Yes, contractors charge sales tax on labor in Washington State. The state defines a retail sale to include the labor and services that build, repair, or improve real property, so your contractor collects sales tax on the entire contract price, not just the materials. Combined state and local rates run from 7.6% to 10.6% depending on where the work happens, which means a $50,000 remodel carries roughly $3,800 to $5,300 in sales tax on top of the price you agreed to.1Washington Department of Revenue. Local Sales and Use Tax Rates – Quarter 1, 2026
Why Labor Is Taxed at All
Washington’s tax code treats labor and services that install, repair, alter, or improve real property for a consumer as a retail sale.2Washington State Legislature. RCW 82.04.050 – Sale at Retail, Retail Sale That one definition is the reason your labor charge is taxable. Many states tax only materials; Washington bundles everything together. A contractor cannot carve labor out as a separate, untaxed line.
The Department of Revenue applies the same logic to what it calls custom construction, the category covering most residential and commercial work performed for a property owner. The taxable amount includes labor, materials, permits, profit, and every dollar the contractor paid to subcontractors.3Washington Department of Revenue. Custom Construction Even if you buy the materials yourself and pay a contractor only to install them, the installation labor is still subject to sales tax.
What the Tax Applies To
The prime contractor you hire is responsible for collecting sales tax from you on the full contract price. No deductions are allowed for the contractor’s own costs, and subcontractor charges are not stripped out.3Washington Department of Revenue. Custom Construction Subcontractors generally do not add sales tax to their bills to the prime contractor, because the prime is buying their services for resale to you as part of the larger taxable job.4Washington Department of Revenue. Reseller Permits for Contractors From your seat, that plumbing between contractors doesn’t change what you owe. You pay tax once, on the whole contract.
How the Rate Is Set
Sales tax on construction is sourced to the job site, not the contractor’s business address. A contractor based in a low-tax county who builds your deck in Seattle charges the Seattle rate.3Washington Department of Revenue. Custom Construction
The state portion is 6.5%. Local jurisdictions layer their own taxes on top, producing combined rates that ran from 7.6% to 10.6% at the start of 2026.1Washington Department of Revenue. Local Sales and Use Tax Rates – Quarter 1, 2026 Seattle’s combined rate is 10.35%. The Department of Revenue publishes an address-based lookup tool so you can confirm the exact rate for your property before signing anything.
How It Should Appear on Your Invoice
Washington requires contractors to separately state the retail sales tax on every invoice, progress billing, and contract document. A line saying “tax included” without a dollar figure is not enough, even if both sides understand the price was meant to cover tax.3Washington Department of Revenue. Custom Construction
If your contract says nothing about sales tax, the Department presumes the stated price does not include it, and the contractor can add tax on top.5Washington Department of Revenue. Sales Tax Not Listed on the Invoice On a $200,000 contract that goes silent on tax, expect an additional $15,000 to $21,000 depending on your location. Sort this out in writing before signing.
Where the contract includes retainage, meaning you hold back a percentage of each payment until completion, sales tax is calculated on the full billing amount before the retainage deduction.3Washington Department of Revenue. Custom Construction The held-back amount, and its share of the tax, gets paid when the holdback is released.
When Sales Tax Does Not Apply
Two situations sit outside the rule. A speculative builder builds on land they already own and then sells the finished property; because no work is being performed for another property owner, it isn’t a retail sale. The builder pays sales tax on materials and subcontractor services during construction, and the finished sale is subject to Washington’s Real Estate Excise Tax rather than sales tax.6Washington Department of Revenue. Speculative Building If you’re buying a newly built spec home, you won’t see retail sales tax on the purchase.
Public road construction for cities, counties, or the federal government also falls outside retail sales tax and is taxed under a separate classification.7Washington Department of Revenue. Public Road Construction Work on state-owned roads is the exception within the exception and is taxed as custom construction at the full retail rate.8Washington Department of Revenue. Construction Tax Matrix
If a Contractor Doesn’t Collect the Tax
The obligation doesn’t disappear when a contractor forgets. Washington imposes a use tax at the same rate as sales tax, and if your contractor fails to collect, you as the property owner are responsible for reporting and paying it directly to the Department of Revenue.3Washington Department of Revenue. Custom Construction This comes up most often with out-of-state contractors who aren’t familiar with Washington’s rules. Confirming registration and tax handling before work begins is cheaper than sorting it out later.
If You Were Overcharged
Ask the contractor first. They have the records and are the fastest route to a corrected invoice or refund. If the contractor refuses, has gone out of business, or can’t be found, you can apply directly to the Department of Revenue. That means opening a SecureAccess Washington account and filing a consumer refund application through the My DOR portal with your receipts and invoices attached.9Washington Department of Revenue. Apply for a Sales Tax Refund If the contractor is still operating but uncooperative, the Department prefers a completed Seller’s Declaration form, though you can submit the claim without one.