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Taxable amount for tax paid at source deduction

Certain Washington state businesses qualify to have a reseller permit. The Department issues permits to businesses that regularly make purchases for resale or meet other specific criteria. It is free for any business to apply for a reseller permit.

If you don’t have a reseller permit but need to make purchases for resale without paying sales tax, you can pay retail sales tax on purchases and:

The “taxable amount for tax paid at source” deduction is based on the amount paid for the materials, not including the sales tax. It’s important to note that sales tax must be collected on the total price of the item or contract when the materials are resold. This sample question demonstrates how this works:

I’m a custom contractor. I recently bought lumber and paid sales tax at the time of purchase. Later, I built a fence with that lumber and collected sales tax. Is there a way to get the sales tax I paid back from my purchase of that lumber?

Yes. In order to be paid back for the sales tax that you paid originally, you can take what is called a “taxable amount for tax paid at source” deduction on your return.

Example:

ABC Company purchased lumber for $100 from a Seattle store, plus sales tax of $10.25 (rate of 10.25%).
State portion of sales tax: $6.50 ($100 x 6.5% or 0.065)
Local (Seattle) portion of sales tax: $3.75 ($100 x 3.75% or 0.0375)

ABC was later hired to build a fence in Tacoma using the lumber purchased in Seattle. The total amount earned for the contract was $500, plus $51.50 in sales tax (rate of 10.3%).
State portion of sales tax: $32.50 ($500 x 6.5% or 0.065)
Local (Tacoma) portion of sales tax: $19.00 ($500 x 3.8% or 0.038)


This is how the deduction would look on your Combined Excise Tax Return.


Step 1: Retailing B&O

  1. Enter the gross amount of $500.00 in Column 1.
  2. Enter the deduction amount of $0.00 in Column 2 (The taxable amount for tax paid at source deduction is only allowed on the Retail Sales tax line).
  3. Enter the taxable amount of $500.00 in Column 3.
  4. Enter the tax due of $2.35 in Column 5.
Sample snippet of tax form showing instructions 1 through 4 of step 1: retailing B&O, above

 

Step 2: Retail Sales

  1. Enter the gross amount of $500.00 in Column 1.
  2. Enter the deduction amount of $100.00 in Column 2 (the amount paid for materials, not including any sales tax).
  3. Enter the taxable amount of $400.00 in Column 3.
  4. Enter the tax due of $26.00 in Column 5 (the amount collected in state sales tax, minus the amount spent on state sales tax for the materials).
Sample snippet of tax form showing instructions 1 through 4 of step 2: Retail sales, above

 

Step 3: Itemize Deduction

  1. On page 4 of the Deduction Detail, under Line 29 - Retail Sales Tax, enter the deduction amount of $100.00 next to Taxable Amount for Tax Paid at Source (I.D. 0130). If you do not have a copy of the Deduction Detail, go to the Excise Tax Returns and Addendums page, and select monthly, quarterly, or annual, based on your assigned filing frequency. Or call 360-705-6705 for help.
Sample snippet of tax form showing step 3: itemize deduction, above

 

Step 4: Local Sales Tax

  1. Enter location code 1726, negative taxable amount of (100.00), local rate of .0375 and the negative tax due of ($3.75) for the purchases in Seattle.
  2. On the next line, enter location code 2717, taxable amount of $500.00, local rate of .038 and the tax due of $19.00 for the job in Tacoma.
  3. Enter the total Taxable Amount of 400.00 and Total Tax Due City or Co. of $15.25.
Sample snippet of tax form showing instructions 1 through 3 of step 4: local sales tax, above