In order to raise cash, a business will often sell some of its assets. Occasionally, the business will carry the contract on the sale of these assets by accepting installment payments with interest, even though doing so is not part of its usual business activity. Such businesses are often unsure whether the interest income that they accrue from the contract is subject to the business and occupation (B&O) tax or exempt as a casual and isolated sale.
In general, interest or finance charges received from an installment sale are subject to B&O tax under the “service and other activities” classification. See WAC 458-20-198(2)(b). However, if the installment sale was a casual or isolated sale, as defined by RCW 82.04.040, then B&O tax does not apply to the sale, including the interest portion of the installment payments.