Sounds fair to me. That is terrible, especially when the proper taping of the trim would have prevented it. Might be a good lesson to the person who did it.

I wouldn't pay him a penny until he made that right......

It's difficult to finish a floor without getting something on the perimeter. My proposals all read "Does not include any touchup painting or a complete dust cleanup". If someone wants us to mask off the perimeter we'll do it for a charge, with the warning that the finish can get drawn up between the trim and the tape, making the tape hard to remove, and requiring paint. I find it illogical for anyone to assume that wood floor can be sanded multiple times up to the very edge of perimeter trim and not require some repainting. That said, the base of the newel post should have been taped off, preferably with Frog tape.

It's nasty work. As Johnson Flooring Co states, it should be spelled out in the contract. Before you withhold, please CONTACT the flooring "professional" (ahem...I hate to use this term for this person) you hired to see what type of a compromise you can come up with.

You need to allow the subcontract the OPTION of fixing it or allowing for a discount so that someone else can fix it. Contact them FIRST before you withhold partial payment. It's the most reliable way to get things done without causing more problems.