What is the direct pay program?
Direct pay is a program that allows approved businesses to buy goods without payment of sales tax to the seller at the time of purchase. Instead, businesses provide a direct pay permit to their vendor and pay the applicable sales and use taxes due directly to the Department of Revenue.
Who is eligible for the program?
A business may apply for a direct pay permit if they meet one of the following:
- Is reasonably expected to have a cumulative sales/use tax liability of $240,000 or more in the current calendar year.
- Makes over $10 million of taxable purchases in one calendar year.
Tax liability means the amount required to be remitted to the department for taxes administered under chapter 82 RCW, except for the taxes imposed or authorized by chapters 82.14A, 82.14B, 82.24, 82.27, 82.29A, and 84.33 RCW.
How do I apply for a direct pay permit?
Businesses that are interested in applying for a direct pay permit should send a letter of interest to the department that includes the following information:
- Business name and UBI/TRA number.
- Primary business activity.
- Affirmation that the business meets the eligibility requirements listed above.
- Affirmation that the business is familiar with the use tax accrual process and is able to comply with use tax record keeping requirements.
- Contact person and phone number.
The letter of interest should be sent to the following address:
Department of Revenue
ATTN: AS&P Manager
PO Box 47474
Olympia, WA 98504-7474
How will the department review my application?
The department will review the letter of interest and may contact the business for an interview. During the interview, we will review and discuss the following:
- Verification of eligibility requirements.
- Tax reporting history of the business.
- Record keeping system and use tax accrual system.
- Use of permit for all eligible purchases.
When will I get my permit?
After reviewing the application, the department will send the business a letter granting or denying a direct pay permit. The letter of approval will include a direct pay permit that the business may copy and use with their vendors. A business denied a permit may petition for reconsideration.
How do I use the direct pay permit?
Businesses should copy the direct pay permit and provide a signed copy to each vendor. Vendors may keep the permit on file rather than requiring a new copy for each purchase.
What purchases can I make with the direct pay permit?
Certain articles of tangible personal property are exempt from sales tax based on the type of article or the manner of use. The direct pay permit should be used to purchase items where the business is not certain at the time of purchase whether the item is taxable or exempt. Businesses should use the direct pay permit for all eligible purchases. A direct pay permit is not transferable and the use of a permit may not be assigned to a third party.
The permit may NOT be used for the following:
- Purchases for which a reseller permit may be used.
- Purchases of meals or beverages, and purchases of lodging and related services.
- Purchases of motor vehicles, trailers, boats, airplanes, and other property subject to requirements for title transactions by the Department of Licensing.
- Purchases of automobile towing services, and automobile parking and storage services.
- Purchases of amusement and recreation services.
- Purchases of abstract, title insurance, escrow services, and credit bureau services.
- Service charges associated with tickets to professional sporting events.
- Charges related to the use of an athletic or fitness facility.
- Purchases of personal services such as tanning salon services, tattoo parlor services, steam bath services, Turkish bath services, escort services, and dating services.
- Purchases of telephone services.
How and when do I accrue and pay tax on my direct pay purchases?
Businesses will accrue and pay use tax based on where the services and goods are received.
Sales or use tax is due and payable on the Combined Excise Tax Return and reported on the use tax line for the reporting period in which the taxpayer receives the tangible personal property purchased or in which the labor and/or services are performed.
What about sellers accepting a direct pay permit?
When the customer is a direct pay permit holder, it means they have been approved to pay use tax directly to the Department instead of sales tax to their vendors. If a seller accepts a direct pay permit from a customer, they will not be held liable for sales or use tax if they maintain appropriate documentation, including a copy of the direct pay permit.
When selling to permit holders, vendors will report the retail sale on their excise tax return and claim a Direct Pay Permit deduction from retail sales tax. Vendors must also report their gross income from the retail sale under the Retailing business and occupation (B&O) tax classification.
Sellers must maintain a copy of the direct pay permit for 5 years after the date of sale. In the event of an audit, a seller may be asked to provide this documentation to support the sales tax deduction claimed on their excise tax return.
For more information, please see RCW 82.32.087.