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WAC 15501 Computer hardware, computer software, information service, and computer services
WAC: 458-20-15501 02/25/13 Taxation of Computer Systems and Hardware

The Department engaged in this rule making to amend WAC 458-20-15501, and adopt two new rules (WAC 458-20-15502 and 15503) to explain the impacts of 2009 and 2010 legislation, and to address other tax issues related to computer hardware, computer software, and computer services below.  WAC 458-20-155 is being repealed.

Chapter 535, Laws of 2009 (ESHB 2075), made major changes to the taxation of certain products and services provided or furnished electronically (commonly referred to as "digital products"). This legislation specifically imposed sales and use tax on digital products such as: Digital goods, including digital audio works, digital audio-visual works, and digital books; digital automated services; digital codes used to obtain digital goods or digital automated services; and remote-access software. The legislation also provided a number of sales and use tax exemptions.
Chapter 111, Laws of 2010 (SHB 2620), clarified ambiguities and corrected unintended consequences related to the 2009 legislation.
  458-20-15501   12/16/2008 Computer hardware, computer software, information service, and computer services
The Department is adopting this rule, WAC 458-20-15501, to update and further explain beyond WAC 458-20-155 the application of the business and occupation (B&O), retail sales, and use taxes as they apply to persons providing information or computer services, and persons who manufacture, develop, process, or sell information, software, or computer programs. This rule also recognizes that RCW 82.12.020(1)(b) now excludes software provided free of charge from the use tax.
RCW: 82.04.040   1961 "Sale," casual or isolated sale."
  82.04.050   1997 Sale at retail," "retail sale."
  82.04.060   07/01/1998 "Sale at wholesale," "wholesale sale"
  82.04.070   1935 "Gross proceeds of sales."
  82.04.120   2003 "To manufacture"
  82.04.190   07/01/1998 Consumer"
  82.04.215   07/01/1998 Definitions
  82.04.290   07/01/1993 Tax on selected business services, financial businesses, or other business or service activities. (Effective until 7/1/98)
  82.04.250   1993 Tax on retailers.
  82.04.29001   07/01/1998 Creation and distribution of custom software--Customization of canned software.
  82.04.2907   07/01/1998 Tax on royalties from granting intangible rights. Royalty tax rate is 0.484 percent. "Royalties" means compensation for the use of intangible property, such as copyrights, patents, licenses, franchises, trademarks, trade names, and similar items.
  82.04.440   1994 Persons taxable on multiple activities--Credits.
  82.04.450   1983 Value of products, how determined.
  82.04.4452   07/01/1998 Credit-Research and development spending (Effective July 1, 1998 until December 31, 2004)
  82.04.44525   07/01/1998 Credit--New employment for international service activities in eligible areas--
  82.12.020   07/01/1998 Use tax imposed
  82.12.0284   1983 Use Tax - Exemptions--Use of computers or computer components, accessories, or software donated to schools or colleges.
  82.12.02595   05/01/1995 Tangible personal property and certain services donated to nonprofit organization or government entity
  82.32.070   1999 Records to be preserved--Examination--Estoppel to question assessment--Unified business identifier account number records.
  82.63   01/01/1995 Tax Deferrals For High Technology Businesses
ETA: 3176.2013 09/03/2013 Digital Products-General Implementation.
ETA 9001.2009 Digital Products – General Implementation was initially issued on July 24, 2009 and then reissued as ETA 9001.2011 on June 30, 2011. This ETA is readopted as ETA 3176.2013 so that it is renumbered in a manner consistent with other existing ETAs. This ETA continues to explain the Department’s initial phased process for implementing chapter 535, Laws of 2009 (ESHB 2075); that the phased implementation process ended June 30, 2011; and how to submit a “digital products” letter ruling request to the Department.
  9001.2011   06/30/2011 Digital Products-General Implementation  ETA 9001.2011 Digital Products – General Implementation ETA 9001.2009 was issued on July 24, 2009, to explain the Department’s initial phased process for implementing chapter 535, Laws of 2009 (ESHB 2075).  The Department has reissued ETA 9001 to explain that the phased implementation process ends June 30, 2011.   This ETA also explains how to submit a “digital products” letter ruling request to the Department.
  9001.2009   07/24/2009 Digital Products - General Implementation
  9002.2009   07/24/2009 Taxation of digital songs, movies, books, and online games transferred electronically
INDUSTRY GUIDES:   Dec 2010 A Podiatric Physician’s Guide to Washington Excise Taxes
    January 2010 Internet-based Businesses
      July 26, 2009 Digital Products Guide
Subject Title Reference:      
Manufacturing  07/27/2015 Machinery and Equipment Used in Developing Software
Cannabis, Medical     05/31/2011 Sales of Medical Cannabis Remain Subject to Sales Tax
Economic Nexus     05/28/2010 New "Economic Nexus" in Washington State May Impact "Foreign Corporations"
Economic Nexus     05/28/2010 New "Economic Nexus" in Washington State May Impact Franchisors
Economic Nexus     05/28/2010 New Apportionment Method
Economic Nexus     05/28/2010 Tax Attorneys and CPAs New "Economic Nexus" in Washington State May Impact Your Clients
Economic Nexus     05/28/2010 Registered Out-of-state Businesses Currently not Reporting Income from Service Activities - New Apportionment for Certain Income
Digital Products     06/29/2010 Digital Products
Economic Nexus     06/30/2010 New "Economic Nexus" in Washington State May Impact Businesses Receiving Royalty/Licensing Income from Patents
Economic Nexus     09/10/2010 B&O Tax Reporting Requirement Continues After Business Activity Stops (Trailing Nexus)
WTD: 30 WTD 94 10-0333 12/20/2011 RCW 82.04.065; RCW 82.04.297; RCW 82.04.050(5); Title 47 U.S.C. Sec. 151:  INTERNET SERVICE PROVIDER (ISP) – DIGITAL SUBSCRIBER LINE INTERNET SERVICE (DSL) -   An ISP selling DSL internet service is taxable as an ISP.  It should pay Service & Other B&O tax on its income received as an ISP.  For Washington State tax purposes, a DSL ISP’s internet service charges should not be bifurcated into a Service & Other B&O internet service component, and a retailing telephone line transmission component
  32 WTD 93 11-0001 06/27/2013 RULE 15501; RCW 82.08.020; RCW 82.04.290: DEFERRED SALES TAX
– TAXABILITY OF ONLINE PROPERTY MANAGEMENT SERVICES – PRE-DIGITAL PRODUCTS LEGISLATION. Prior to the advent of digital products legislation, Taxpayer’s purchase of online property management services, which consists of a combination of software as a service (SAAS), information services, and data processing, is taxable under the service and other activities business and occupation tax category, and therefore taxpayer is not liable for deferred sales taxes on such services.
  32 WTD 93 11-0001 06/27/2013 RCW 82.04.050; RCW 82.04.192; RCW 82.12.020: DEFERRED SALES
TAX AND/OR USE TAX – TAXABILITY OF ONLINE PROPERTY MANAGEMENT SERVICES – POST-DIGITAL PRODUCTS LEGISLATION. Following the enactment of digital products legislation, Taxpayer purchase of the same online property management services equates to the purchase of digital automated services (DAS) for which Taxpayer owes deferred sales tax and/or use tax.