If you sell merchandise to Washington consumers, you owe retailing business and occupation (B&O) tax, and you must collect and report retail sales tax. Examples include:

• new, used and custom jewelry

• watches, watch bands

• class rings

• chains, charms

• engagement rings, wedding bands

• gift wrapping and other packaging

If you charge your customers to clean, repair, refurbish, recondition or restore jewelry and other merchandise, you owe retailing B&O tax, and you must collect and report retail sales tax on both labor and materials.

If you deliver the repaired items outside of Washington, you do not owe retailing B&O tax, and you are not required to collect and report retail sales tax. You must keep documentation to show that you delivered the items out of state.

If you receive income from renting or leasing jewelry, you owe retailing B&O tax, and you must collect retail sales tax from Washington consumers.

You must submit tax for merchandise you sold on credit (i.e. installment sales) in the reporting period in which you make the sale, even though you may not receive full payment until a later date. Therefore, you owe both retailing B&O tax and retail sales tax on the full selling price when you make the sale.

Example: You sell a $2,000 watch on credit in April and allow the customer to take possession of it immediately with a $500 partial payment. You would report the sale as taking place in April, even though you did not receive full payment in that month. You should report the entire $2,000 selling price in April.

You may exclude separate charges for insurance, interest and finance charges from the selling price when determining amounts subject to retailing B&O tax and retail sales tax. However, these charges are subject to service and other activities B&O tax (WAC 458-20-198).

If a customer buys merchandise on layaway, you do not need to recognize the transaction as a sale until the customer receives the item. Upon delivery, you must report retailing B&O tax, and collect and report retail sales tax.

Example: You sell a $1,500 watch to a customer on a layaway basis in June, accepting a deposit of $300 plus a $50 layaway fee. The customer returns in July, pays the balance due, and receives the watch. You would report the sale as taking place in July, with a selling price of $1,550.

If the customer does not complete the terms of the layaway and forfeits the deposit, you must report this income under the service and other activities B&O tax classification. In this case, you would not collect and report retail sales tax because there was no sale.

For more information, see our Tax Topics article regarding Gift cards, gift certificates and layaway purchases.

If a customer pays for merchandise with a credit card, tax applies in the same way it applies to other sales. You must collect and pay tax on the full selling price of the merchandise, regardless of any fees you may owe credit card companies (WAC 458-20-108).

Out-of-state delivery

If you deliver jewelry and other merchandise outside of Washington, those sales are exempt from Washington taxes. You must keep documentation to prove you delivered the product out of state. If you are a Washington-based company, you must include the amounts from such sales in the gross income you report under the retailing B&O tax and retail sales tax classification. Then take a deduction for Interstate and Foreign Sales under both classifications to reduce your taxable income.

Sales to qualifying nonresidents

If you sell jewelry and other merchandise to residents of certain qualifying states, US possessions, or Canadian provinces for use outside this state, see our webpage regarding Sales to nonresidents.

Discounts

If you offer a store discount, you do not owe retailing B&O tax or retail sales tax on the discount amount.

Example: You sell a ring for $1,000 less a 10 percent discount ($100). The taxable price of the ring is $900. ($1,000 - $100 = $900)

You should clearly list the amount of discount, amount subject to tax, and the amount of tax on your sales receipts.

However, if a manufacturer or another third party reimburses you for the amount of the discount, you must compute sales tax on the selling price before you subtract the discount. This is because you are ultimately receiving the full price for the item (WAC 458-20-108).

Trade-ins

For purposes of the retail sales tax measure, the selling price excludes trade-in property of like kind. This means that you will collect retail sales tax from retail customers on the price after you deduct the value of the trade-in. The deduction for Trade-in Allowance is allowed only under the Retail sales tax classification. No retailing B&O tax deduction is allowed.

The trade-in must be used as consideration for the purchase of the property. You must accept ownership of the trade-in property and reduce the price of the purchased property by the value of the trade-in property at the time of sale.

Trade-in property of like kind means jewelry must be traded for other jewelry. Examples of qualifying trade-ins include:

• class ring for wedding ring

• bracelet for watch

• necklace for earrings

However, trading jewelry for other merchandise (i.e. coin for ring) wouldn’t qualify for this exemption.

The trade-in value is negotiated between a seller and a buyer. You must clearly identify the value and type of trade-in on the sales agreement or invoice. The trade-in allowance cannot be used to reduce the sales tax due on an extended warranty, maintenance agreement or service contract. If the trade-in value exceeds the selling price of the item sold, you should use the selling price as the trade-in value (WAC 458-20-247).

Bad debts

If you report on an accrual basis and have a credit loss, you may claim a bad debt deduction for amounts you previously reported and paid tax on. You should take the deductions during the period when the bad debts were actually written off. These bad debts must also be written off for federal income tax purposes.

You must adjust the amount of the deduction to exclude amounts attributable to:

• amounts due on property that remains in your possession until the customer pays the full purchase price

• expenses you incur while attempting to collect debt

• the value of repossessed property you take in payment of debt

If the sales tax rate is the same, you may take a bad debt deduction under the B&O tax and the retail sales tax.

However, if you have write-offs of retail sales tax during a period when the retail sales tax rate was different than the current retail sales tax rate, you must use a Schedule B, Credit for Sales Taxes Paid on Bad Debts.

Losses of merchandise due to robbery, theft, or shoplifting are not deductible (WAC 458-20-196).

Returned merchandise

When a buyer returns merchandise, and you refund or credit the entire selling price, you may claim a Returns and allowances deduction equal to the gross selling price. You may take the deduction under the B&O tax and the retail sales tax.

A deduction is available under the retail sales tax classification only if you refund the amount of sales tax you previously collected (WAC 458-20-278).

Also, see our Tax Topics article Restocking fees for returned merchandise.

Exempt sales

Generally, you do not owe wholesaling B&O, retailing B&O or retail sales tax on your gross income from sales of precious metal bullion (gold bars, processed nuggets, etc.) and monetized bullion (coins, etc.). This applies even if you sell bullion for more than face value.

Precious metal bullion is any processed, smelted or refined precious metal valued on its content, not form (RCW 82.04.062).

Precious metals include

• gold

• silver

• platinum

• rhodium

• palladium

Monetized bullion is a coin or other form of money made from metal and used as an exchange medium under the laws of a government (RCW 82.04.062).

Taxable sales

You owe retailing B&O tax, and you must collect and report sales tax on your sales of coins that cannot be used as money (i.e. an exchange medium under the laws of a government).

Sales of bullion that will be used to manufacture items such as jewelry or works of art are subject to wholesaling B&O tax if you receive a reseller permit. Retailing B&O tax and retail sales tax applies on such sales to consumers.

Commissions

If you receive commissions from sales of precious metal bullion and monetized bullion paper currency, you owe service and other activities B&O tax (WAC 458-20-248).

The production, creation, customization or fabrication of jewelry is a manufacturing activity. Therefore, you owe manufacturing B&O tax on your charges to produce, create, customize, engrave or fabricate jewelry. You owe manufacturing B&O tax on the gross selling price of the merchandise.

Manufacturing B&O tax applies even if you deliver the merchandise to the customer outside of Washington. You also owe retailing B&O tax and retail sales tax on your sales to Washington consumers. However, you may claim a multiple activities tax credit (MATC). This credit applies so that you actually only pay B&O tax once on the product even though you report under two B&O tax classifications.

If you make or customize jewelry from materials and supplies that your customer provides you, the income you receive is subject to B&O tax under the Processing for Hire classification (WAC 458-20-136 and WAC 458-20-19301).

You may use a reseller permit to purchase items or services for resale without paying retail sales tax. This includes jewelry repair parts and jewelry repair services you buy from a third party.

For further information, refer to our information on Reseller Permits.

Use tax is a tax on the use of goods or certain services in Washington when you have not paid sales tax. Goods you use in this state are subject to either sales or use tax, but not both.

You owe use tax on items you use for business or personal purposes. This includes:

• items you use for your business including display fixtures, equipment, point of sale systems and security cameras

• merchandise you give to friends, employees and others

• merchandise you use yourself

  However, you do not owe use tax on merchandise you donate to nonprofits without any intervening use (RCW 82.12.02595). You must keep documentation supporting the donation in your records.

Items for display

You do not owe use tax on merchandise you use for display while it is held for sale. You must collect and report sales tax applies when you sell the item.

Gift-wrapping and packaging supplies

You do not owe use tax on gift-wrapping and packaging supplies you use to wrap merchandise. You may buy these items with a reseller permit without paying sales tax.