Real estate developers (speculative builders) owe retail sales tax on temporary labor
Washington State law requires real estate developers to pay retail sales tax or use tax on charges paid to staffing companies for temporary workers who perform construction related services on real estate owned by the developer.
Following are common questions about temporary labor and the application of retail sales tax.
Have real estate developers always been subject to sales tax or use tax on charges for temporary laborers?
At all times, Washington law has required developers to pay retail sales tax or use tax on charges by staffing companies for providing temporary construction labor. Due to confusion within the staffing industry, the Department has only recently begun to enforce the requirement for staffing companies to collect sales tax on charges for retail labor. Nevertheless, customers of staffing businesses that use temporary construction laborers owe sales tax (reported as "use tax") on such charges whenever the staffing business has not collected retail sales tax.
What charges by temporary staffing businesses to a developer are subject to retail sales tax?
Retail sales tax applies to all charges to consumers, including developers, for services related to altering, repairing, or improving either real or personal property. This is true even where the charges are for "labor only". Sales tax must be collected by the seller from the buyer.
Examples of retail services include:
Carpentry, clearing land, commercial construction, concrete work, demolition, electrical work, excavation work, landscape maintenance, moving earth, painting, paper hanging, plastering/drywall installation, residential construction, roofing, sheet metal installation, site cleanup, etc.
What if the developer has not paid sales tax on past retail purchases?
If retail sales tax has not been paid to the temporary staffing business, the developer must report and pay any tax due directly to the Department of Revenue. Failure of the seller to collect the tax does not relieve the buyer from the responsibility to pay the tax due. Registered businesses should report untaxed purchases on the "Use Tax" line of their Washington State excise tax return.
Specific questions should be directed to the Department of Revenue, Taxpayer Services Division. You may call 360-705-6705.