WAC 197

Tax imposed -- Retail sales -- Retail car rental.

Cash receipts taxpayers -- Bad debts.

Sales and use taxes authorized--Additional taxes authorized--Maximum rates.

Public utility tax imposed--Additional tax imposed--Deposit of moneys.

When tax liability arises.

When tax liability arises.

SALES TAX LIABILITY OF A SELLER ON BUYER'S REFUSAL TO PAY Cancelled 1/29/09. This ETA addresses a scenario where a buyer refused to pay retail sales tax to the seller because of a contract disagreement. The seller asked the Department to relieve the seller from its statutory obligation to collect the sales tax, and instead pursue the buyer for the tax. This document explains that the Department's general policy is not to relieve sellers of their statutory obligation to collect sales tax from the buyers, and that the Department chose not to pursue collection from the buyer.

WHEN SALES TAX IS DUE ON PAYMENTS RETAINED UNDER PUBLIC WORKS CONTRACT Revised 2/2/09 See ETA 3024.2009

Public works contracts

Public Works Contracts

RCW 82.08.820 provides an exemption in the form of a refund (or remittance) of sales tax for wholesalers and third-party warehousers who own or operate grain elevators. This Excise Tax Advisory (ETA) explains what a grain elevator is under RCW 82.08.820(1) and the application of the proper rate of tax remittance under RCW 82.08.820(3) when a grain elevator is expanded.

Grain Elevator Excise Tax Advisory (ETA) 3188 explains the proper rate of tax remittance when a grain elevator is expanded pursuant to RCW 82.08.820. Initially issued on February 19, 2014, ETA 3188 is being amended to delete language in the ETA providing guidance on the Department’s interpretation of what a grain elevator “structure” is for purposes of RCW 82.08.820. The language is being eliminated because the Department has reconsidered its interpretation in the matter and determined that prior the interpretation was too narrow.

Warehouse Sales Tax Exemption

WHEN INCOME "ACCRUES" -- REFUND OF UNEARNED INCOME. Where a taxpayer receives funds to cover costs of performing services and under its contract must refund any amount not spent, the taxpayer is only legally entitled to the amount actually spent and is not taxable on the amount refunded. THIS DETERMINATION HAS BEEN OVERRULED OR MODIFIED IN WHOLE OR PART BY DET.NO. 04-0022E, 23 WTD 198 (2004) AND DET.NO. 04-0023E, 23 WTD 206 (2004).

WHEN INCOME "ACCRUES" -- GROSS INCOME OF THE BUSINESS -- WHAT CONSTITUTES. Amounts received by a taxpayer from the Social Security Administration under the requirement that they be set aside in trust for the exclusive benefit and use of another are not taxable to the taxpayer because the taxpayer neverbecame legally entitled to the funds. Such amounts do not constitute "gross income of the business" as provided in RCW 82.04.080. THIS DETERMINATION HAS BEEN OVERRULED OR MODIFIED IN WHOLE OR PART BY DET.NO. 04-0022E, 23 WTD 198 (2004) AND DET.NO. 04-0023E, 23 WTD 206 (2004).

B&O TAX -- GROSS INCOME -- VALUE PROCEEDING OR ACCRUING -- DENTIST -- MEASURE OF TAX. Where an independent contractor dentist, working for another dentist, receives as compensation 30 percent of gross billings attributable to his services, only that figure is B&O taxable to the first dentist. The remaining 70 percent is not "value proceeding or accruing" to the taxpayer dentist because he is not legally entitled to receive that amount.

TAX LIABILITY -- CONTRACTOR -- ACCRUAL BASIS RECORD KEEPING. Tax liability arises for an accrual basis taxpayer when either: 1) the taxpayer became legally entitled to receive the consideration or 2) when the taxpayer in accordance with its regularly employed accounting system enters a charge against the purchaser. Accord: Det. No. 87-80,2 WTD 407 (1987).

ACCOUNTING METHODS -- RECOGNITION OF INCOME.Progress payments made to contractors are taxable at the time of receipt unless it can be shown that the payments were received as trust funds.

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.

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.

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.

VALUE PROCEEDING OR ACCRUING --CASH RECEIPTS BASIS OF ACCOUNTING -- LATE PAYMENT PENALTY -- CANCELLATION. An out-of-state seller of tangible personal property who keeps her books on a cash receipts accounting basis is not subject to a 20% late-payment penalty if she pays her tax and files her excise tax return within twenty five days after the end of the month in which she receives payment.It is immaterial that the contract was performed, i.e. the goods were received by a customer in Washington, more than two months before payment was received.

B&O TAX -- SALE -- VALUE PROCEEDING OR ACCRUING -- CONSIDERATION -- BARTER.The transfer of goods for valuable services constitutes a sale of the goods measured by the value of the services.

B&O TAX -- VALUE PROCEEDING AND ACCRUING – FREE PRODUCT – CONSIDERATION.Product offered as consideration was not “free”, but consideration for services.The value of consideration in the form of product accruing or proceeding to the taxpayer constituted gross income.

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.

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.

RETAIL SALES TAX – PREPAID CONTRACT FOR HOURS OF UNSPECIFIED SERVICES – REFUND OF RETAIL SALES TAX.A taxpayer who purchases a prepaid service contract for a set number of hours of computer services, under which it may use the hours for either retail or non-retail services, and is charged retail sales tax on the entire sales price, may not obtain a refund of retail sales tax when it actually uses some or all of the prepaid hours for non-retail services.

RCW 82.04.080, RCW 82.04.090: SERVICE B&O TAX -- ADVERTISING DISPLAY SERVICE -- BONA FIDE DISCOUNT -- NET CHARGE.Service B&O tax on advertising display service charges billed on a net basis is measured by the amount billed and legally due.

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.

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.

B&O TAX -- GROSS INCOME -- VALUE PROCEEDING OR ACCRUING -- PENSION TRUST FUND -- INVESTMENT ADVISOR -- FEE. Where a taxpayer manages a pension plan trust, hires an expert to advise how the funds therein ought to be invested, and the expert withdraws its own fee directly from the trust funds, the amount of such fee is "value proceeding or accruing" to the taxpayer if the taxpayer itself is legally entitled to receive the fee.

B&O TAX -- DEDUCTION -- INTEREST -- MONEY MANAGEMENT -- OBJECTIVE STANDARDS.Interest earned on loans to affiliates is not deductible under RCW 82.04.4281 where the loans are a regular and normal part of the taxpayers' business activities.THIS DETERMINATION HAS BEEN OVERRULED OR MODIFIED IN WHOLE OR PART BY DET.NO. 93-269ER, 14 WTD 153 (1995).

B&O TAX -- GROSS INCOME -- VALUE PROCEEDING OR ACCRUING -- PENSION TRUST FUND -- INVESTMENT ADVISOR -- FEE. Where a taxpayer manages a pension plan trust, hires an expert to advise how the funds therein ought to be invested, and the expert withdraws its own fee directly from the trust fund, the amount of such fee is not "value proceeding or accruing"to the taxpayer if the taxpayer itself is not legally entitled to receive the fee.