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Sales and Use Taxes in Public Works Contracts

This page provides a general overview of sales and use tax issues for public works contracts administered by local governments in Washington State, including exemptions and practice tips.

It is part of MRSC’s series on Public Works Contracts.


Regulations and Exemptions

Sales taxes apply to every sale of tangible personal property (and some services) to all people and organizations in Washington, including local governments. Use taxes are equivalent to sales taxes and apply to all tangible personal property for which sales tax has not been paid.

Sales and use taxes must be included when determining the cost of most public works projects, including whether or not the project exceeds an agency’s bid limits. However, there are some exemptions, including:

  • Labor and services rendered for the building, repair, or improvement of any street, place, road, highway, easement, right-of-way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle owned by a city or town which is used primarily for pedestrian or vehicle traffic. However, materials used in constructing these projects are not exempt from sales and use taxes.
  • Labor and services for the processing and handling of sand, gravel, and rock taken from city and/or county pits and quarries when the material is for publicly-owned road projects. (WAC 458-20-171)

MRSC has prepared a table - Public Works Tax Matrix - which attempts to summarize WAC regulations regarding sales and use tax applicability to public works contracts. For almost all local government public works contracts, the sales and use tax issue boils down to this:

Does the contractor include applicable sales and use taxes in the unit prices or lump sum bid, or does the agency include a line item in the contract for sales tax, either on the whole amount or on items not included in the exemptions?

Practice Tips

  • When developing contract documents, it may be useful to group the items that are subject to sales tax in the bid proposal/bid item listing. Then, in a separate line item labeled “sales tax,” reference that group, making it clear that in all other bid items, applicable sales and use taxes are to be included in the unit price or lump sum bid.
  • If an agency furnishes materials to a contractor for use in a public works contract, it either must have paid applicable sales tax on the items, or it must specifically instruct the contractor to pay use taxes on the items.
  • The Department of Revenue has a very good online discussion of taxes due on public roads construction.

Sample Documents

For sample documents related to sales and use taxes, see the following:


Last Modified: September 25, 2019