ARTICLE | July 08, 2025

For construction contractors working in the Pacific Northwest, state and local tax (SALT) issues can be uniquely challenging. Mobile crews, equipment crossing state lines, and differing state tax systems all create compliance risks that can quietly erode margins or lead to costly surprises. Here’s what every construction CFO, controller, and owner should know.

Washington: B&O Tax and More

Washington is notorious for its Business & Occupation (B&O) tax — a gross receipts tax that applies regardless of profitability. Key considerations:

• Construction classifications: Prime contractors vs. subcontractors are taxed at different rates.
• Out-of-state contractors: Even a temporary project in WA can create a filing obligation. Contractors may need to register, track revenue earned in WA, and pay B&O tax.
• Sales & use tax: Materials brought into WA may require use tax accrual if sales tax was not paid elsewhere. Contractors often overlook this when purchasing tax-free in Oregon.

Oregon: No Sales Tax, But Watch the CAT

Oregon’s lack of sales tax is appealing, but it has other complexities:

• Corporate Activity Tax (CAT): This gross receipts tax applies to contractors with over $1 million in Oregon commercial activity. The calculation is nuanced, especially for pass-throughs and subcontracted work.
• Out-of-state contractors: Those taking on Oregon jobs often fail to register and file CAT returns, exposing them to penalties.
• Oregon has a state income taxes and a filing is required when conducting business within the state.
• Local jurisdictions: Depending on where the project is located, contractors may also trigger income tax filing requirements in multiple localities.

Idaho: Income and Sales Tax

Idaho combines a traditional corporate income tax with a state sales & use tax:

• Income tax: Applies to net income from Idaho projects.
• Sales & use tax: Materials consumed in Idaho projects generally trigger tax. There are exemptions for certain qualifying facilities, which contractors must document.
• Nexus creation: Sending employees or equipment into Idaho can establish a tax presence.

Common Cross-Border Pitfalls

• Triggering nexus: Moving crews or equipment over borders can create unexpected obligations. Services are sourced to where the benefits are received, even if work was done out of state.
• Use tax exposure: Purchasing materials in Oregon (no sales tax) and consuming them in WA or ID often requires accruing use tax.
• Revenue apportionment errors: Misreporting where income is earned can lead to underpayment or double taxation.

Practical Steps

• Detailed records: Maintain strong job cost tracking by location.
• Nexus reviews: Work with your CPA to assess multi-state activity annually.
• Voluntary disclosure: If you discover past exposure, acting early can reduce penalties.

Bottom Line

SALT for construction is rarely straightforward. Being proactive protects your profits and reduces audit risk. If your firm operates across WA, OR, or ID, consider scheduling a complimentary state tax exposure assessment.