WAC 198

"Sale," "casual or isolated sale," "lease or rental."

"Value proceeding or accruing."

Tax on retailers.

Tax on wholesalers.

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

Installment sales and leases.

Cash receipts taxpayers -- Bad debts.

Installment sales or leases.

Cash receipts taxpayers -- Bad debts.

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

Deficient tax or penalty payments--Notice--Interest--Limitations.

Installment sales, method of reporting.

FINANCIAL INSTITUTIONS INCURRING BAD DEBTS ON CONTRACT ASSIGNMENTS This Excise Tax Bulletin explains the Department's position regarding contract assignments and retail sales tax bad debt credits as a result of the decision of the Washington State Supreme Court in Puget Sound National Bank v. Department of Revenue, 123 Wn.2d 284, 868 P.2d 127 (1994). Cancelled effective March 1, 2005. The information was incorporated consistent with recent amendments in the revision of WAC 196 (which was effective 2/27/05).

Sales Tax Collection Requirement on Sales of Manufactured Housing

SALES TAX -- USE TAX -- INSTALLMENT PURCHASES --WHEN TAX DUE. The Department may proceed directly against a buyer for the full sale/use tax on an installment purchase at any time. This is true even though the seller may opt to allow the purchaser to pay sales/use tax on the installments as they fall due. Any tax paid in installments may be credited toward the full amount of tax owed.

RETAIL SALES TAX -- FINANCING LEASE.Financing leases are treated as installment sales.The Department considers all the factors set out in WAC 458-20-211(2)(g), and other critical portions of the lease documents, to determine whether an arrangement is a financing lease rather than a true lease.

RETAIL SALES TAX -- SALE/LEASEBACK -- INTERVENING USE.The Department may determine there was no “intervening use” for purposes of RCW 82.04.050, and therefore no retail sales tax was due on the initial purchase of equipment that was subsequently sold and leased back under a financing lease, when the documentary evidence and the parties’ course of dealing establish that the taxpayer and the buyer/lessor agreed to the terms of a sale and leaseback before the taxpayer purchased the equipment, and the purchases were handled in accordance with that agreement.

USE TAX -- LIMITATION FOR ASSESSMENTS -- TIME AND PLACE OF SALE -- DELIVERY -- TITLE TRANSFER.Use tax was not due on the plate-making machine originally sold and delivered in 1988 even though title did not actually transfer until 1991.

USE TAX – FINANCING LEASE.In light of the factors in Rule 211(2)(g), the taxpayer, as “lessee”, had a “financing lease” rather than a “true lease” of tangible personal property.Thus, sales tax is due on the total selling price at the time a sale of tangible personal property is made on an installment basis.If sales taxes are not collected and remitted, the Department may pursue the buyer/lessee for use tax on the total selling price.

B&O TAX – APPORTIONMENT – BORROWING OF FUNDS -- DEFERRED INSTALLMENT SALES BY RETAILER.When a retailer did not lend money, but sold its products on a deferred installment basis to its credit card customers, the retailer’s costs of borrowed funds used to replace inventory constituted an expense of its retailing activity, and cannot be used in calculating cost apportion of its credit card finance charge income.

RETAIL SALES TAX -- INSTALLMENT SALES -- CREDIT FOR TAXES PAID ON INSTALLMENTS. Persons making installment sales of tangible personal property must report the total selling price of such sales in the tax period in which the sale is made. Where taxpayer did not properly report installment sales at time of sales, but alleged it subsequently collected and remitted tax on all of the installment payments, it can receive a credit for the taxes paid if its records support its claim.

B&O TAX -- RETAIL SALES TAX -- INSTALLMENT SALE --LEASE -- IMPROPER FORMS. Where taxpayer intended to lease vehicles but used forms which indicated it was making sales and financing the sales, it cannot re-document the transactions on lease agreements and have the transactions treated as leases for purpose of retailing and retail sales tax.

RETAIL SALES TAX -- SELLING PRICE -- INSTALLMENT SALE AND LEASE DISTINGUISHED. Used car dealer found to be making sales and financing the sales where the documents used included a bill of sale and promissory note and the purchaser owned the cars after all payments were made.The fact that the dealer wrote "lessor" by its name and "lessee" by the purchaser's name on the documents and that the dealer intended the transaction to be a lease did not make the transaction a lease.

RETAIL SALES TAX -- LEASES -- CONDITIONAL SALES DISTINGUISHED.A contract designated as lease will be regarded as a sale and controlled by WAC 458-20-198 where the lessee has the option at the end of the term to purchase the property for a nominal amount. Courtright Cattle Co. v. Dolson Co. followed.

RETAIL SALES TAX -- SERVICE B&O TAX -- LEASES REGARDED AS FINANCING ARRANGEMENTS -- ALLOCATION OF INTEREST AND PRINCIPAL --REQUIREMENTS FOR. When a contract designated as a lease is regarded as a financing price in the tax period in which the sale is made. The payments may be apportioned between interest and principal if the seller complies with Rule 109 and the principal amount represents the fair market value of the property purchased.

B&O TAX -- DEDUCTION -- REPOSSESSIONS. A manufacturer who resells its goods after they have been repossessed from its dealer by a lender may not deduct the difference between the list price of the goods and the resale price from the measure of its B&O tax.

This determination has been overruled in part by Det. No. 91-263, 11 WTD 263

SALES TAX -- INSTALLMENT CONTRACT -- ASSIGNMENT --DEFAULT -- REFUND. The assignment of an installment contract from an auto dealer to a bank does not include a right of the bank to obtain a refund of sales tax from the Department in the event the auto buyer defaults and the car is repossessed.