Many government agencies use contractors to make improvements to real property. Idaho requires contractors to pay tax on materials they use to alter, improve or repair real property in Idaho. This includes materials that contractors use when they work for government agencies.
Government agencies can buy materials for their construction contracts without owing Idaho sales tax. But if the government agency provides those untaxed materials to their contractor, the contractor owes use tax.
Contractors owe tax on the materials they use in a real property project. It doesn’t matter whether the contractor buys or makes the materials, or the government agency provides the materials for the project. Because of this, contractor bids should include:
- Use tax on materials the government agency bought tax exempt and gave the contractor to use
- Sales tax on materials the contractor buys for real-property improvement contracts
Contractors should include these taxes in the bid because they’re part of their cost. The government agency will reimburse contractors for the taxes they paid when they bill the agency for those taxes.
Exception: Materials donated to a government agency for incorporation into a real property project aren’t subject to use tax. This is the only exception.
Contractors can read more about their tax responsibilities in our Contractors Working in Idaho guide.