Unlike other types of businesses, farmers are not generally required to register
with the Department of Revenue. For this reason, many farmers may be unaware that
they may owe use tax when tangible personal property such as machinery and equipment
is acquired without payment of Washington's retail sales tax. For example, a farmer
who buys a combine from a neighboring farmer owes use tax, unless specifically
exempt by law.
What is Use Tax?
Use tax is a tax imposed on the use of tangible personal property in Washington
when sales tax has not been paid. It is computed at the same rate as the sales
tax. Unless specifically exempt by law, all tangible personal property purchased
or used in this state is subject to either the sales tax or use tax, but not
both, regardless of where or from whom the property is purchased.
When a farmer purchases machinery and equipment from a dealer in this state,
the farmer must pay sales tax to the dealer, unless the sale is specifically
exempt by law. The dealer in turn pays the collected sales tax to the Department
of Revenue. There are many instances, however, where sales tax is not paid to
the seller. In these situations, the farmer must remit the sales tax (commonly
referred to as "deferred sales tax") or use tax directly to the Department,
unless specifically exempt by law. The following are examples of when farmers
owe use tax, presuming no exemption from the tax applies:
- Machinery and equipment purchased from another farmer. Unless the selling
farmer is registered with the Department of Revenue, sales tax will not be collected.
- Machinery and equipment purchased in another state with no sales tax
or in a state with a sales tax rate less than Washington's. If sales or use
tax was paid in another state, you may take a credit for the amount of tax paid
against the amount of use tax due in Washington.
- Machinery and equipment are purchased from an out-of-state Internet seller
or from a mail order catalog. These types of remote sellers are many times not
required to collect Washington's sales tax. However, the farmer owes use tax
on these items.
References: RCW
82.12.020 and
WAC
458-20-178
Frequently Asked Questions About Use Tax
Do I get credit for equipment I use as a trade-in?
Use tax is computed on the amount due after the value of a "like kind"
trade-in is subtracted from the purchase price. For example, if you bought a
plow from a dealer in another state and you used another plow as a trade-in,
use tax is due on the remaining balance.
If sales or use tax was paid in another state, you may also take a credit for
the amount of tax paid against the amount of use tax due in Washington. In order
to take the credit, you must have documentation, such as an invoice, of the
amount of tax paid.
Is use tax due if I acquire farm equipment when I purchase a farm?
If you acquire tangible personal property with the farm, use tax is due on
the value of the non-exempt personal property. When completing the Real Estate
Excise Tax Affidavit for the County Treasurer, you must indicate the value of
the personal property separate from that of the real property. The value of
the tangible personal property is subject to use tax, unless an exemption applies
to a specific item of property.
Do I owe use tax if machinery or equipment is given to me?
Use tax is not due if the person giving you the machinery and equipment can
document that he or she has already paid sales tax or use tax on the goods.
However, if sales or use tax was not paid by that person, then you owe use tax.
When is use tax due?
Liability for use tax arises at the time the property is first put to use in
this state. Generally, first use occurs when the goods are first acquired or
brought into Washington.
How do I report and pay use tax?
- Farmers that do not have a tax registration number with the Department of
Revenue must report and pay use tax with a Consumer
Use Tax Return (pdf).
- If you are registered with the Department of Revenue, you should report
use tax on the use tax sections of the excise tax return, or you
may use the Consumer
Use Tax Return (pdf).
- For vehicles and trailers that must be licensed for use on roads, use
tax is paid to the County Auditor or licensing agent.
How will the Department of Revenue know if I don't pay the tax?
The Department of Revenue actively investigates and pursues businesses and
individuals to collect unpaid doingbusiness/businesstypes, including use doingbusiness/businesstypes. Department employees
utilize many resources to discover unpaid use doingbusiness/businesstypes. For example, the Department
reviews personal property records of the County Assessor's office to locate
tangible personal property on which sales or use tax has not been paid. After
a review of the assessor's records, notices are sent to farmers requesting either
payment of use tax or verification that sales or use tax has been paid. Likewise,
the Department reviews Real Estate Excise Tax Affidavits to determine whether
use tax has been paid on personal property acquired in connection with a real
property transfer. The Department also detects unpaid use doingbusiness/businesstypes through the
audit process.
How can I prove that sales or use tax has been paid?
Your invoice will prove if sales tax has been paid. By law purchase documents
such as sales receipts or invoices, must separately state the sales tax from selling
price.
To prove you have paid use tax, keep the documentation (e.g., Consumer Use Tax
Return or excise tax return) for all items on which you've paid the
tax.
Other Resources:
Farmers and Use Tax brochure (pdf)
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