Sales tax collection is based on the location where the customer receives the merchandise or service. To ensure local governments receive the correct amount of tax money, retailers must code their sales accurately.
Destination-based sales tax rules
Most retail sales are coded based on a series of rules. This means you will only use rule 2 if rule 1 does not apply, and so forth.
If a customer takes possession of property, digital good, retail service, or extended warranty at your business location, calculate the sales tax based on the rate at your business location.
If your customer will receive the product, digital good, retail service, or extended warranty at a location other than your place of business, code the sales tax to the location where the customer receives the property, service, or warranty.
If you don’t know the address where the product, digital good, or service will be received, you should code the sales tax to the address for your customer maintained in your ordinary business records, provided use of the address does not constitute bad faith.*
If you don’t have a delivery address or an address where your customer has received shipments, you should code the sales tax to an address for the purchaser obtained at the time of the sale. This might be the address that appears on a check, credit card, or money order, as long as use of the address does not constitute bad faith.*
If you cannot apply Rules 1 – 4 or do not have enough information to code the sales tax under one of the four methods above, you should base the sales tax on the location as determined under the following rules:
- Tangible personal property: The location from which the property was shipped.
- Retail services and extended warranties: The location from which the services or warranties were provided.
- Prewritten software (and digital goods): The location at which the software was first made available for transmission.
*Time of sale is based on the seller’s customary tax accounting methods. If a seller knowingly uses an invalid address, the address is used in bad faith. The seller’s manipulation of an address or sales date to avoid or alter the amount of sales tax for a transaction is considered bad faith and the seller would be liable for engaging in fraud or doing business with gross indifference to the law.
Common transaction summaries
Sales of goods and merchandise
Goods and merchandise sales are coded to the location where the customer receives them. Over the counter sales, where the customer receives the item at the retail location are coded to the retail store or outlet. Items that are shipped or delivered to the customer, either through the U.S. mail or a third party common carrier, are coded to location where the customer receives them.
Labor and services
Labor and services are coded to where they are performed. If an installation charge is normally added to the cost of an item, the entire charge for that item is coded to the site where it is installed. If the buyer picks up the item in person, the sale is coded to the retail outlet where the item was picked up.
In the case of repaired merchandise, if the buyer picks up the item at the repair facility, then the sale is coded to the location of the repair facility. However, if the repaired item is delivered or shipped to the buyer, then the total charge, including shipping and handling, is coded to the buyer’s address.
Goods delivered into Washington
If goods are delivered into Washington from outside of the state, the sale is coded to the location where the customer receives the goods.
Lease or rental of tangible personal property
Lease or rental of tangible personal property depends on the following:
Lease or rentals that do not require recurring payments
- If a single payment is made and the person renting the equipment (lessee) picks up the equipment at the location of the business renting the equipment (lessor), then the lessor’s location determines the code and local tax rate.
- If a single payment is made but the equipment is delivered to the lessee at another location, the code is determined by the location where the lessee receives the equipment.
Lease or rentals that require periodic payments
- If the item is leased for a length of time and periodic payments are made, the first payment is coded to the location where the lessee receives the equipment, normally the lessor’s business location. All subsequent payments are coded to the primary property location.
Special sourcing provisions
The following are excluded from destination-based sales tax:
- Automobile towing. Sales tax is based on the business location.
- Sales of motor vehicles, trailers, semi-trailers, aircraft, and watercraft. Sales tax is based on the seller’s location even if the seller delivers the items to the customer.
- Qualifying florists. This means more than 50% of gross sales from retailing fresh cut flowers, arrangements, and similar products that are not used for landscaping purposes. Sales tax is based on the seller’s location.