Common sales tax exemptions

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.