Washington sellers may advertise the price of goods as including sales tax provided that certain conditions are met. Likewise, a seller and buyer may negotiate and agree to a lump sum price that both parties know to include sales tax. Under RCW 82.08.050, a seller is required to separately state the selling price in any sales invoice or other instrument of sale, and the presumption is that any quoted selling price does not include the tax. But if the seller advertises the price as including the sales tax, the advertised price may not be considered the selling price.
Historically, the Department did not allow a taxpayer to calculate the tax by deducting the tax from the gross sale (known as “backing out” the sales tax). However, in Department of Revenue v. Bi-Mor, Inc., 171 Wn.App. 197, 286 P.3d 417 (2012), the Court of Appeals allowed the Taxpayer to back out the sales tax because the prices were advertised as “tax included” even though the customer receipts did not separately state the sales tax portion of the transaction.
If a taxpayer plans on backing out the sales tax amount from the advertised price, the taxpayer must state that the price includes the tax and meet all other applicable conditions for tax-included advertising required by RCW 82.08.055. Otherwise, the taxable amount will be the amount listed as the selling price without a deduction for the sales tax. The Department encourages the taxpayers to always separately state the sales tax on the customer receipts because, among other reasons, separately stating the tax protects the buyers from use tax obligations by providing proof that the buyer has paid the sales tax.
A seller may advertise the price as including sales tax if all of the following conditions are met:
- The words “tax included” must be stated immediately following the advertised price in print size at least half as large as the advertised price print size, unless the advertised price is one in a listed series.
- When advertised prices are listed in a series, the words “tax included” must be placed clearly at the head of the list in the same print size as the list.
- If the price is advertised as including tax, the price listed on any price tag must be shown in the same way.
- All advertised prices and the word “tax included” must be stated in the same medium, whether oral, or visual, and if oral, in substantially the same inflection and volume.
If these conditions (as applicable) are met, then price lists, reader boards, menus, and other price information mediums do not need to reflect the item price and separately show the actual amount of sales tax collected.
For example, if a seller advertises an item for sale at “$100, tax included,” or if the seller and buyer negotiate a price of $100 that both parties know and agree includes sales tax, the invoice may read:
(This example assumes that the applicable combined state and local sales tax rate is 8.0%. In order to calculate the selling price, simply divide the total price which is to include the sales tax by 1 plus the applicable rate. In this example, $100.00/1.08 = $92.59.)
In other words, for both sales tax and business occupation (B&O) tax purposes, the “selling price” is $92.59. The seller would collect and remit sales tax of $7.41 (= $92.59 x .08) to the state. The seller would also remit retailing B&O tax of 0.44 (= $92.59 x .00471) to the state.
Note: Administrative rule, WAC 458-20-124, provides a special rule applicable to Class H liquor license locations. Many class H restaurants elect to sell beverages or food at prices including sales tax in the cocktail lounge area. If this pricing method is used, notification that retail sales tax is included in the price of the beverages or foods must be posted in the lounge area in a manner and location so that customers can see the notice without entering employee work areas. It will be presumed that no retail sales tax has been collected or is included in the gross receipts when a notice is not posted and the customer does not receive a sales slip or sales invoice separately stating the retail sales tax.
The election to include retail sales tax in the selling price in one area of a location does not preclude the restaurant operator from selling beverages or food at a price excluding sales tax in another. For example, an operator of a class H restaurant may elect to include the retail sales tax in the price charged for beverages in the lounge area, while the price charged in the dining area is excludes sales tax.