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A definition of each deduction is listed below. If you need further assistance in properly reporting deductions, contact us.


Paper filers: You must attach the Deduction Detail page to any tax return on which you take a deduction. If the Deduction Detail pages are not completed and attached, the deduction will be disallowed and you may be billed for additional taxes, interest, and penalties.

 

 

 

 

 

 

Advancements/Reimbursements, Returns and Allowances
Amounts received as advancement or reimbursement when the customer or client alone is liable to pay for the procurement of goods and services. The taxpayer making the payment cannot have primary or secondary liability, other than as agent, to pay for the goods and services. See returns and allowances. WAC 458-20-111; 458-20-108
 
Amounts Derived from Distribution of Water through Irrigation Systems
Amounts derived from the distribution of water through an irrigation system, solely for irrigation purposes. WAC 458-20-179
 
 
Amounts Expended to Improve Consumers' Efficiency of Energy
Amounts expended to improve consumers' efficiency of energy use, or to otherwise reduce the use of electrical energy or gas by consumers, provided the installations of the measures to improve the efficiency were begun after June 12, 1980 and before January 1, 1990. WAC 458-20-17901
 
 
Amounts Paid to Another for Services Jointly Provided
Amounts paid to a subcontractor of a public utility service that is jointly provided. This deduction is available to prime contractors of public utility services. Sellers of public utility commodities (gas, water, and electrical power) may also take a deduction under the Other line for sales for resale. Write "for resale" on the Other line. WAC 458-20-179.
 
 
Amounts Received by Nonprofit Water Associations for Capital Projects
To qualify for this deduction, the income must be derived from the distribution of water and be used for capital improvements. Amounts which meet only one of these conditions are not deductible. WAC 458-20-179
 
 
Apportionment (Interstate & Foreign Sales)
Income subject to the service and other activities classification, the royalties classification, and other apportionable income B&O classifications must apportion income between states and/or countries. Economic Nexus page; WAC 458-20-19401
 
 
Artistic/Cultural Activities
Activities conducted by qualifying artistic or cultural organizations are not subject to B&O tax. WAC 458-20-249
 
 
Bad Debts
Amounts previously reported and determined to be uncollectible. These amounts must also be written off for IRS purposes.The bad debt credit or deduction is limited to the original retail seller. See Bad Debt Tax Credit. WAC 458-20-196, Special Notice – Bad Debt Deduction – Limited
 
 


Cash and Trade Discounts
The amount of the discount may be deducted from the gross proceeds of sales if such amount was previously reported. Discounts are typically used as incentives for early payment. WAC 458-20-108

 
 


Casual Sales/Accommodation Sales
Casual sales consist of amounts received for sales of tangible personal property by persons not usually selling such items. Note: The seller must collect and remit the sales tax. Accommodation sales are amounts received by a business for selling goods at cost to a like business to fill an existing order. WA C 458-20-106; 458-20-208

 
 


Certain Initiation Fees/Dues/Contributions
Bona fide initiation fees and membership dues received by a business for which no goods or services are received and only give the payee the right to be a member. Contributions that are given as outright gifts for which no goods or services are received can also be deducted. WAC 458-20-183

 
 


Certain Network Telephone Service
Amounts for network telephone service, other than toll service, for residential customers and network telephone service paid for by using coins in a coin-operated telephone. WAC 458-20-245

 
 


Conservation Expenditure
Water distribution businesses with a water system plan that includes plans for water conservation may deduct 75 percent of the amounts expended for water conservation. The plan must be filed with the Department of Health. (ESHB 1832, Chapter 237, Laws of 2001)

 
 


Consignment Sales
Sales of consigned goods when the seller collects and remits the retail sales tax. WAC 458-20-159

 
 

Dairy and Seafood Manufacturers
Selling manufactured dairy products to purchasers who transport in the ordinary course of business the goods out of this state. A person taking an exemption under this subsection (1)(b) must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state. RCW 82.04.4268; 82.04.4269

 
 

Direct Pay Permits
The Department of Revenue allows certain purchasers to pay use tax directly to the Department rather than to their vendors at the time of purchase.  Businesses must present a copy of the Direct Pay Permit to the vendor. Vendors must retain a copy of the permit in their files to document the exempt sale.  Sales should be reported under the Retailing and Retail Sales Tax classification. Identify the retail sales tax deduction on the deduction detail page of the tax return as "Direct Pay Permits."  Not allowed against Retailing B&O.  See our Special Notice – Certain Taxpayers To Pay Use Tax Directly to the Department of Revenue (pdf) .

 
 


Exempt Food Sales
Sales of food and food ingredients are exempt from retail sales tax. However, prepared foods, dietary supplements, and soft drinks are taxable. To review food definitions see Special Notices. RCW 82.08.0293; WAC 458-20-244

 
 


Freight on Out-of-State Deliveries
Freight and delivery costs incurred by a Washington manufacturer for out-of-state shipments. WAC 458-20-136

 
 


Gambling/Prizes/Cash Pay-Outs
Amounts paid out or value of merchandise given as prizes in games of chance. WAC 458-20-131

 
 


Government Funded Mental Health Services
This deduction is only available to a Regional Support Network (RSN) or to health or social welfare organizations.

  • RSNs may deduct amounts received from the state for distribution to a health or social welfare organization for mental health services provided under a government-funded program
  • Health or social welfare organizations may deduct amounts received as compensation for mental health services provided under a government-funded program.

This deduction is for amounts received on or after August 1, 2011 and it expires August 1, 2016. Taxpayers claiming this deduction must file an annual report with the Department of Revenue. The report must be submitted by April 30th of each year. See Special Notice - B&O Deduction for Amounts Received for Providing Mental Health Services.

 
 


Hog Fuel Used to Produce Electricity, Steam, Heat, or Biofuel
Retail Sales and Use Tax is exempt on the purchase of hog fuel used to produce electricity, steam, heat, or biofuel. "Hog fuel" is defined as wood waste and other wood residuals including forest-derived biomass. Hog fuel does not include firewood or wood pellets. See Special Notice - Sales/Use Tax Exemption on Purchases of Hog Fuel Extended; Annual Tax Incentive Survey Required

 
 


Interest on Certain Investments, Loans, and/or Obligations
Interest received on investments or loans primarily secured by first mortgages or trust deeds on nontransient residential properties. Interest received on obligations of the state of Washington, its political subdivisions, and municipal corporations. Interest received on direct obligations of the federal government. (Interest attributable to loans or other financial obligations on which the federal government is merely a guarantor or insurer does not qualify.) WAC 458-20-146; 458-20-14601

 
 


Interstate and Foreign Sales
Goods sold and delivered to customers outside of Washington or transportation of persons or goods across state or international boundaries. Documentation is necessary. Note: Manufacturers and extractors who sell outside of Washington must report under manufacturing [07], or extracting classifications [16]; this deduction is not valid for those classifications. WAC 458-20-193; 458-20-193C

 
 


Low Density/Wholesale Power Costs
This applies only to those light and power businesses with retail power rates exceeding the state average power rates. RCW 82.16.053

 
 


Motor Vehicle Fuel Tax
The selling price of motor vehicle fuel includes state and federal fuel taxes. B&O tax does not apply to these taxes. This deduction allows the wholesaler or retailer to exclude fuel taxes. Note: Only sellers of fuel may take this deduction. Fuel tax rates. WAC 458-20-126

 
 


Motor Vehicle Fuel Sales
Sales of gasoline, diesel, and other fuels. Note: Only sellers of fuel may take this deduction. WAC 458-20-126

 
 


Newspapers
Sales of newspapers are not subject to sales tax. This does not include publications that are bound and/or stapled. WAC 458-20-143

 
 


No Local Activity
Sales made in Washington by an out-of-state seller without activities in Washington, which establish, maintain or facilitate a market for its products or services. This also includes sales of consumer products made to or through a direct seller's representative. WAC 458-20-193; 458-20-246

 
 


Other
Most allowable deductions are listed on the Deduction Detail sheet. Your business, however, may have a specific deduction allowed by law that is not listed. Please refer to the statute governing your type of business, or call your local Revenue office to ensure the deduction is valid. Invalid deductions will be disallowed. Use of the Other deduction line requires appropriate documentation or explanation. A 'resale' deduction is not valid under retail sales tax. Report amounts sold for resale under the wholesaling classification of the B&O tax. Also, there are no deductions for labor, materials, or any other costs of doing business.

 
 


Prescription Drugs/Hearing Aids/Lenses/Etc.
Sales of the above items for human use are exempt from sales tax when the buyer presents a prescription. WAC 458-20-18801

 
 


Prescription Drugs Sold by Publicly Operated or Nonprofit Hospitals
Sales of prescription drugs by religious or charitable nonprofit organizations operating kidney dialysis facilities, certain nursing homes, and homes for unwed mothers. WAC 458-20-168)

 
 


Purebred Livestock for Breeding
Sales of purebred livestock for breeding purposes where the animals are registered with a nationally recognized breed association. Sellers must receive and retain an exemption certificate from the buyer. See the Buyers Retail Sales Tax Exemption Certificate(pdf) . WAC 458-20-210

 
 


Qualified Nonresident Sales
Sales of tangible personal property for use outside of Washington by residents of: Alaska, American Samoa, Alberta, Colorado, Delaware, Montana, New Hampshire, Northwest Territories, Nunavut, Oregon, and Yukon Territory. Tax exempt sales to these residents are at the discretion of the seller. Note: When making tax exempt sales, the seller must see photo identification, such as a driver's license, issued by the buyer's state of residence. The seller must also record certain information. This exemption only applies to sales of goods which will not be used in Washington. It does not apply to lodging, restaurant meals, or other sales which involve consumption in Washington. See Excise Tax Advisory (ETA) 3054.2011 the Buyers Retail Sales Tax Exemption Certificate (pdf).

 
 


Radio/TV Advertising
Network, national, or regional advertising income received by an individual broadcasting station. WAC 458-20-241

 
 


Reclaimed Water
Municipalities and businesses operating with permits filed with the Department of Ecology for reclaimed water may deduct 75 percent of their gross income. (ESHB 1832, Chapter 237, Laws of 2001)

 
 
Retail Sales Tax Exempt Purchases by Farmer
Eligible farmers may purchase replacement parts for farm machinery and equipment without paying retail sales tax, starting July 1, 2006. Before claiming the exemption, farmers must apply to the Department of Revenue for an exemption certificate. Purchases made before July 1, 2006 are subject to sales or use tax. (Substitute House Bill (SHB) 2457 (chapter 172, Laws of 2006). See Special Notice - Replacement Parts for Farm Machinery and Equipment - Sales and Use Tax Exemption (pdf).

 
 
Returned / Destroyed Goods
This is a deduction for tobacco products that are destroyed or returned to the manufacturer, on which the tax was previously paid.

 
 


Returns and Allowances
Amount of the sales price on which sales tax has been returned or credited to the purchaser. WAC 458-20-108

 
 


Ride Sharing Vans
Sales of passenger motor vehicles which are to be used as ride-sharing vehicles. RCW 82.08.0287

 
 


Sales of Automotive Adaptive Equipment to Disabled Veterans
Sales of add-on automotive adaptive equipment prescribed by a physician to a disabled veteran or a disabled member of the armed forces are exempt from retail sales tax and/or use tax. Labor and services charges incurred for installing and repairing the equipment is also exempt from retail sales and/or use tax. For more information, see Special Notice - Sales of Automotive Adaptive Equipment to Disabled Veterans (pdf).

 
 


Sales of construction services for new commercial airplane manufacturing buildings

Retail sales tax does not apply to charges of labor and services provided during building construction by:

  • a manufacturer who builds commercial airplanes, wings or fuselages, or
  • a port district, political subdivision, or municipal corporation who is leasing to a manufacturer who builds commercial airplanes, wings or fuselages.

The sales tax exemption applies to:

  • sales of tangible personal property used as a component during building construction, and
  • charges made for labor and services, provided during general construction, that are not otherwise eligible for the Manufacturers Machinery and Equipment Sales Tax exemption.

The business must provide the seller with a completed exemption certificate. See Special Notice – New and Extended Aerospace Tax Preferences.

 
 


Sales of Feed to Eligible Apiarists
A deduction from retail sales and use tax for the purchase of feed used by an eligible apiarist in the raising of a bee colony used to make honey products. See Special Notice - Tax Exemptions for Honey Beekeepers (pdf) for more information.

 
 


Sales of Feed to Fish Farmers
Sales of feed to fish farmers. Sellers must receive a resale certificate from the buyer. WAC 458-20-102; 458-20-210

 
 


Sales of Honey Bees to Eligible Apiarists
A retail sales and use tax deduction for the sales of bees to an eligible apiarist. To document the exempt purchases, the eligible apiarist (buyer) must provide the seller a properly completed Buyer's Retails Sales Tax Exemption Certificate at the time of purchase. For more information, see our Special Notice - Tax Exemptions for Honey Beekeepers (pdf).

 
 


Sales of Manufacturing Machinery/Equipment and Installation Labor
Sales and leases of machinery and equipment, including repair and replacement parts with a useful life in excess of one year, to manufacturers and processors for hire for direct use in manufacturing operations. This exemption includes charges for installation, labor and services. Sellers must obtain a Manufacturer's Sales and Use Tax Exemption Certificate for Manufacturing Machinery and Equipment from the buyer. WAC 458-20-13601

 
 


Sales of Solar Machinery/Equipment, Installation Labor
A retail sales and use tax deduction is allowed for the purchase of machinery and equipment used by certain facilities to generate electricity or produce thermal heat.

 
 


Sales of Spirits
The general retail sales tax imposed under RCW 82.08.020 does not apply to the sale of spirits in their original container. RCW 82.08.150(8)

This deduction is limited to the sale of spirits in their original container. This is not a valid deduction for sales of poured drinks containing spirits for on-premises consumption. Poured drink spirits sales are subject to the retail sales tax under RCW 82.08.020.

The amount reported under this deduction classification should not be included in other Retail Sales tax deductions.

 
 
Sales to Electrolytic Processors

For the sale of power to an Electrolytic Processor. An Electrolytic Processor is a person who is engaged in a business that uses more than ten average megawatts of electricity per month in a chlor-alkali electrolytic process to split the electrochemical bonds of sodium chloride and water to make chlorine and sodium hydroxide. Does not include direct service industrial customers or their subsidiaries that contract for the purchase of power from the Bonneville power administration. RCW 82.16.0421.
 
 


Sales to Nonprofit Organizations of Artistic/Cultural Art Objects for Displays
Purchases of art objects or property by artistic or cultural organizations for use in displaying art objects or providing exhibitions are exempt from sales tax. The seller must obtain a Buyers Retail Sales Tax Exemption Certificate from the buyer. WAC 458-20-249

 
 


Sales to Enrolled Indian Tribal Members with Delivery on the Reservation
Sales delivered on Indian reservations or trust lands to an enrolled member of that tribe. Every member of a recognized tribe has an enrollment document. A seller making a tax exempt sale to a Native American must copy the information. Records must show that the seller, its employees, or a for-hire carrier acting as the vendor's agent, delivered the goods to, or performed services on, the reservation or trust land of the tribe in which the purchaser is enrolled. Note: A Buyers' Retail Sales Tax Exemption Certificate is necessary for sales of automobiles delivered on the reservation or trust land. Copies should be kept by the buyer seller. WAC 458-20-192

 
 


Sales to Other Refuse Collectors
Persons who collect the refuse collection tax and who, themselves, use the services of others for the transfer, storage, or disposal of the waste collected are not required to again pay the tax to such other service providers. The refuse collection business must provide the other refuse service provider with a refuse collector's exemption certificate. WAC 458-20-250

 
 


Sales to US Government
Sales of tangible personal property or labor to repair or install tangible personal property for the U.S. Government, its institutions, departments, and industries.WAC 458-20-190; 458-20-250

 
 


Sales/Repair of Large Private Planes to Non-residents

This exemption applies to sales of, or labor and services rendered in repairing, cleaning, altering, or improving large private airplanes owned by nonresidents of this state. RCW 82.08.215.

 
 


Small Timber Harvester

Timber harvesters who extract less than two million board feet of timber for sale or for commercial or industrial use may deduct up to one hundred thousand dollars per tax year from their gross receipts or value of products proceeding or accruing from timber harvested. Amounts above the one hundred thousand dollars remain subject to B&O tax. This deduction is allowed under the Extracting Timber B&O and Wholesaling of Timber or Wood Products B&O tax classifications, under the Small Harvester. WAC 458-20-13501

 
 


Tax Deferral Investment Certificate Number
Sales to persons approved for sales tax deferral by the Department of Revenue. Sellers must keep a copy of the purchaser's deferral certificate. RCW 82.60; 82.61; 82.63

 
 


Tax in Gross
Used to "back out" the amount of retail sales tax included in the gross amount reported on Retailing [02] and Retail Sales [01] only if the gross amount includes retail sales tax.

 
 


Taxable Amount for Tax Paid at Source
Amount on which sales tax was previously paid on goods purchased for resale without intervening use. WAC 458-20-102

 
 


Trade-In Allowance
Sales tax does not apply to the value of property traded in on the purchase of property of the same kind. B&O tax does apply to that value. WAC 458-20-247