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Q:  What is a government contractor and how should they report income?

A: 

A government contractor performs construction, installation, and/or improvements to real property of or for the United States, its instrumentalities, or a county or city housing authority.

The gross income from such construction is reported on the Government Contracting B&O line of the excise tax return.

Because the federal government does not pay retail sales tax, the prime contractor or subcontractor must pay retail sales tax on all materials that become a physical part of the project.  Use tax is also due on any items manufactured or extracted by the contractor and any property provided by the federal government.

More information
Construction tax guide
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