Washington Tax Decisions

A retail store chain petitions for the correction of assessment of retail sales tax, assessed as a result of the Department of Revenue (Department) disallowing bad debt deductions based on defaulted transactions made by customers on the retailer’s private label credit card. The retailer sold its credit card accounts to a financing institution that now runs the retailer’s private label credit card program. Cardholder indebtedness on the books of the financial institution is taken into account in calculating the service fee the retailer receives from the financial institution. However, the retailer is no longer the owner of the credit card accounts and ultimately the indebtedness for credit card charges, including the sales tax, is owed by the cardholder to the bank. Since the financial loss incurred by the retailer is in the form of reduced service income and does not actually reflect uncollected retail sales tax, the retailer does not qualify for the refund provided in RCW 82.08.037. The petition is denied.

The Taxpayer, a bank, appeals the assessment of Business and Occupation Tax on its interest income received from the government sponsored enterprises Fannie Mae and Freddie Mac. Because these payments do not represent tax exempt direct obligations of the federal government, we affirm the assessment.

A used car dealership protests the assessment of use tax on executive use of dealership vehicles. As the Taxpayer does not have a recent model vehicle licensed in its name as required by WAC 458-20-132, we conclude that it is subject to use tax on use of an executive vehicle and sustain the tax assessed. The Taxpayer’s petition is denied.

A chiropractor protests the assessment of retail sales tax on sales of dietary supplements to patients, contending the sales are exempt from retail sales tax under RCW 82.08.925. Because chiropractors are not authorized under Washington law to prescribe drugs, we conclude the exemption does not apply and deny the petition.

Hotel management companies protest imposition of tax on the grounds that employee wages paid by hotel owners to a payroll processing company (i) are not gross income to the management companies, and (ii) are excludable under WAC 458-20-111. The petitions are denied.

Two affiliated corporations, conducting research in Washington, protest the denial of a portion of high tech credits they claimed. Because the corporations failed to file surveys for the year in which the credits were claimed, and both corporations claimed the credit for the same research, we deny their petitions.

Taxpayer, a venue management, marketing, and development company, petitions for an adjustment of business and occupation (“B&O”) tax assessed on amounts paid to facility personnel and related costs incurred in the course of managing an event facility. These expenses were paid directly from the “Facility Operating Account” of the public facility district (“PFD”) that contracted with Taxpayer to manage a facility on its behalf. Taxpayer argues that B&O tax does not apply because: (1) no value proceeded or accrued to Taxpayer from the payments to facility personnel, and therefore the amounts cannot be considered “gross income of the business;” (2) even if such payments are valid consideration, the amounts paid from the Facility Operating Account qualify for [exclusion from B&O tax] under WAC 458-20-111 (“Rule 111”); and (3) amounts paid to on-site personnel out of the Facility Operating Account are exempt from B&O tax under RCW 82.04.394 for periods prior to June 1, 2010. The Department denies Taxpayer’s petition.

A dentistry practice (Taxpayer) argues that paying a tax assessment would be an economic hardship. We deny Taxpayer’s petition.

A personal representative requests a refund of real estate excise tax (“REET”) paid with respect to the estate’s sale of the deceased’s residence to an unrelated third party because the net proceeds from the sale were distributed to beneficiaries pursuant to the deceased’s will. Petition denied.

A motor carrier protests the disallowance of interstate deductions taken on revenue related to the transportation of shipments the motor carrier picked up at various Washington ports and delivered to Washington locations. We sustain the assessment.

Hotel management company protests assessment of business and occupation (“B&O”) tax on the grounds that employee wages paid by a hotel owner to a professional employer organization (i) cannot be taxable to the management company; or (ii) are excludable under WAC 458-20-111 as a pass-through payment. The management company also claims it is entitled to a deduction under RCW 82.04.540. The petition is denied.

A limited liability company (Taxpayer) that provides hunting guide services to customers for a flat fee disputes the Department of Revenue’s (Revenue’s) reclassification of its revenue from the service and other activities business and occupation (B&O) tax classification to the retailing B&O tax classification, claiming that its services amount to instructional lessons. We deny the petition.

A moving and storage company petitions for correction of assessment of tax on a number of issues, including . . . whether it is required to collect retail sales tax on packing materials it sells to its customers, whether it owes use tax on packing materials it uses in providing packing services to its customer, whether the proceeds it received from its landlord for prematurely breaching a lease agreement, and future instructions on whether to report retailing business and occupation (“B&O”) tax on auction sales of items abandoned by customers who defaulted on their storage payments, and the proper documentation required to be eligible for the intrastate carrier exemption on purchases of motor vehicles and trailers. Taxpayer’s petition is granted with respect to the proceeds it received from its landlord for the breach of a lease agreement, but is denied on all other issues.

A landscaping company objects to the imposition of the evasion penalty for its failure to remit retail sales taxes collected from its clients. We uphold the penalty.

A perishable meat wholesaler (“Taxpayer”) protested the slaughtering/breaking/processing perishable meat wholesaling Business and Occupation (B&O) tax assessed on its sales of perishable meat to its affiliate claiming that it purchased the meat as the affiliate’s agent and the amounts received were not subject to wholesaling B&O tax. Taxpayer further asserts that the Department of Revenue (the “Department”) is estopped from assessing the wholesaling tax on such sales because the Department in a prior audit failed to detect it was not reporting these sales. We deny the petition.

[Taxpayer] petitions for reversal of a Letter Ruling, issued by the Department of Revenue’s (Department) Taxpayer Account Administration (TAA) division, notifying Taxpayer that it does not qualify for a 2011 high technology business and occupation (B&O) tax credit for research and development (R&D) spending because the required annual survey was not timely filed. We conclude TAA’s ruling is correct. Taxpayer’s petition is denied.

A business that performs “water damage restoration” on behalf of customers whose carpets were damaged by water as a result of flooding protests the retail sales tax and retailing business and occupation (“B&O”) tax assessed on such activity. We affirm the assessment.

Strength and conditioning coach claims that he does not provide “physical fitness services” on the grounds that his services are instructional in nature. The petition is denied.