# Washington Contractor Taxes and Licensing Guide

Yes, labor is taxable in Washington. Prime contractors collect retail sales tax from the property owner on the gross contract price, labor and materials included, at the rate for the job site. Contractors also pay business and occupation (B&O) tax on gross receipts. Washington has no personal income tax, and workers' comp comes from the state, not private insurers.

## Key takeaways

- Retail sales tax applies to the full contract price for most construction, sourced to where the work happens. The state rate is 6.5%, plus local tax.
- Materials that become part of the job are bought with a reseller permit; tools, equipment and supplies are taxed to you. Misusing the permit carries a 50% penalty.
- B&O tax is charged on gross income with no deduction for labor or materials. Prime contracting is in the Retailing classification (0.471%).
- Contractors register with L&I (bond plus liability insurance). Electricians and plumbers need separate L&I credentials.
- Workers' comp must be bought from L&I's State Fund unless you're a certified self-insurer.

## Is contractor labor taxable in Washington?

For most construction, yes. The Department of Revenue (DOR) says "prime contractors must collect retail sales tax from the landowner on the gross contract price." Costs aren't deducted, and tax is figured before retainage is held back. So the customer's invoice carries sales tax on labor, materials and any subcontracted work together. That's the opposite of states like [California](https://www.brix.so/taxes/california) or [Oregon](https://www.brix.so/taxes/oregon), where the labor on a real property job isn't taxed.

The rate is set by the job site, not your shop. DOR says "retail construction services are sourced to the location where the construction takes place." A Tacoma contractor doing a remodel in Seattle charges Seattle's combined rate. DOR's Tax Rate Lookup Tool gives the rate and location code for any address.

> **Example (illustrative numbers): a $20,000 bathroom remodel**
>
> Say the contract is $20,000: $8,000 in materials, $10,000 in your labor and $2,000 for a subcontracted tile setter. Washington's base is the full $20,000. At an illustrative 10% combined rate for the job site, you'd collect $2,000 in sales tax from the homeowner and remit it to DOR.
>
> The tile sub doesn't charge you sales tax, because you give them your reseller permit. Your B&O tax is figured on the $20,000 too, not on your profit.

Some work follows different rules, including public road projects and contracts with the federal government. Speculative builders who build on land they own are treated differently from contractors building for a landowner. If you do any of that, read DOR's construction industry guide or ask a CPA. Our [labor vs. materials guide](https://www.brix.so/learn/sales-tax-on-labor-vs-materials) compares Washington with other states.

## How do materials, reseller permits and use tax work?

Materials that become part of the finished project are purchased for resale, so you give suppliers your reseller permit and don't pay tax at the counter. DOR is blunt about the limit: "A contractor **may not** use a reseller permit to purchase items which are consumed in performing construction." Equipment, tools, supplies and equipment rentals are taxable to you, even if you pass the cost to the customer.

- **Use tax.** "Use tax is due if sales tax has not been paid on items the contractor uses as a consumer." That covers an online tool order from a seller that didn't charge Washington tax. See [use tax for contractors](https://www.brix.so/learn/use-tax-for-contractors).
- **Supplies shipped to the job.** Tax is paid based on the job site location.
- **Misuse penalty.** Buying consumables on a reseller permit draws a penalty of 50% of the tax due on the item.
- **Records.** Reseller permits for construction are valid for two years, and permits you accept from others must be kept for five years.

## What is Washington's B&O tax and how much is it?

The business and occupation (B&O) tax is Washington's main business tax, and it's charged whether or not you made money. DOR says it's calculated on the total income the business earns, and "businesses cannot deduct expenses such as labor, materials, taxes, or other costs of doing business." Prime contracting income is taxed under the Retailing classification.

**Major B&O classifications (DOR rates table, checked 2026-10-19)**

| Classification | Rate | Who it hits in construction |
| --- | --- | --- |
| Retailing | 0.471% | Prime contractors on custom construction (DOR custom construction guide) |
| Wholesaling | 0.484% | Selling materials to another business for resale |
| Service and other activities, under $1,000,000 prior-year gross | 1.5% | Non-construction services (check classification with DOR) |
| Service and other activities, $1,000,000 to $4,999,999 | 1.75% | Same, at higher prior-year income |
| Service and other activities, $5 million or more | 2.1% | Same, at higher prior-year income |

_DOR's table lists current rates without effective dates. Classification depends on the activity, so confirm yours with DOR. A small business B&O credit reduces tax for some low-income filers; see DOR's credits page._

Washington has no personal income tax, so you won't file a state return on your profit the way you would in [Idaho](https://www.brix.so/taxes/idaho) or [Oregon](https://www.brix.so/taxes/oregon). Federal tax still applies. Set money aside for federal quarterly payments with the [quarterly estimated tax calculator](https://www.brix.so/tools/quarterly-estimated-tax-calculator), and budget B&O and sales tax as separate line items because they come out of gross receipts.

## Which licenses do contractors need in Washington?

Washington runs contractor registration rather than a trade-exam license for general and specialty contractors. You register with the Department of Labor & Industries (L&I) by posting a bond and proving liability insurance. Electrical and plumbing work need their own L&I credentials on top of that. Our [contractor license guide](https://www.brix.so/learn/contractor-license) explains how registration differs from licensing.

**Washington contractor credentials by trade (checked 2026-10-19)**

| Trade | Agency | Credential | Link |
| --- | --- | --- | --- |
| General contractor | L&I | Contractor registration: $30,000 continuous surety bond, plus general liability of $250,000 combined single limit (or $200,000 public liability and $50,000 property damage) | [Register as a contractor](https://lni.wa.gov/licensing-permits/contractors/register-as-a-contractor/) |
| Specialty contractor (roofing, painting, flooring, HVAC and others) | L&I | Contractor registration with a $15,000 bond and the same insurance | [Register as a contractor](https://lni.wa.gov/licensing-permits/contractors/register-as-a-contractor/) |
| Electrical | L&I Electrical Program | Electrical contractor license: UBI number, a designated certified administrator or master electrician, and a $4,000 bond or assignment of savings; renews every two years. Workers need electrician certificates. | [Electrical contractor](https://lni.wa.gov/licensing-permits/electrical/electrical-licensing-exams-education/electrical-contractor) |
| Plumbing | L&I Plumbing Program | Plumber certificate: "Only L&I-certified plumbers can legally perform plumbing work on someone else's property." | [Plumbing licensing](https://lni.wa.gov/licensing-permits/plumbing/) |

_Cities may also require a business license. Pest control, well drilling and other specialties are licensed by other state agencies; check with the agency for your trade._

## Do I need workers' comp in Washington?

If you have employees, almost certainly. Washington is a monopolistic state: L&I says Washington "does not allow private workers' compensation coverage," so you buy it from L&I's State Fund or become a certified self-insured employer. You can't shop the policy to a private carrier the way contractors in [Idaho](https://www.brix.so/taxes/idaho) or [California](https://www.brix.so/taxes/california) can. Reciprocal agreements let some out-of-state workers come in temporarily, but L&I says the Montana and Nevada agreements exclude construction work. See [workers' compensation](https://www.brix.so/learn/workers-compensation) for how premiums are figured.

## Local taxes and other things to check

- **Local sales tax.** Cities and counties add to the 6.5% state rate, and DOR updates rates quarterly. Always use the job site's location code on your return.
- **City B&O and business licenses.** Some cities may levy their own B&O tax or require a city business license. Check with each city where you work.
- **Lien rights.** Washington has its own notice rules for [mechanics liens](https://www.brix.so/learn/mechanics-lien); read the statute before a job, not after a missed payment.
- **Neighbors.** Working across the river? [Oregon](https://www.brix.so/taxes/oregon) has no sales tax, and [Idaho](https://www.brix.so/taxes/idaho) has its own contractor rules.

> **Not tax advice**
>
> This page summarizes official Washington guidance as of the date shown. It isn't tax or legal advice. Rules change, and your classification depends on your contracts. Confirm with DOR or L&I, or work with a CPA who knows Washington construction.

BRIX keeps your expenses categorized, tracks sales tax and 1099 subcontractors, and reminds you of quarterly estimated tax dates, so the numbers are ready when your CPA asks. It syncs invoices and payments with QuickBooks. BRIX doesn't file taxes or give tax advice.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

## Frequently asked questions

### Do contractors charge sales tax on labor in Washington?

Yes, for most construction. DOR says prime contractors collect retail sales tax from the landowner on the gross contract price, which includes labor, materials and subcontracted work. Costs aren't deducted. The rate is the combined rate where the construction takes place.

### Can I buy materials tax-free with a reseller permit?

Only materials that become part of the finished project. DOR says a contractor may not use a reseller permit for items consumed in performing construction, such as tools, equipment and supplies. Misuse carries a penalty of 50% of the tax due on the item.

### What B&O rate do construction contractors pay?

Prime contracting income falls in the Retailing classification, which DOR's rate table lists at 0.471% of gross income. B&O is charged on gross receipts, so labor and materials can't be deducted. Confirm your classification with DOR, because other activities use different rates.

### Does Washington have a state income tax for contractors?

Washington doesn't tax personal income, so sole proprietors and LLC owners don't file a state income tax return on profit. The B&O tax on gross receipts takes its place. You still owe federal income and self-employment tax, usually through quarterly estimated payments.

### How much is the Washington contractor bond?

L&I requires a continuous surety bond of $30,000 for general contractors and $15,000 for specialty contractors. You also need general liability insurance of $250,000 combined single limit, or $200,000 public liability and $50,000 property damage.

### Can I get workers' comp from a private insurer in Washington?

No. L&I says Washington doesn't allow private workers' compensation coverage. Employers buy it from L&I's State Fund or qualify as certified self-insured employers. Some temporary out-of-state workers are covered by reciprocal agreements, but the Montana and Nevada agreements exclude construction.

### Do I need an electrical license if I'm a registered contractor?

Yes, if you do electrical work. Contractor registration doesn't cover it. L&I requires an electrical contractor license, with a designated certified administrator or master electrician and a $4,000 bond, and the people doing the work need electrician certificates.

## Related

- [Do Contractors Charge Sales Tax on Labor or Materials?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [What Is a Mechanic's Lien?](https://www.brix.so/learn/mechanics-lien)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Oregon Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/oregon)
- [Idaho Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/idaho)
- [California Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/california)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [Washington DOR, Custom construction (retail sales tax on gross contract price; reseller permits; use tax)](https://dor.wa.gov/education/industry-guides/construction/custom-construction) (checked 2026-10-19)
- [Washington DOR, Business & occupation tax](https://dor.wa.gov/taxes-rates/business-occupation-tax) (checked 2026-10-19)
- [Washington DOR, B&O tax classifications and rates](https://dor.wa.gov/taxes-rates/business-occupation-tax/business-occupation-tax-classifications) (checked 2026-10-19)
- [Washington DOR, Retail sales tax (6.5% state rate)](https://dor.wa.gov/taxes-rates/retail-sales-tax) (checked 2026-10-19)
- [Washington DOR, Sales & use tax rates (Tax Rate Lookup Tool)](https://dor.wa.gov/taxes-rates/sales-use-tax-rates) (checked 2026-10-19)
- [Washington L&I, Register as a contractor](https://lni.wa.gov/licensing-permits/contractors/register-as-a-contractor/) (checked 2026-10-19)
- [Washington L&I, Electrical contractor license](https://lni.wa.gov/licensing-permits/electrical/electrical-licensing-exams-education/electrical-contractor) (checked 2026-10-19)
- [Washington L&I, Plumbing](https://lni.wa.gov/licensing-permits/plumbing/) (checked 2026-10-19)
- [Washington L&I, Do I need a workers' comp account?](https://www.lni.wa.gov/insurance/insurance-requirements/do-i-need-a-workers-comp-account/) (checked 2026-10-19)
- [Washington L&I, Out-of-state employers and workers (reciprocal agreements)](https://lni.wa.gov/insurance/insurance-requirements/do-i-need-a-workers-comp-account/out-of-state-employers-and-out-of-state-workers) (checked 2026-10-19)

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Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/washington