Farmers' use tax obligation
Unlike other types of businesses, farmers are not generally required to register with the Department. For this reason, many farmers may be unaware that they owe use tax when tangible personal property such as machinery and equipment is acquired without paying Washington's retail sales tax.
Example: A farmer who buys a combine from a neighboring farmer owes use tax, unless specifically exempt by law.
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. 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 the purchase is specifically exempt by law.
Examples: 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, 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, the buyer 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. Generally, these types of remote sellers are not required to collect Washington's sales tax. However, the farmer owes use tax on these items.
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.
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.
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.
Do I get credit for tax paid in another state?
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. In order to take the credit, you must have documentation, such as an invoice, of the amount of tax paid.
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 or equipment can document that he or she has already paid sales tax or use tax on the item. However, if sales or use tax was not paid by that person, you owe use tax.
When is use tax due?
Liability for use tax arises at the time a taxpayer makes first taxable use of tangible personal property in Washington. Generally, this includes the location of installation, storage, withdrawal from storage, distribution, or any other act preparatory to subsequent actual use or consumption of the property in Washington.
How do I report and pay use tax?
- If you are not registered with the Department , use the Consumer Use Tax Return
- If you are registered with the Department, use your next excise tax return.
- Use tax on vehicles and trailers that must be licensed for use on roads is paid to the county auditor or licensing agent.
How will the Department of Revenue know if I don't pay the tax?
Department staff actively investigates and pursues businesses and individuals to collect unpaid tax, including use tax. Department employees use many resources to discover unpaid use tax. These resources include:
- Personal property records of the county assessor's office
- Real Estate Excise Tax Affidavits
How can I prove that sales or use tax has been paid?
Your invoice proves if sales tax was paid. By law, purchase documents such as sales receipts or invoices must separately state the sales tax from selling price. (See WAC 458-20-107) 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.
Purchases for dual purposes
A farmer normally engaged in both consuming and reselling certain types of tangible personal property, and not able to determine at the time of purchase whether the property purchased will be consumed or resold, must purchase according to the general nature of his business. If the farmer generally consumes more than fifty percent of the purchase in question, the farmer should not give an exemption certificate for any part of the purchase. If the farmer generally resells more than fifty percent of the purchase, the farmer may provide the seller with an exemption certificate.
If a farmer makes a purchase for dual purposes and does not give an exemption certificate for any of the purchase, then resells some of the articles purchased, the farmer may claim a "taxable amount for tax paid at source" deduction. Refer to WAC 458-20-102 for additional information regarding purchases for dual purposes and the "taxable amount for tax paid at source" deduction.
If the farmer gives an exemption certificate for all purchases and ends up consuming some of the articles purchased, the farmer is liable for deferred sales tax and must remit the tax directly to the Department. Please refer to WAC 458-20-102 for more information regarding deferred sales tax.
Example: A farmer purchases binder twine for binding bales of hay. More than fifty percent of the binder twine is used for hay that will be sold. Because the farmer principally uses the binder twine for binding bales of hay that will be sold, the farmer may provide an exemption certificate to the seller for the entire purchase. The farmer is liable for deferred sales tax on the binder twine used for hay that will feed the farmer's livestock.