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In most cases, transactions between related parties are taxable under Washington’s tax system.  Thus, sales of goods or services from one corporation to an affiliated corporation are usually subject to B&O tax and, if applicable, sales tax. This also applies to transactions between:
  • Partnerships, even though some or all of the partners may be the same
  • Related individuals
  • Shareholders and a corporation
  • Partners and their partnership

There are, however, several exceptions:

  • Casual or isolated sales are not subject to B&O tax. Such sales are subject to sales or use tax, if the transaction is a retail sale. WAC 458-20-106
  • Transfers of capital assets to or by a business are not taxable to the extent the transfer is accomplished by an adjustment of the beneficial interest in the company. Examples of adjustments to beneficial interest are described in WAC 458-20-106
  • Most distributions of profits or assets to partners by a partnership are not taxable. However, services provided to a partnership by a partner may be taxable if payment to the partner is “guaranteed.” Payment is guaranteed if it will occur regardless of whether or not the profits of the partnership are sufficient to meet it.