WAC 155-01

Digital Products Guide

Internet-based Businesses

A Podiatric Physician’s Guide to Washington Excise Taxes

"Sale," casual or isolated sale."

Sale at retail," "retail sale."

"Sale at wholesale," "wholesale sale"

"Gross proceeds of sales."

"To manufacture"

"Consumer"

Definitions

Tax on retailers.

Tax on selected business services, financial businesses, or other business or service activities. (Effective until 7/1/98)

Creation and distribution of custom software--Customization of canned software.

Tax on royalties from granting intangible rights. Royalty tax rate is 0.484 percent. "Royalties" means compensation for the use of intangible property, such as copyrights, patents, licenses, franchises, trademarks, trade names, and similar items.

Persons taxable on multiple activities--Credits.

Credit-Research and development spending (Effective July 1, 1998 until December 31, 2004)

Credit--New employment for international service activities in eligible areas--

Value of products, how determined.

Use tax imposed

Tangible personal property and certain services donated to nonprofit organization or government entity

Use Tax - Exemptions--Use of computers or computer components, accessories, or software donated to schools or colleges.

Records to be preserved--Examination--Estoppel to question assessment--Unified business identifier account number records.

Tax Deferrals For High Technology Businesses

Computer hardware, computer software, information service, and computer services The Department is adopting this rule, WAC 458-20-15501, to update and further explain beyond WAC 458-20-155 the application of the business and occupation (B&O), retail sales, and use taxes as they apply to persons providing information or computer services, and persons who manufacture, develop, process, or sell information, software, or computer programs. This rule also recognizes that RCW 82.12.020(1)(b) now excludes software provided free of charge from the use tax.

Taxation of Computer Systems and Hardware The Department engaged in this rule making to amend WAC 458-20-15501, and adopt two new rules (WAC 458-20-15502 and 15503) to explain the impacts of 2009 and 2010 legislation, and to address other tax issues related to computer hardware, computer software, and computer services below. WAC 458-20-155 is being repealed. Chapter 535, Laws of 2009 (ESHB 2075), made major changes to the taxation of certain products and services provided or furnished electronically (commonly referred to as "digital products").

Digital Products-General Implementation. ETA 9001.2009 Digital Products – General Implementation was initially issued on July 24, 2009 and then reissued as ETA 9001.2011 on June 30, 2011. This ETA is readopted as ETA 3176.2013 so that it is renumbered in a manner consistent with other existing ETAs. This ETA continues to explain the Department’s initial phased process for implementing chapter 535, Laws of 2009 (ESHB 2075); that the phased implementation process ended June 30, 2011; and how to submit a “digital products” letter ruling request to the Department.

Digital Products - General Implementation

Digital Products-General Implementation ETA 9001.2011 Digital Products – General Implementation ETA 9001.2009 was issued on July 24, 2009, to explain the Department’s initial phased process for implementing chapter 535, Laws of 2009 (ESHB 2075). The Department has reissued ETA 9001 to explain that the phased implementation process ends June 30, 2011. This ETA also explains how to submit a “digital products” letter ruling request to the Department.

Taxation of digital songs, movies, books, and online games transferred electronically

New "Economic Nexus" in Washington State May Impact "Foreign Corporations"

New Apportionment Method

New "Economic Nexus" in Washington State May Impact Franchisors

Tax Attorneys and CPAs New "Economic Nexus" in Washington State May Impact Your Clients

B&O Tax Reporting Requirement Continues After Business Activity Stops (Trailing Nexus)

Registered Out-of-state Businesses Currently not Reporting Income from Service Activities - New Apportionment for Certain Income

Digital Products

New "Economic Nexus" in Washington State May Impact Businesses Receiving Royalty/Licensing Income from Patents

Sales of Medical Cannabis Remain Subject to Sales Tax

Machinery and Equipment Used in Developing Software

RCW 82.04.065; RCW 82.04.297; RCW 82.04.050(5); Title 47 U.S.C. Sec. 151: INTERNET SERVICE PROVIDER (ISP) – DIGITAL SUBSCRIBER LINE INTERNET SERVICE (DSL) - An ISP selling DSL internet service is taxable as an ISP. It should pay Service & Other B&O tax on its income received as an ISP. For Washington State tax purposes, a DSL ISP’s internet service charges should not be bifurcated into a Service & Other B&O internet service component, and a retailing telephone line transmission component

RULE 15501; RCW 82.08.020; RCW 82.04.290: DEFERRED SALES TAX – TAXABILITY OF ONLINE PROPERTY MANAGEMENT SERVICES – PRE-DIGITAL PRODUCTS LEGISLATION. Prior to the advent of digital products legislation, Taxpayer’s purchase of online property management services, which consists of a combination of software as a service (SAAS), information services, and data processing, is taxable under the service and other activities business and occupation tax category, and therefore taxpayer is not liable for deferred sales taxes on such services.

TAX AND/OR USE TAX – TAXABILITY OF ONLINE PROPERTY MANAGEMENT SERVICES – POST-DIGITAL PRODUCTS LEGISLATION. Following the enactment of digital products legislation, Taxpayer purchase of the same online property management services equates to the purchase of digital automated services (DAS) for which Taxpayer owes deferred sales tax and/or use tax.