Understanding Washington Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Washington.
In Washington a tax is imposed on all retail sales, including successive retail sales of the same property. Retail sale includes all sales of tangible personal property except sales for resale, materials becoming a component of property through installation, construction, etc., and material for manufacturing products.
Retail sales include the following items:
- materials and/or labor rendered in repairing, etc. realty for consumers
- building cleaning
- automobile towing
- lodgings for less than one month
- leasing or renting tangible personal property
- telephone service
- sale of personal, business, or professional services
- amusement and recreation businesses
- abstract, title insurance, and escrow businesses
- credit bureau businesses
- automobile parking and storage garage businesses
- landscape services
- professional sporting events
- physical fitness, tanning salon, tattoo parlor, steam bath, escort, and dating services
Leases. In Washington, rentals (including rentals of equipment with an operator), leases, and leases with option to purchase are taxable as retail sales. The sales or use tax is collected on the amount of the rental as each payment falls due.
Sales and use tax rate. The Washington sales and use tax rate is generally 6.5 percent. An additional tax of 0.3 percent is imposed on retail sales of new and used motor vehicles, for a total rate on motor vehicle sales of 6.8 percent. Retail car rentals are subject to an additional tax of 5.9 percent, for a total tax of 12.4 percent. Also, various sales tax rates are charged on the retail sale of spirits or strong beer. (In addition, make sure you contact your local governments in Washington because they are allowed to assess a local sales and use tax.)
Sellers Must Collect and Pay Over Sales Tax
In Washington the sales tax is imposed on the buyer and is generally collected by the seller from the buyer. The sales tax is a debt from the buyer to the seller until paid. However, the state may collect the sales tax directly from the buyer when the buyer has failed to pay the seller.
Absorbing the tax. It is against the law to refund, remit, or rebate to the purchaser all or any part of the tax. However, you may advertise that the price includes the tax or that you as the seller are paying the tax as long as the words "tax included":
- are printed immediately following the price in print size at least half as large as the advertised price,
- are printed at the head of a list of prices in print size the same as the advertised prices or
- are stated orally or visually in substantially the same inflection and volume, and
- are also printed on the price tags.
Obtaining Tax Permits in Washington
In Washington every person engaging in any taxable business is required to register with the Department of Revenue. No fee is required. A separate permit is required for each place of business. Registration with the Department of Revenue is not required, if you meet all the following requirements:
- your value of products, gross proceeds of sales, or gross income of the business, from all business activities subject to the business and occupation tax, is less than $12,000 per year
- gross income of the business from all activities subject to the public utility tax is less than $12,000 per year
- you're not required to collect or pay to the Department any other tax or fee that the Department is authorized to collect
- you're not otherwise required to obtain a license subject to the state's master application procedure
Many Items Are Tax Exempt
Washington has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Washington sales tax. Resale exemptions and blanket exemptions are two of the most important exceptions to sale tax liability. You'll want to check and see if you are exempt from the sales tax.
Tax exemption certificates. An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Items Purchased for Resale Are Tax Exempt
In Washington property sales for resale in the regular course of business without intervening use are not subject to sales tax. Unless the seller's records clearly show that a transaction was a sale at wholesale, the burden of proving that a sale was not a sale at retail is on the seller. A resale certificate provided by you, the purchaser, to the seller stating that the purchase is for resale in the regular course of business is needed.
The resale exemption certificate must contain the following information:
- the buyer's name and address
- the buyer's uniform business identifier or revenue registration number if the buyer is required to register
- the type of business the buyer is engaged in
- unless the buyer is in a business classification that is authorized by the Department of Revenue to present a blanket resale certificate, the categories of items or services to be purchased for resale
- the date on which the certificate was provided
- a statement that the items or services were purchased for resale in the regular course of business
- a statement that the buyer acknowledge that the buyer is solely responsible for purchasing within the categories specified on the certificate and that misuse of the resale or exemption privilege claimed on the certificate subjects him/her to a penalty of 50 percent of the tax due, in addition to the tax, interest, and any other penalties imposed by law
- the name of the individual authorized to sign the certificate
- the signature of the authorized individual
- the name of the seller
Blanket Resale Certificates Are Permitted
Sellers may accept blanket certificates from you as a purchaser if you repeatedly purchase the same type of property or service for processing or resale. However, blanket certificates may not be used to purchase property or services not covered by a blanket certificate. A resale certificate that includes the description of the product or services to be purchased as the term "all products and/or services" (or makes a similar designation) is considered a blanket certificate in Washington.
Physical Presence Triggers Sales Tax Liability
Washington has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Washington. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in Washington? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Washington for purposes of taking and transmitting orders from Washington? If your employee or independent contractor goes into Washington to take or transmit orders, your business may have physical presence in Washington. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Washington for purposes of delivering property? Frequent deliveries in Washington by your trucks will give you physical presence in Washington.
Sales Tax "Bracket System" Permitted
The bracket system may be followed by sellers in computing the sales tax. The 6.5 percent state tax is computed on each dollar and/or fraction of a dollar according to the following table:
|Amount of Sale ||Tax |
|$0.06 to $0.23 ||$0.01 |
|0.24 to 0.38 ||0.02 |
|0.39 to 0.53 ||0.03 |
|0.54 to 0.69 ||0.04 |
|0.70 to 0.84 ||0.05 |
|0.85 to 0.99 ||0.06 |
|1.00 to 1.15 ||0.07 |
|and so forth |
Use Tax Imposed on Out-of-state Purchases
The use tax supplements the sales tax by taxing the use in the state of every service considered a retail sale and every article of tangible personal property on which sales tax has not been paid. The use tax is imposed on every person who consumes an article of tangible personal property in the state acquired in one of the following ways:
- purchased at retail, including isolated sales
- acquired by lease, gift, repossession, or bailment
- extracted or manufactured by the person using the article, including byproducts
- otherwise furnished to a person engaged in a taxable business
- any qualified amusement or recreation service
Property brought into Washington on which a sales or use tax has been paid in another state equal to or in excess of the Washington tax is not subject to tax in Washington.
The use tax is imposed on every person who consumes a taxable article of tangible personal property or uses a taxable service in the state.
Claiming Refund for Excess Tax Payments
When the purchaser returns the property purchased, and the selling price is refunded, you may deduct an amount equal to the selling price in computing your sales tax liability. The state will also credit or refund amounts to you for customer bad debts. The Department of Revenue will not refund taxes paid more than four years prior to the beginning of the calendar year in which the refund application is made or examination of records is completed.