Introduction to Washington Business Taxes

Washington State Department of Revenue

Maureen O’Connell, September 30, 2017

Objectives

• Provide information on major taxes in Washington

• Provide helpful contacts and resources

• Answer your questions

Registration

Most businesses operating in Washington are required to register with DOR

You must register if any of the following apply:

Your business is required to collect sales tax

Gross annual income is $12,000 or more

You business is required to pay taxes or fees to the Department of Revenue

Registration Process

• Complete a Business License Application

– Online at www.bls.dor.wa.gov

– In person at a local office of the Dept. of Revenue, Secretary of State, Dept. of Labor & Industries, or the Employment Security Office

– By Mail

WASHINGTON’S 3 MAJOR TAXES

• Business & Occupation (B&O) Tax/Public Utility Tax (PUT)

• Retail Sales & Use Tax

• Property/Personal Property Tax

Washington does not impose an Income Tax

WA

OR

ID

TX

AZ

MT

CA

NV

CO KS

OK

MO

LA

SC

NC

IL

MN

WI

MI

IN

NY

OH*

MD

DE

NJ

CT

RI

MA

VT

NH

ME

PA WY

UT

NM

ND

SD

NE IA

KY

TN

WV VA

AR

MS AL GA

FL AK

HI

AK

HI

Washington is One of Three States with a Gross Receipts (Business and Occupation) Tax

Washington is 1 of 7 states that has no state Income Tax

WA

OR

ID

TX

AZ

MT

CA

NV

CO KS

OK

MO

LA

SC

NC

IL

MN

WI

MI

IN

NY

OH

MD

NJ

CT

RI

MA

VT ME

PA WY

UT

NM

ND

SD

NE IA

KY

TN

WV VA

AR

MS AL GA

FL AK

HI

AK

HI

WA

OR

ID

TX

AZ

MT

CA

NV

CO KS

OK

MO

LA

SC

NC

IL

MN

WI

MI

IN

NY

OH

MD

Delaware

NJ

CT

RI

MA

VT

New

Hampshire

ME

PA WY

UT

NM

ND

SD

NE IA

KY

TN

WV VA

AR

MS AL GA

FL AK

HI

AK

HI

Sales Taxes are imposed in 45 states

What is an Excise Tax

• It is a tax on specific transactions or privileges.

– Retail sales tax is the largest excise tax in WA

– Business & Occupation (B&O) tax is the major business tax in WA

– Property Tax and Personal Property Tax (administered by the county)

Business & Occupation (B&O) Tax

The major business tax is the B&O tax Gross receipts tax

Intended to be a cost of doing business

Various classifications (34)

– Retailing, wholesaling, manufacturing, service & other activities…

Classification is based on the specific activity

RCW 82.04

Measure of the B&O Tax

• B&O tax is computed on the selling price or gross contracted price:

– Selling price is defined to be all “consideration” received by the seller.

– This includes all labor and services

There are no deductions from the B&O tax for costs of doing business

B&O Tax Classifications

• Choosing the right B&O tax classification to file under is based on the business activity conducted. Some business will have 1 classification while others will have multiple classifications based on the types of services or products they offer their customer.

Most Common B&O Taxes/Rates

• Retailing Rate - .471%

• Wholesaling Rate - .484%

• Manufacturing Rate - .484%

• Service & Other Activities Rate – 1.5%

• Other specialized B&O tax rate range between .013% - 1.63%

When do I pay my taxes

• After registering your business the Department will determine your reporting frequency. This is based on the information you provide on your Business License Application.

• There are 4 filing frequencies – monthly, quarterly, annual, active non-reporting

Taxable Amount

• B&O tax and retail sales tax are computed on the selling price or gross contract amount

• No deduction for cost of material used, labor or service, taxes imposed on the seller

• Retail sales tax must be separately stated

Retailing B&O Tax

• In general, sales of tangible personal property and charges for labor and services performed on tangible personal property or real property, for consumers

• Specific activities as defined by law – lodging, telephone services, physical fitness service, auto parking, amusement and recreation services

Documentation required if sales tax not collected

Retailing B&O Tax

Examples of services:

• Custom construction/repair

• Tanning

• Physical fitness

• Lawn maintenance, tree trimming

• Rental equipment (bare rental or with operator)

Wholesaling B&O Tax

• Selling goods & certain services to persons who will resell them to others without intervening use

• Buyers must provide the seller with their Reseller Permit to document the sales tax exempt purchase.

Reseller Permit

• All sales of a retail nature will be classified as retail sales unless a resale certificate is obtained

• Single purchase or blanket certificate

• Only recording the purchaser’s UBI number is not sufficient

• When purchasing goods for resale, you must provide the supplier with a reseller permit

DO NOT GIVE AWAY YOUR ORIGINAL PERMIT

Reseller Permit

• Issued by Department of Revenue to business making sales for resale

• Not issued to business not making purchases for resale

• Free

• Each permit has different number

• Application process (if not issued automatically)

• Database use to verify permits

• Taxable Amount for Tax Paid Source deduction

Manufacturing B&O Tax

• Tax is imposed on the local activity of manufacturing

• Manufacturing is creating a new, different or more useful product

• Gross income is reported under Manufacturing and also the Retailing or Wholesaling classifications WAC 458-20-13601

Manufacturing B&O Tax

Examples

• Making jewelry

• Boat building

• Fabrication of dental appliances

• Cutting, delimbing, and measuring of felled, cut, or taken trees

• Wood crafted items: • Bird houses

• Furniture items

Service & Other B&O Tax

• Accountants, bookkeepers, doctors, attorneys, consultants

• Hair Dressers

• Janitorial Services

• Custom Software

• Web site design

WAC 458-20-224

B&O Deductions

Deduction income is reported then subtracted

Examples:

• Bad debts

• Interstate and foreign sales

• Returns and allowances

• Other – must explain & is subject to verification by the Department

One More Business Tax

Public utility tax

Public and privately owned utility sewer, water distribution and power

Companies that transport persons or property for hire Delivery trucks, taxicabs, moving trucks, and limos WAC 458-20-179 WAC 458-20-180

Retail Sales Tax

• It is the largest excise tax levied in Washington

• Trust Fund money

• Consumer based tax computed on total selling price – buyer to pay seller to collect

• Tax on sale, rental, repair, or installation of tangible personal property (includes labor)

• Also includes any charges for freight or shipping

• Collected by the seller and held in trust for the state

Retail Sales Tax

• Sellers must remit over-collected tax

• Seller is liable for the sales tax even if they failed to collect it or collected it at the wrong rate

• Sales tax must be separately stated on the invoice

Who is Subject to Sales Tax

• Everyone is subject to sales tax unless otherwise exempted by statute:

– Federal Government

– Red Cross

– Specific manufacturing equipment

– Sales to qualifying tribal members

– Specific farming equipment

Place of Sale

If item is sold and picked up at your store:

-the sales tax rate of where store is located

If item is delivered to your customer:

-the tax rate shifts to where the items are

delivered

If a sale of retail services :

-the tax rate is based on the location of where the retail service is provided

Determining Sales Tax Rates

• Local Sales & Use Tax Flyer – online at www.dor.wa.gov

• GIS look-up also available online

• Call our Telephone Information Center at 800-647-7706

• Download the free Tax Look-up APP available Android and IOS at App Store

Exemptions

Food products

Newspapers

Prescription drugs

Sales to Indians -delivered to reservation

Certain purchases by qualifying artistic or cultural organizations

Manufacturing machinery and equipment

Interstate and foreign sales

Sales to certain nonresidents

Use Tax

What is use tax?

– Companion to the sales tax

– Is due when goods are acquired for use in Washington without payment of sales tax

Due on the value of article used

Local tax - location of first use

Buyer must report use tax on the excise

tax return (Individuals use Consumer Use Tax Return)

WAC 458-20-178

Use Tax

• Use tax due:

– Magazine subscriptions

– Mail order or internet purchases

– Goods purchased in Oregon

– Purchases from a person not required to

collect sales tax (individuals)

– Office supplies and equipment

The Audit Process

The Department audits about 2 percent of businesses each year

Verify correct tax classification

Reconcile gross receipts

Verify wholesale sales, exemptions and deductions

Use Tax

DOR Services

Telephone Assistance

1-800-647-7706(tax line)

1-800-451-7985(licensing)

Personal and 24-hour

automated services

Available Monday,

Tuesday, Thursday, &

Friday 8 a.m. - 5 p.m.

Wednesday 9 a.m. – 5 p.m.

DOR Services

Written rulings

• Ruling@dor.wa.gov or

• Taxpayer Information & Education

Department of Revenue

PO Box 47478

Olympia, WA 98504-7478

Other DOR Services

• E-File

• Tax Rate Lookup Tool

• Publications and Guides

• Secure Message System

• Speakers Bureau

• Business Licensing & renewals

• Taxpayer Rights Advocate Service

• Tax Workshops

THANK YOU

Questions?