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Introduction

This guide provides information on how Washington’s business and occupation (B&O) tax, retail sales tax, and use tax apply to businesses and individuals that sell goods via the internet.

For additional information or answers to any questions about Washington excise taxes, please contact us.


Updated November, 2012

Contents

Online Sales of Goods by In-state Businesses

Sales to Washington consumers

In-state businesses must collect sales tax on sales of tangible personal property, prewritten software, and digital products delivered to customers in Washington (see RCW 82.32.730 for sourcing hierarchy guidance). The correct retail sales tax rate to charge customers is generally based on where in Washington the customer receives the product (e.g. shipping address).  For help determining the correct retail sales tax rate, visit our web site for a list of tools available for businesses at: http://destinationtax.dor.wa.gov. Also, the seller is subject to B&O tax under the retailing classification on the gross proceeds of sales to Washington consumers.

Example: ABC, Inc., a Washington business, has stores in Colville, Ephrata, and Aberdeen, WA. ABC decides to sell its goods online. A customer in Sedro-Woolley, WA, orders a book from ABC’s website. ABC must charge retail sales tax on the sale based on the customer’s shipping address, in this case at the rate in Sedro-Woolley. Also, ABC must pay B&O tax under the retailing classification on the gross proceeds of the sale.

Sales to consumers outside of Washington

When registered businesses sell tangible personal property, prewritten software, and digital products to customers for delivery outside of Washington, the sale is considered an interstate or foreign sale and is generally not subject to Washington retail sales or use tax.

  • Instate sellers report these gross proceeds of sales and then take an interstate & foreign sales deduction against both the B&O tax and retail sales tax. See WAC 458-20-193(4) for details on information on documenting out-of-state delivery.

Example: ABC, Inc., a Washington business, has stores in Colville, Ephrata, and Aberdeen, WA. ABC decides to sell its goods online. A customer in Moscow, Idaho, orders a book from ABC’s website. ABC should not charge Washington retail sales tax on the book delivered into Idaho, and should take an interstate & foreign sales deduction on the retail sales line of its reporting form. Also, ABC should take an interstate & foreign sales deduction on the retailing B&O line of its reporting form.

Online Sales of Goods by Out-of-state Businesses

Out-of-state businesses that sell tangible personal property or digital products to Washington consumers via the internet may be required to register with Washington and collect retail sales tax. A business must register and collect retail sales tax if the business has nexus with Washington.

Nexus Rules (Retail/Wholesale Sales)

A person is deemed to have a substantial nexus with this state if the person has a physical presence in this state, which need only be demonstrably more than a slightest presence. For purposes of this subsection, a person is physically present in this state if the person has property or employees in this state. A person is also physically present in this state if the person, either directly or through an agent or other representative, engages in activities in this state that are significantly associated with the person's ability to establish or maintain a market for its products in this state. RCW 82.04.067(6)

Below is a list of fact patterns or activities that will create nexus. This list is not intended to be exhaustive. Other activities or fact patterns may also create nexus:

  • The goods are located in Washington at the time of sale and the goods are received by the customer or its agent in this state.
  • The seller has a branch office, local outlet, or other place of business in this state which is utilized in any way, such as in receiving the order, franchise or credit investigation, or distribution of the goods.
  • The order for the goods is solicited in this state by an agent or other representative of the seller.
  • The delivery of the goods is made by a local outlet or from a local stock of goods of the seller in this state.
  • The out-of-state seller, either directly or by an agent or other representative, performs significant service in relation to establishment or maintenance of sales into the state, even though the seller may not have formal sales offices in Washington or the agent or representative may not be formally characterized as a “salesperson.”
  • The out-of-state seller, either directly or by an agent or other representative in this state, installs its products in this state as a condition of the sale.

Retail sales

Out-of state businesses that make any retail sales to Washington customers are required to register if they engage in one of the above activities or fact patterns. These businesses are also required to collect retail sales tax on these sales. Also, gross proceeds from these sales are subject to B&O tax under the retailing classification. For more information on the applicable nexus standard, see RCW 82.04.067(6).

Example: DEF, Inc., a Michigan business, sells goods at retail online to Washington customers. DEF has a salesperson that periodically enters Washington to generate sales. Since DEF has a representative physically present in the state for the purpose of helping to establish and maintaining its market, DEF must register and collect retail sales tax on sales to Washington customers at the applicable rate based on where its customer is located. Also, DEF will owe B&O tax under the retailing classification on the gross proceeds of sales to Washington customers.

Wholesales sales

Out-of-state businesses that make wholesale sales to Washington customers are required to register if they engage in nexus creating activity and have more than $12,000 of sales into Washington. Gross proceeds from these sales are subject to B&O tax under the wholesaling classification. For more information on nexus standard, see RCW 82.04.067(6).

Example: GHI, Inc., a Colorado business, only sells goods online to Washington business at wholesale. GHI does not have an office, employees, or property in Washington. Additionally GHI does not engage in any of the nexus creating activities previously listed nor does GHI have any physical presence in Washington. GHI does not have to register or collect sales tax on its sales to Washington businesses, or pay B&O tax on these sales because it does not have nexus with Washington.

Online Sales of Goods by Individuals Via Online Auctions or Marketplace

Individuals making occasional retail sales through online auctions or marketplaces are not required to register with the Department of Revenue or collect and remit retail sales tax because they are not engaged in business.

Example: Tom lives in Port Angeles, WA, and has an old unabridged dictionary that he wants to sell online. He posts the item to an online auction site and Rachel in Pasco, WA, buys it. Since this is the only item Tom sells online all year, he is not engaged in business and therefore he is not responsible to collect retail sales tax or pay B&O tax on the sale. Rachel, however, is responsible to pay use tax on the item purchased since it was acquired by Rachel without paying retail sales tax and is used by Rachel in Washington.

Individuals routinely making retail sales through online auctions or marketplaces are considered engaging in business and are required to register with the Department of Revenue and collect retail sales tax on sales to Washington customers.

Goods delivered to Washington customers

Individuals routinely making retail sales to Washington customers are required to register and collect retail sales tax on retail sales to Washington customers. Also, gross proceeds from these sales are subject to B&O tax under the retailing classification.

Example: Anna lives in Camas, WA, and routinely makes sales via an online auction site. She should charge retail sales tax on her sales to Washington customers, and pay B&O tax under the retailing classification on the gross proceeds from these sales.

Goods delivered outside of Washington

Online sales delivered to out-of-state locations are not subject to retail sales tax. These sales are eligible for an interstate & foreign sales deduction against both the retailing B&O tax and retail sales tax.

Example: Anna lives in Camas, WA, and routinely makes sales via an online auction site. Seth, in Albuquerque, New Mexico, buys a coffee mug from Anna. Anna should not charge retail sales tax to Seth. Anna should take an interstate & foreign sales deduction against both the retailing B&O tax and retail sales tax.

What amount does retail sales tax apply to and what rate should be used?

Retail sales tax applies to the entire sales price, which includes any charges for shipping and handling.   The retail sales tax rate is generally based on the customers shipping address.  For help determining the correct tax rate, try our online Tax Rate Lookup Tool or visit us online for more tools.

Example: Anna routinely makes sales via an online marketplace site. Nathan, in Dayton, WA, purchases a coffee mug from Anna for $1.50. Anna charges $.50 to ship the item. Anna should charge retail sales tax on the entire $2.00 at the sales tax rate in Dayton. Additionally, Anna will owe B&O tax under the retailing classification on the $2 sale.

Registration

To register, file a Business License Application with the Business Licensing Service.