Are cost reimbursements taxable?
Generally, yes. The amounts that you bill your customers (to cover business costs) are subject to tax.
Liddle Company hires Design LLC, an engineering firm in Seattle. Paul from Design LLC provides building plans for a construction project, which is in Spokane. Under the agreement, Paul will work on site in Spokane and Design LLC is paid a daily amount to cover his airfare, meals, rental car, and lodging costs while in Spokane.
The gross income from Design LLC’s engineering services is taxable under the Service and Other Activities classification of the B&O tax. The gross income from this project includes the costs that Liddle Company reimburses Design LLC for Paul’s time in Spokane.
Build Co. is a construction company in Kent. The company will perform the construction on the above project in Spokane for Liddle Company. Under the agreement, Larry from Build Co. is reimbursed for fuel to get his equipment to and from the construction site, meals and lodging while in Spokane.
The gross income from Build Co.’s services is generally taxable under the Retailing classification of the B&O tax. The contractor must also collect and remit Retail Sales tax on the gross charges. The gross income from this project includes the amount that Liddle Company reimburses Larry to cover his fuel, meals and lodging.