Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGO 1952 No. 393 - Sep 2 1952
Attorney General Smith Troy


A contractor may not segregate his labor from his material charges and pay the retail sales tax solely upon the value of the materials.

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                                                               September 2, 1952

Washington State Tax Commission
Insurance Building
Olympia, Washington                                                                                                              Cite as:  AGO 51-53 No. 393

Attention:  Mr. Dinsmore Taylor

Dear Sir:

            You have requested our opinion whether

            a contractor may segregate his labor from his material charges and pay the retail sales tax solely upon the value of the materials.

            We conclude that he may not.



            We understand the facts to be as follows: The state has engaged a prime contractor to construct snow sheds on a public road.  In performance of the contract, the contractor ordered 720 pre‑cast [[precast]]concrete roof beams from subcontractor "A."  He also purchased the concrete on ostensibly a separate contract.  The prime contractor furnishes certain reinforcing steel obtained from subcontractor "B."

             [[Orig. Op. Page 2]]

            Subcontractor "A" then constructs the beams and delivers them to the prime contractor, who installs them.  Subcontractor "B" bills the prime contractor separately for the labor and materials and the prime contractor contends it need pay the retail sales tax only on the materials.  The reinforcing steel is used but to strengthen the cement.

            A taxable retail sale is defined by RCW 82.04.050 to include in part:

            "* * * the sale of or charge made for tangible personal property consumed and/or for labor and services rendered in respect to the following: (1) The installing, repairing, cleaning, altering, imprinting or improving of tangible personal property of or for consumers, * * *"

            A consumer is defined as a prime contractor doing work on public roads, RCW 82.04.190 (3), but only as

            "to tangible personal property used or consumed in such business."

            These definitions are specifically made applicable to the Retail Sales Tax chapter by RCW 82.08.010 (3) and (4).  Further,

            "* * * every sale of tangible personal property to persons engaged in any business which is taxable under RCW 82.04.280, subsection (2) [public roads contractors] * * *,"

            is a retail sale.  (RCW 82.04.050) Thus, a prime public road contractor must pay the sales tax to the subcontractor, but there is no sales tax on the contract (sale) from the prime contractor to the state.  We understand that no dispute is raised as to this point.

            The retail sales tax is imposed against the "selling price" of the article sold.  The selling price is defined by RCW 82.08.010 (1) as:

            "* * * the consideration, whether money, credits, rights, or other property, expressed in the terms of money, paid or delivered by a buyer to a seller, all without any deduction on account of the cost of  [[Orig. Op. Page 3]] tangible property sold, the cost of materials used,labor costs, interest, discount, delivery costs, taxes, or any other expenses whatsoever paid or accrued and without any deduction on account of losses; * * *"

            The above statute measures the tax against the full selling price of the manufactured unit.  Recognizing that all manufactured units are a combination of labor and materials, it is specifically designed to prevent a deduction of the labor costs from the total unit price, and thus permit an avoidance of taxes on the segregated amount.  Under the facts presented to us, it would make no difference that the segregation is attempted by contract or billing, or both since segregation is prohibited.

            The constructing of these concrete beams, substantially changed the nature of the reinforcing steel which went into them, causing it to be a new and different product (See RCW 82.04.110 and 82.04.120 defining manufacturing).  The very nature of the article itself is changed, thus the furnishing by the prime contractor of the steel is not controlling.  This is not a mere "improvement" to tangible personal property, title to which has been retained by the customer.  This opinion is limited to these and like facts and in a different factual situation, a different conclusion may be required.

            We therefore conclude that the prime contractor must pay the retail sales tax on subcontract "A" based on the total unit charge.

Very truly yours,

Attorney General

Assistant Attorney General