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August 2007

Det. No. 04-0180E. 26 WTD 206 (2007) Taxpayer, a large research and development organization, requested an R&D “B&O” tax refund on many of its research projects.  Taxpayer computed the refund based on 80% of the compensation it received.  We conclude that since there is no evidence that Taxpayer’s subcontractors assigned the tax credit to Taxpayer, the Audit Division correctly reduced the measure of the allowed credit by the amount it paid to its subcontractors that performed research.


Det. No. 07-0034E, 26 WTD 212 (2007) Health care service contractor protests the denial of a refund of service B&O tax it paid on receipts of prepayments from the federal government for health care services provided under Title XVIII (Medicare) of the federal social security act.  We conclude these receipts are not “taxable under RCW 48.14.0201” (Washington’s premiums and prepayments tax) and therefore are not exempt from B&O tax under RCW 82.04.322.  Accordingly, we deny the petition.


Det. No. 07-0048, 26 WTD 219 (2007) Taxpayer failed to timely report and pay Forest Excise Tax (“FET”) on a lot of timber purchased from the Washington State Department of Natural Resources. The Department of Revenue billed Taxpayer and added interest, late-payment penalties, and assessment penalties to the assessments.  The facts disclose that Taxpayer was aware that FET was due on the transaction. There is no basis to cancel the interest. Because Taxpayer timely filed all FET returns due for the 24 months prior to the first tax return at issue, the late-payment penalty added to that assessment was cancelled under the provisions of RCW 82.32.105(2).  The provisions of RCW 82.32.105(2) do not apply to either the late-payment penalty assessed on the subsequent tax return or the assessment penalties assessed on either tax return.  Accordingly, the late-payment penalty related to the subsequent tax return and the assessment penalties related to both tax returns are sustained.


07-0051, 26 WTD 225 (2007) A contractor that leased space from a public entity, where it stored materials for contract and subcontract work that it performed for many different public entities, appeals the denial of its request for refund of the leasehold excise tax (“LET”) it paid on the leasehold interest, contending the leasehold interest was exempt from LET because the leased unit was used only for storing materials for use on public works projects.  We conclude that the leasehold interest was not exempt from LET, and deny the petition. 


07-0082, 26 WTD 231 (2007) A taxpayer that heats solid coal tar pitch to 400 degrees Fahrenheit in order to convert it to a liquefied form for sale to customers, protests additional manufacturing B&O taxes and penalties assessed on interstate sales.  We hold that Taxpayer’s melting activity does not constitute manufacturing and grant the petition.


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