract, the prime contractor is taxable on $100,000 and the subcontractor on $20,000.
• Several contractors hired directly by the landowner: each one is a custom prime contractor.
• Speculative builders, improving land they own, owe no B&O tax or retail sales tax on selling the real estate; real estate excise tax applies instead.

Wholesale sellers collect no retail sales tax, but must get a reseller permit from the buyer to document why. You may not use a reseller permit to buy items you consume in construction. Buying them with one and not paying deferred sales tax or use tax brings a misuse penalty of 50% of the tax due (RCW 82.32.291). Reseller permits for the construction industry are valid for two years.

Services: a broad listed set

Washington’s taxable retail services include installing, cleaning, decorating, beautifying, repairing or otherwise altering tangible personal property for consumers; repairing or improving real property for consumers; and landscaping and lawn maintenance. Starting October 1, 2025, ESSB 5814 made some business services subject to retail sales tax too.

Tax line on your invoice: an amount, not “tax included”

Billing invoices must separately state the sales tax. The Department presumes that a price quoted in any agreement doesn’t include retail sales tax unless the tax is separately itemized (RCW 82.08.050), even when you and the buyer both know and agree the price includes state and local taxes. Contract language saying the price includes sales tax doesn’t separate it either: in the Department’s example, “sales tax included” fails because it doesn’t quantify the rate and amount of tax the customer paid.

• Contracts and progress billings: show sales tax as a separate amount on both. If the contract states the tax separately but individual billings omit it, the contract is proof the tax was collected. On progress payments, tax is due on the gross amount billed.
• Retainage: compute sales tax before deducting it. Illustrative figures: on a $10,000 progress billing with $500 held back, tax the $10,000.
• Itemized costs: costs you itemize and charge directly to the landowner are part of the selling price and can’t be deducted from the contract amount. You still owe sales or use tax on a specialized tool bought for one job, even if you pass its price on as a line item.

No sales tax line goes on a subcontractor’s bill to a prime contractor that gave it a reseller permit, on other wholesale sales documented with a reseller permit, on routine janitorial services, below, on construction improving real property of or for the United States, its instrumentalities, or a county or city housing authority, or on building roads, streets or sidewalks owned by a city, county or other political subdivision, or by the United States (roads owned by the State of Washington are custom construction). A road built to be dedicated to a city or county qualifies only if it’s finally dedicated within a reasonable time after the work; otherwise retail sales tax applies. On those government and public road jobs you pay sales or use tax on the materials instead. When the construction site is outside Washington, you don’t collect Washington sales tax or pay B&O tax.

Local rates: where the job is

The local rate varies by city and county, and retailers collect sales tax at the rate for where the customer receives the goods or services. Retail construction services are sourced to where the construction takes place: work in Seattle is taxed at Seattle’s combined state and local rate. Supplies you have delivered to the job site are taxed at the job site’s rate.

Landscaping, lawn care and cleaning

• Landscaping for homeowners or commercial clients is reported under Retailing B&O, with sales tax at the rate of the job location. It includes installing sod, planting trees, flowers or shrubs, installing paths, fences, retaining walls, sprinkler systems, pools and fountains, applying pesticides and herbicides, leveling land and trimming trees. If a general contractor hires you and gives you a reseller permit, report under Wholesaling B&O and collect no sales tax.
• Lawn care: yard maintenance, weeding, mowing, brush removal and pruning count as landscaping services, so the same retail rule applies.
• Janitorial services regularly and normally performed by a commercial janitorial business, such as cleaning interior and exterior window surfaces, interior walls and woodwork, and rugs, drapes and upholstery in place, owe Service and Other Activities B&O tax, not retail sales tax. The business pays sales tax on the products and tools it buys for cleaning.
• Specialized or non-repetitive cleaning is a retail sale that carries sales tax. The Department’s examples include exterior cleaning of a building, water removal after a flood or leak, grout or tile resealing, pool or hot tub cleaning, and construction cleanup, unless done for a custom contractor that gives you a reseller permit.