Current through Register Vol. 24-06, March 15, 2024
(1)
Definitions. As used herein:
(a)
The term "prime contractor" means a person engaged in the business of
performing for consumers, the constructing, repairing, decorating or improving
of new or existing buildings or other structures under, upon or above real
property, either for the entire work or for a specific portion thereof. The
term includes persons who rent or lease equipment to property owners for use in
respect to constructing, repairing, etc., buildings or structures upon such
property, when the equipment is operated by the lessor.
(b) The word "subcontractor" means a person
engaged in the business of performing a similar service for persons other than
consumers, either for the entire work or for a specific portion thereof. The
term includes persons who rent or lease equipment to prime contractors or
subcontractors for use in respect to constructing, repairing, etc., when such
equipment is operated by the lessor. When equipment or other tangible personal
property is rented without an operator to contractors, subcontractors or
others, the transaction is a sale at retail (see
RCW
82.04.040 and
82.04.050 ).
(c) The terms "prime contractor" and
"subcontractor" include persons performing labor and services in respect to the
moving of earth or clearing of land, cleaning, fumigating, razing, or moving of
existing buildings or structures even though such services may not be done in
connection with a contract involving the constructing, repairing, or altering
of a new or existing building or structure. The terms also include persons
constructing streets, roads, highways, etc., owned by the state of
Washington.
(d) The term "buildings
or other structures" means everything artificially built up or composed of
parts joined together in some definite manner and attached to real property. It
includes not only buildings in the general and ordinary sense, but also tanks,
fences, conduits, culverts, railroad tracks, tunnels, overhead and underground
transmission systems, monuments, retaining walls, piling and privately owned
bridges, trestles, parking lots, and pavements for foot or vehicular traffic,
etc.
(e) The term "constructing,
repairing, decorating or improving of new or existing buildings or other
structures," in addition to its ordinary meaning, includes: The installing or
attaching of any article of tangible personal property in or to real property,
whether or not such personal property becomes a part of the realty by virtue of
installation; the clearing of land and the moving of earth; and the
construction of streets, roads, highways, etc., owned by the state of
Washington. The term includes the sale of or charge made for all service
activities rendered in respect to such constructing, repairing, etc.,
regardless of whether or not such services are otherwise defined as "sale" by
RCW
82.04.040 or "sales at retail" by
RCW
82.04.050. Hence, for example, such service
charges as engineering fees, architectural fees or supervisory fees are within
the term when the services are included within a contract for the construction
of a building or structure. The fact that the charge for such services may be
shown separately in bid, contract or specifications does not establish the
charge as a separate item in computing tax liability.
(2)
Speculative builders.
(a) As used herein the term "speculative
builder" means one who constructs buildings for sale or rental upon real estate
owned by him. The attributes of ownership of real estate for purposes of this
rule include but are not limited to the following: (i) The intentions of the
parties in the transaction under which the land was acquired; (ii) the person
who paid for the land; (iii) the person who paid for improvements to the land;
(iv) the manner in which all parties, including financiers, dealt with the
land. The terms "sells" or "contracts to sell" include any agreement whereby an
immediate right to possession or title to the property vests in the
purchaser.
(b) Where an owner of
real estate sells it to a builder who constructs, repairs, decorates, or
improves new or existing buildings or other structures thereon, and the builder
thereafter resells the improved property back to the owner, the builder will
not be considered a speculative builder. In such a case that portion of the
resale attributable to the construction, repairs, decorations, or improvements
by the builder, shall not be considered a sale of real estate and shall be
fully subject to retailing business and occupation tax and retail sales tax. It
is intended by this provision to prevent the avoidance of tax liability on
construction labor and services by utilizing the mechanism of real property
transfers. (RCW
82.04.050(2)(c).)
(c) Amounts derived from the sale of real
estate are exempt from the business and occupation tax. (RCW
82.04.390.) Consequently, the proceeds of
sales by legitimate speculative builders of completed buildings are not subject
to such tax. Neither does the sales tax apply to such sales, since such a sale
involves no charge made for construction for a consumer, but the price paid is
for the sale of real estate.
(d)
However, when a speculative builder sells or contracts to sell property upon
which he is presently constructing a building, all construction done subsequent
to the date of such sale or contract constitutes a retail sale and that portion
of the sales price allocable to construction done after the agreement shall be
taxed accordingly. Consequently, the builder must pay business and occupation
tax under the retailing classification on that part of the sales price
attributable to construction done subsequent to the agreement, and shall also
collect sales tax from the buyer on such allocable part of the sales
price.
(e) Speculative builders
must pay sales tax upon all materials purchased by them and on all charges made
by their subcontractors. Deductions for such tax paid with respect to materials
used or charges made for that part of the construction done after the contract
to sell the building should be claimed by the speculative builder on his tax
returns in accordance with WAC
458-20-102, under the subheading
PURCHASES FOR DUAL PURPOSES.
(f)
Persons, including corporations, partnerships, sole proprietorships, and joint
ventures, among others, who perform construction upon land owned by their
corporate officers, shareholders, partners, owners, co-venturers, etc., are
constructing upon land owned by others and are taxable as sellers under this
rule, not as "speculative builders."
(3)
Business and occupation tax.
(a) Prime contractors are taxable under the
retailing classification, and subcontractors under the wholesaling
classification upon the gross contract price.
(b) Where no gross contract price is stated
in any contract or agreement between the builder and the property owner, then
the measure of business and occupation tax is the total amount of construction
costs, including any charges for licenses, fees, permits, etc., required for
the construction and paid by the builder.
(4)
Retail sales tax.
(a) Prime contractors are required to collect
from consumers the retail sales tax measured by the full contract price. Where
no gross contract price is stated, the measure of sales tax is the total amount
of construction costs including any charges for licenses, fees, permits, etc.,
required for construction and paid by the builder.
(b) The retail sales tax does not apply to
charges made for janitorial services nor for the mere leveling of land used in
commercial farming or agriculture. The tax does apply, however, in respect to
contracts for cleaning septic tanks or the exterior walls of buildings, as well
as to earth moving, land clearing and the razing or moving of structures,
whether or not such services are performed as incidents of a contract to
construct, repair, decorate, or improve buildings or structures.
(c) Sales to prime contractors and
subcontractors of materials such as concrete, tie rods, lumber, finish
hardware, etc., which become part of the structure being built or improved are
sales for resale and are not subject to the retail sales tax. Sales of form
lumber to such contractors are sales for resale provided that such lumber is
used or to be used first by such persons for the molding of concrete in a
single contract, project or job and the form lumber is thereafter incorporated
into the product of that same contract project or job as an ingredient or
component thereof. Sales of form lumber not so incorporated as an ingredient or
component are sales at retail.
(d)
The retail sales tax applies upon sales and rentals to prime contractors and
subcontractors of tools, machinery and equipment, and consumable supplies, such
as hand and machine tools, cranes, air compressors, bulldozers, lubricating
oil, sandpaper and form lumber which are primarily for use by the contractor
rather than for resale as a component part of the finished structure.
(e) The retail sales tax applies upon sales
to speculative builders of all tangible personal property, including building
materials, tools, equipment and consumable supplies and upon sales of labor,
services and materials to speculative builders by independent
contractors.
(5)
Use tax.
The use tax applies generally to the use by prime contractors
and subcontractors of tools, machinery, equipment and consumable supplies
acquired by them primarily for their own use and upon which the retail sales
tax has not been paid. This includes equipment and supplies purchased in a
foreign state for use or consumption in performing contracts in this state. The
use tax applies generally to the use by speculative builders of all tangible
personal property, including building materials, purchased or acquired by them
without payment of the retail sales tax (see also WAC
458-20-178 ).
Statutory Authority:
RCW
82.32.300. 87-19-007 (Order ET 87-5), §
458-20-170, filed 9/8/87; 83-07-033 (Order ET 83-16), § 458-20-170, filed
3/15/83; Order ET 71-1, § 458-20-170, filed 7/22/71; Order ET 70-3, §
458-20-170 (Rule 170), filed 5/29/70, effective
7/1/70.