What is subject to Sales Tax AND What is Excluded in Washington State

Did you know?

On July 7, 2017, Washington state Gov. Jay Inslee signed House Bill 2163, providing for a use tax notice and reporting requirement for remote sellers and extending economic nexus to the retailing business and occupation tax (B&O). 

​If you are a business owner selling products to consumers in a state where you have no physical presence, this case could open your business up to various taxing jurisdictions throughout the U.S. and require you to follow specific guidelines for collecting sales tax or reporting the use tax obligations of purchasers within the taxing jurisdiction.  

​What is retail sales tax?
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Retail sales tax is Washington’s principal tax source. Businesses making retail sales in Washington collect sales tax from their customer. The state general sales tax rate of Washington is 6.5%. Cities and/or municipalities of Washington are allowed to collect their own rate that can get up to 3.9% in city sales tax.

Every 2018 combined rates mentioned above are the results of Washington state rate (6.5%), the county rate (0% to 2.5%), the Washington cities rate (0% to 3.9%), and in some case, special rate (0% to 3.8%).

The Washington's tax rate may change depending of the type of purchase. Some of the Washington tax type are: Consumers use, rental tax, sales tax, sellers use, lodgings tax and more. 

​General information about sales tax in Washington State:

Generally, a retail sale is the sale of tangible personal property.

Retail sales tax includes the state and local components of the tax. Sales tax amounts collected are considered trust funds and must be remitted to the Department of Revenue. The seller is liable to the Department of Revenue for sales tax, whether or not it is collected.

Businesses that make a purchase for resale must provide a reseller permit to the seller. If not, the seller must charge the buyer retail sales tax on the total purchase.

Businesses also pay the retail sales tax on purchases of items for their own use (such as supplies or equipment) that will not be resold in the regular course of business.

Similarly, when a business purchases a retailing service for its own use, it must pay sales tax on the purchase.
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Sales of digital products to consumers are retail sales.

Services subject to sales tax:
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There is a misconception that all services are not subject to sales tax. Sales tax should also be collected for the sale of services such as installation, repair, cleaning, altering, improving, construction, and decorating. Other services include improving real or personal property, amusement and recreational activities, lawn maintenance, and physical fitness activities. 

This list should help to clarify how some services are subject to retail sales tax. Following is a listing of services that are subject to sales tax when provided to consumers.

• Construction services (WAC 458-20-170)
  • Constructing and improving new or existing buildings and structures. Installing, repairing, cleaning, improving, constructing and decorating real or personal property for others
  • Cleaning, fumigating, razing or moving structures, including painting and papering, cleaning and repairing furnaces and septic tanks, and snow removal
  • Clearing land and moving earth
• Installation and repair services (WAC 458-20-173)
  • Repairing, cleaning, installing, or decorating personal property for others
  • Furnaces, septic tanks, vehicles, appliances, etc.
• Landscape maintenance (WAC 458-20-226)
• Providing tangible personal property with an operator (WAC 458-20-211)
• Retail recreation services (WAC 458-20-183)
  • Fishing Charters
  • Day trips for sight-seeing
  • Service charges on tickets to professional sporting events
• Personal services
  • Personal training services
  • Tanning
  • Tattooing
  • Turkish and steam baths, including hot tubs
  • Dating and escort services
• Miscellaneous services
  • Car wash (including self-service facilities) or detailing cars, trucks, campers, boats, etc. (WAC 458-20-173)
  • Catering and personal chefs (WAC 458-20-119)
  • Extended warranties and maintenance agreements (WAC 458-20-257)
  • Vehicle Towing
  • Automobile parking
  • Telephone services (458-20-245)
  • Digital automated services, remote access software, and digital goods (WAC 458-20-15503)
  • Escrow services and abstract and title insurance (WAC 458-20-156)
  • Credit bureau services, including credit worthiness and tenant screening services

What exemptions are available?

Common exemptions for sales tax include:

• Food
• Prescription Drugs
• Sales to Nonresidents
• Federal Government Sales
• Interstate and Foreign Sales
• Manufacturers’ Machinery and Equipment Exemption
• Sales to Indians or Indian Tribes
• Newspapers

​For a complete list of exemptions, see this list of retail sales and use tax exemptions.

Are sales to tribal members subject to retail sales tax?

Retail sales tax is not imposed on sales to Indians if the tangible personal property is delivered to the member or tribe in Indian Country or if the sale takes place in Indian Country. See this Indian Tax Guide for more information.

What is marketplace fairness?

Effective January 1, 2018, certain marketplace facilitators, remote sellers and referrers, are required to collect and remit retail sales tax or use tax on their sales into Washington or to provide certain notifications related to such sales. For more information, see the Marketplace Fairness website page.

What is streamlined sales tax?

The Streamlined Sales and Use Tax Agreement (SSUTA) is a cooperative effort of multiple states, local governments and the business community.

SSUTA pro­vides for a simpler and more uniform sales and use tax structure for businesses selling into multiple states. For more information, see this Streamlined sales tax webpage.
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What is destination-based sales tax?

Effective July 1, 2008, retailers are required to collect local sales tax based on the destination of the shipment or delivery – “destination-based sales tax.” For more information, see more information at: Destination-based sales tax .
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Video:
​What is subject to Sales Tax & What is Excluded in Washington State

Your responsibilities include:

Register with the Department of Revenue. ▪ Know their tax reporting obligations, and to ask the Department for instructions when they are uncertain. ▪ Keep accurate and complete business records. ▪ File returns and pay taxes on time. ▪ Provide accurate information on tax returns. ▪ Substantiate claims for refund. ▪ Pay all taxes on time after closing a business, and request cancellation of the registration number. ▪ Respond to communications from the Department in a timely manner.

If you are unfamiliar with business tax requirements in Washington State, access the Business Tax Basic for Washington State here. It includes information, schedule and forms. 

New laws and risks

On July 7, 2017, Washington state Gov. Jay Inslee signed House Bill 2163, providing for a use tax notice and reporting requirement for remote sellers and extending economic nexus to the retailing business and occupation tax (B&O).

“On April 17, 2018, the U.S. Supreme Court will hear a case called South Dakota v. Wayfair, Inc. The outcome of this case will affect both small and large businesses across the country, as well as the typical online consumer. In short, the case deals with "remote sellers" - meaning sellers who are located outside a state and sell their products to consumers within that state - and whether a state may require remote sellers to collect sales tax from their customers.

Here’s the issue in a nutshell:

If you are a business owner selling products to consumers in a state where you have no physical presence, this case could open your business up to various taxing jurisdictions throughout the U.S. and require you to follow specific guidelines for collecting sales tax or reporting the use tax obligations of purchasers within the taxing jurisdiction.”  - Source: millernash.com

​Anyone has the ability to report sales tax fraud with a click by completing the Washington State Tax and License Fraud form or calling 1-800-647-7706.
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Let us save you the time and lower your risk:

Sales tax is getting more complicated and while software is expected to calculate accurately, it is important to understand the regulations, variables and exceptions. (as seen in the example above)
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The team at Accounting Solutions Partners in Oregon and Washington has extensive experience with many industries and software solutions and understand the constantly changing sales tax requirements. If you need help with accounting and bookkeeping, please take a moment to contact Eric Moore here. 
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We look forward to an opportunity to talk with you.

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The content of this article is for general information purposes only. It is not intended to be accounting and/or tax advice. Consult with your attorney, CPA or tax advisor for specific recommendations for your circumstances.