A practical Washington contractor guide to labor burden, overhead, markup and margin, sales tax, B&O tax, reseller permits and the numbers that should be checked before a quote goes out.
Start with costs that would disappear if the job did not happen: materials, productive field labor, subcontractors, permits, job-specific equipment and other direct costs. For employees, hourly wage alone is not enough. Employer payroll burden, workers’ compensation, benefits, paid nonproductive time and overtime can materially increase the real hourly cost.
Office and administrative payroll, rent, general insurance, software, phones, accounting, marketing and similar recurring expenses still have to be recovered through sales. A job can show a healthy gross profit and still lose money after overhead.
Markup and margin are different. A 50% markup on a $10,000 cost creates a $15,000 selling price and a 33.3% gross margin. If the goal is a 50% gross margin, the selling price would need to be $20,000.
For custom construction performed by a prime contractor for the property owner, Washington DOR generally treats the work as a retail sale. Retail sales tax is generally collected on the total contract price, and retail construction services are sourced to the location where the construction takes place. Itemizing labor and materials generally does not remove those amounts from the taxable selling price.
Washington B&O tax is generally measured from gross receipts under the applicable classification rather than from job profit. The current state retailing B&O rate used by this site is 0.471% (.00471), while the wholesaling rate is 0.484% (.00484). Deductions, credits and special classifications can change actual tax due.
| Situation | Typical sales-tax treatment | Typical B&O classification |
|---|---|---|
| Prime/custom contractor working for property owner | Generally collect retail sales tax on the total contract price | Retailing |
| Subcontractor working for prime with valid reseller documentation | Generally no retail sales tax collected from the prime | Wholesaling |
| Subcontractor without valid reseller documentation | Generally collect sales tax unless another exemption applies | Retailing |
Special categories such as speculative building, public road construction and federal government contracting can follow different rules. Use the table as a planning summary, not as a substitute for project-specific classification.
For most overtime-eligible Washington employees, overtime must be paid at least 1.5 times the employee’s regular rate for hours worked over 40 in a seven-day workweek. Certain public-works projects can have additional overtime requirements.
Washington workers’ compensation should not be estimated with one generic payroll percentage. L&I uses risk classifications and hourly rates, and an individual business’s rate is affected by its assigned classifications and experience factor. For job costing, use the employer-paid rate from the business’s current rate notice whenever possible.
These are simplified examples for planning. Each assumes a prime/custom construction job, an illustrative 8.9% job-site sales-tax rate, retailing B&O at 0.471%, and direct costs already include the contractor’s loaded labor cost. Overhead is not included in these four examples; use the Overhead & Break-Even Calculator for that layer.
The 8.9% rate above is illustrative only. Always look up the combined state and local rate for the actual construction location.
For custom construction sold at retail, DOR generally requires retail sales tax on the total selling price. Separately itemizing labor does not generally make the labor portion nontaxable.
A qualifying subcontract sale can generally be treated as wholesale when the prime contractor provides valid reseller documentation. Without valid documentation, the subcontractor generally needs to collect retail sales tax unless another exemption applies.
Generally no. Washington B&O is a gross-receipts tax under the applicable classification, subject to deductions and credits that may apply.
No. Sales tax collected from the customer is generally not contractor revenue for job-margin planning. Calculate margin from the pre-tax selling price and the contractor’s costs.
It represents 8.9%. The Job Tax & Profit Calculator accepts either 0.089 or 8.9.
Direct costs are tied to a particular job. Overhead continues even when a specific job disappears—office payroll, rent, software, general insurance, administrative costs and similar recurring expenses.
WA DOR Construction Tax Matrix ↗
WA DOR Custom Construction Guide ↗
WA DOR B&O Tax Classifications ↗
WA DOR Reseller Permits for Contractors ↗
If estimates are being lost after they are sent, follow-up, sales process and operating gaps can matter as much as the original price.
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