WAC 199

"Value proceeding or accruing."

Tax on retailers.

Tax on wholesalers.

Installment sales and leases.

Cash receipts taxpayers -- Bad debts.

Cash receipts taxpayers -- Bad debts.

Accounting methods.Effective 6/30/96

RECORD KEEPING REQUIREMENTS

SALES TAX -- TRUST FUND ACCOUNTABILITY ASSESSMENT -- PUBLIC WORKS CONTRACT -- RETAINAGE -- APPLICATION OF.Retainage paid the Department from a public works contract must first be applied to tax, interest, and penalty liability arising directly out of the project for which it was withheld before it may be used for other state tax arrearages.

SALES TAX -- TRUST FUND ACCOUNTABILITY ASSESSMENT -- PENALTIES AND INTEREST.A trust fund accountability assessment may include penalties and interest that accrue on the tax debt of a defunct corporation.

CONSTRUCTIVE DELIVERY;USE TAX.Use tax is due if there is constructive delivery.Constructive delivery is deemed to have occurred when a product is held by the seller on behalf of the buyer, pending a buyer’s instructions for future delivery of the product.But, if the buyer notifies a seller that it will no longer require production and delivery of a product and the seller does not deliver the product but continues to invoice the buyer and the buyer continues to pay the seller as if the product were produced and delivered, the payments are not subject to use tax because there is no use.

Retail sales tax is due upon the sale of tangible personal property.If a buyer does not pay retail sales tax at the time of purchase, the Department will assess “deferred retail sales tax.”If, however, a buyer cancels a contract for the production and delivery of tangible personal property but the seller continues to invoice the buyer for the delivery of the goods and the buyer chooses to continue to pay the invoices rather than pay the liquidated damages for breach of the contract,the payments are not subject to deferred retail sales tax.This is because there has been no sale of tangible p

RETAILING B&O TAX -- RETAIL SALES TAX -- GROSS PROCEEDS OF SALES -- EMPLOYEE THEFT OF INVENTORY -- EMPLOYEE MEALS.Where liquor was stolen by the taxpayer’s employees, such liquor cannot be used to impute income to the taxpayer.Liquor stolen by employees does not constitute “employee meals” because the taxpayer did not voluntarily give the liquor to the employees in exchange for their services.

ACCOUNTING METHODS – ACCRUAL METHOD.The changes to Rule 199 in 1996 do not affect a taxpayer whose books and records are maintained exclusively on an accrual basis.

ACCOUNTING METHODS – ACCRUAL METHOD.When a taxpayer utilizing an accrual accounting method consistently reported income in the wrong month and the Department’s Audit Division corrects the errors in a tax assessment, an adjustment for later periods may be necessary.If such an adjustment is necessary, taxpayers are encouraged to work with the Department’s Audit Division to determine the best method to accomplish the adjustment.

ACCOUNTING METHODS – ACCRUAL METHOD.When a taxpayer maintains its books and records on a purely accrual method, it must report its excise taxes on an accrual method.

SALES TAX -- BAD DEBTS -- LEASE ACCRUALS BEFORE REPOSSESSION -- ACCRUAL v. CASH BASIS ACCOUNTING. Automobile lease payment deficiencies, accrued and booked as income on the accrual basis, were subject to retail sales tax for periods before January 1, 1983 (RCW 82.08.100), the bad debt deduction for sale tax, even though approved for payment to the state on the cash receipts basis.

WHEN TAX LIABILITY ARISES -- ACCRUAL BASIS TAXPAYER. A taxpayer who keeps accounting records on the accrual basis must report excise tax liability on the accrual basis.

B&O TAX – RECOGNITION OF TAXABLE INCOME.Taxpayer is not required to recognize and pay service B&O tax immediately on “latecomers” fees it receives over many years, the amount of which is entirely speculative and neither fixed nor determinable.

ACCOUNTING METHOD -- WHEN TAX LIABILITY ARISES -- ACCRUAL BASIS TAXPAYER -- DISCOUNT. A taxpayer who keeps accounting records on the accrual basis must report B &O tax as accounts receivable are accrued. A subsequent sale, at a discount, of the accounts receivable, cannot adjust or modify the original measure of the tax.

ACCRUAL BASIS TAXPAYER -- WHEN TAX LIABILITY ARISES -- FINANCIAL STATEMENTS. A taxpayer that makes year end adjustments to financial statements is not otherwise required to report the income subject to the adjustment in the previous year. Taxpayer bills customers in January for services rendered in December; taxpayer accrues the income in January, not December, for tax reporting purposes.

B&O TAX -- RETAILING -- SALES TAX -- WHEN TAX LIABILITY ARISES -- CASH BASIS -- PROMISSORY NOTE PAID AS CONSIDERATION -- ACCOUNT RECEIVABLE -- SPECIAL APPLICATION TO CONTRACTORS -- METHOD THREE OF RULE 199. A promissory note, while considered as consideration for the purchase of construction services, is not a cash payment but is deemed an account receivable, The taxpayer, as a construction contractor and on a cash receipts basis, is subject to Rule 197's special application to contractors for reporting gross proceeds of sale.

TAX RATE CHANGES -- CASH BASIS TAXPAYER --ACCOUNTS RECEIVABLE ADJUSTMENT. Taxpayers filing returns on a cash receipts basis per Rule 199's method three must make an accounts receivable adjustment at the time of a change in tax rates. Where a cash receipts taxpayer held a promissory note (deemed an account receivable) and a tax rate change became effective May 1, 1982, the account receivable became subject to taxation in the reporting period for April 1982.

ACCOUNTING METHODS -- CASH BASIS -- ACCOUNTS RECEIVABLE. A taxpayer who regularly employs the cash basis of accounting in keeping its books and is a service business not required to collect retail sales tax may report on the basis of cash receipts without an adjustment for accounts receivable.