AGC has been working with the Department of Revenue regarding the application of sales tax rules for construction-related janitorial services. There is much confusion surrounding the issue because different rules apply to custom vs. speculative construction. The Department provided the information below to help clarify the matter.
Construction Cleanup Services
by the Washington State Department of Revenue
This article discusses the taxability of the special cleanup jobs referred to herein as construction cleanup. Construction cleanup generally occurs after major construction of a building is complete and before occupation of the premises. Construction cleanup is considered to be the final phase of construction. Charges for construction clean-up services are taxable like many other services related to construction. That is the taxability of this service is dependent on the nature of the construction itself.
Custom prime contracting is when a contractor is hired by a landowner (or a person having the rights of ownership such as a lessee or easement holder) to complete an entire construction project. Charges for construction cleanup services performed for a custom contractor are subject to the wholesaling classification of the B&O tax when the contractor provides a reseller permit to the service provider. Sales tax does not apply under these circumstances.
Speculative building is when a builder makes improvements on land he/she owns.
When construction cleanup is performed for a speculative builder sales tax applies on the cleanup charges. A speculative builder cannot use a reseller permit in order to avoid paying sales tax on these charges.
Re-Cleaning after Construction Cleanup
The recurring cleanup services that take place after construction cleanup has been performed generally falls within the definition of janitorial services. Re-cleaning services only maintain the existing condition of the newly constructed home/building. Charges for such re-cleaning are not subject to sales tax. The service provider reports this income under the service and other activities classification of the B&O tax.