Washington – Retainage Fees for Public Works Contracts

SALT Report 3065 – The Washington Department of Revenue released an excise tax advisory that discusses the application of business and occupation taxes and retail sales tax to retainage fees for public works contracts.

The advisory provides that under RCW 60.28.011(1)(a) a percentage of up to 5% of the public improvement contract price must be withheld and placed in trust by the public body.  When a contractor performs or completes a service that entitles the contractor to a progress or final payment, the disbursing officer will release and pay the amounts retained by the public body during the performance of the contract.  When the contractor receives any portion of the progress payment, the business and occupation and retail sales taxes will be due at that time.

However, public improvement contracts that are funded in whole or in part by federal transportation funds are excluded from the retainage requirement under RCW 60.28.011(1)(b). This is because this type of contract relies on a contract bond to ensure the payment of:

  • Claims of any person arising under the contract, and
  • The state with respect to taxes, increases, and penalties arising under the contract

Additionally, public works contractors are required to report and pay taxes on each progress payment, whether they are subject to retainage or a contract bond.

For Further Information

Washington Department of Revenue – Excise Tax Advisory No. 3024.2013


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