Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. Reseller permits, issued by the department of
revenue (department), replaced resale certificates as the documentation
necessary to substantiate the wholesale nature of a sales transaction effective
January 1, 2010. This rule explains the criteria under which the department
will automatically issue a reseller permit, the application process for both
contractors and taxpayers engaging in other business activities when the
department does not automatically issue or renew a reseller permit, and the
criteria that may result in the denial of an application for a reseller permit.
Unique requirements and provisions apply to contractors. (See Part III of this
rule.)
The information in this rule is organized into the following
three parts:
(a) Part I: General
Information.
(b) Part II:
Businesses Other than Contractors.
(c) Part III: Contractors.
(2)
Other rules that may
apply. Readers may want to refer to other rules for additional
information, including those in the following list:
(a) WAC
458-20-102 (Reseller permits)
which explains taxpayers' responsibilities regarding the use of reseller
permits, sellers' responsibilities for retaining copies of reseller permits,
and the implications for taxpayers not properly using reseller permits and
sellers not obtaining copies of reseller permits from taxpayers;
(b) WAC
458-20-10202 (Brief adjudicative
proceedings for matters related to reseller permits) which explains the process
a taxpayer must use to appeal the department's denial of an application for a
reseller permit; and
(c) WAC
458-20-192 (Indian-Indian
country) which explains the extent of the state's authority to regulate and
impose tax in Indian country.
(3)
Examples. This rule contains
examples that identify a number of facts and then state a conclusion. The
examples should be used only as a general guide. The tax results of other
situations must be determined after a review of all the facts and
circumstances.
Part I - General Information
(101)
Definitions. For the
purpose of this rule, the following terms will apply:
(a)
Consumer. "Consumer" has the
same meaning as under
RCW
82.04.190.
(b)
Contractor. A "contractor"
is a person whose primary business activity is as a contractor as defined under
RCW
18.27.010 or an electrical contractor as
defined under
RCW
19.28.006.
(c)
Gross income. "Gross income"
means gross proceeds of sales as defined in
RCW
82.04.070 and value of products manufactured
as determined under
RCW
82.04.450.
(d)
Labor. "Labor" is defined as
the work of subcontractors (including personnel provided by temporary staffing
companies) hired by a contractor to perform a portion of the construction
services in respect to real property owned by a third party. In the case of
speculative builders, labor includes the work of any contractor hired by the
speculative builder. Labor does not include the work of taxpayer's employees.
Nor does the term include architects, consultants, engineers, construction
managers, or other independent contractors hired to oversee a project but who
are not responsible for the construction of the project. However, for purposes
of the percentage discussed in subsection (303)(a)(iii) of this rule, purchases
of labor may include the wages of taxpayer's employees and amounts paid to
consultants, engineers, construction managers or other independent contractors
hired to oversee a project if all such purchases are commingled in the
applicant's records and it would be impractical to exclude such
purchases.
(e)
Materials. "Materials" is defined as tangible personal property
that becomes incorporated into the real property being constructed, repaired,
decorated, or improved. Materials are the type of tangible personal property
that contractors on retail construction projects purchase at wholesale, such as
lumber, concrete, paint, wiring, pipe, roofing materials, insulation, nails,
screws, drywall, and flooring material. Materials do not include consumable
supplies, tools, or equipment, whether purchased or rented, such as bulldozers.
However, for purposes of the percentage discussed in subsection (303)(a)(iii)
of this rule, purchases of consumable supplies, tools, and equipment rentals
may be included with material purchases if all such purchases are commingled in
the applicant's records and it would be impractical to exclude such
purchases.
(f)
Material
misstatement. "Material misstatement" is a false statement knowingly or
purposefully made by the applicant with the intent to deceive or mislead the
department.
(g)
Outstanding
tax liability. For the purpose of this rule, "outstanding tax liability"
is any issued tax invoice that has not been paid in full on or before its
stated due date. The definition excludes an invoice placed on hold by the
department or where the department has executed a payment agreement with the
taxpayer and the taxpayer is still in compliance with that agreement.
(h)
Reseller permit. A "reseller
permit" is the document issued to a taxpayer by the department, a copy of which
the taxpayer provides to a seller to substantiate a wholesale purchase. A
wholesale purchase is not subject to retail sales tax.
RCW
82.04.060; 82.08.020.
(i)
Retail construction
activity. "Retail construction activity" means the constructing,
repairing, decorating, or improving of new or existing buildings or other
structures under, on, or above real property of or for consumers, including the
installing or attaching of any article of tangible personal property therein or
thereto, whether or not such personal property becomes a part of the realty by
virtue of installation, and it also includes the sale of services or charges
made for the clearing of land and the moving of earth except the mere leveling
of land used in commercial farming or agriculture. Retail construction activity
generally involves residential and commercial construction performed for
others, including road construction for the state of Washington. It generally
includes construction activities that are not specifically designated as
speculative building, government contracting, public road construction, logging
road construction, radioactive waste cleanup on federal lands, or designated
hazardous site clean up jobs.
(j)
Wholesale construction activity. "Wholesale construction activity"
means labor and services rendered for persons who are not consumers in respect
to real property, if such labor and services are expressly defined as a retail
sale by RCW 82.04.050 when rendered to or
for consumers.
(102)
Can any business obtain a reseller permit? No. The legislature
passed the act authorizing reseller permits to address the significant retail
sales tax noncompliance problem resulting from both the intentional and
unintentional misuse of resale certificates. The department will not issue a
reseller permit unless the business substantiates that it is entitled to make
wholesale purchases. Some businesses may not receive a reseller permit, and if
they make wholesale purchases, they will need to pay retail sales tax to the
seller and then claim a "taxable amount for tax paid at source" deduction on
their excise tax return or request a refund from the department as discussed in
subsection (205) of this rule.
Example 1. BC Interior Design (BC) arranges for
its customers to order and pay for furniture, window treatments and other
decorative items directly from vendors. As the customers purchase directly from
the vendors, and BC does not purchase the items for resale to their customers,
BC may not qualify for a reseller permit. BC must meet the criteria as
discussed in subsection (203) of this rule, which includes reporting income
from retailing, wholesaling, or manufacturing activities.
Part II - Businesses Other than Contractors
(201)
How does a business obtain a
reseller permit? The department may automatically issue a reseller
permit to a business if it appears to the department's satisfaction, based on
the nature of the business's activities and any other information available to
the department, that the business is entitled to make purchases at wholesale.
Those businesses that do not receive an automatically issued
reseller permit may apply to the department to obtain a reseller permit.
Applications can be filed using the businesses' "My Account." If a paper
application is needed, businesses can obtain one by calling 360-705-6705
(taxpayer services) or 360-902-7137 (taxpayer account administration).
Completed paper applications should be mailed or faxed to the department
at:
Taxpayer Account Administration
Washington State Department of Revenue
P.O. Box 47476
Olympia, WA 98504-7476
Fax: 360-705-6733
(202)
When does a business apply for a
reseller permit? A business may apply for a reseller permit at any
time.
(203)
What criteria
will the department consider when deciding whether a business will receive a
reseller permit?
(a) Except as provided
in (b) of this subsection, a business other than a contractor will receive a
reseller permit if it satisfies the following criteria (contractors should
refer to subsection (303) of this rule for an explanation of the requirements
unique to them):
(i) The business has an
active tax reporting account with the department;
(ii) The business has reported gross income
on its excise tax returns covering a monthly or quarterly period during the
immediately preceding six months or, if the business reports on an annual
basis, on the immediately preceding annual excise tax return; and
(iii) Five percent or more of the business's
gross income reported during the applicable six- or 12-month period described
in (a)(ii) of this subsection was reported under a retailing, wholesaling, or
manufacturing business and occupation (B&O) tax classification.
(b) Notwithstanding (a) of this
subsection, the department may deny an application for a reseller permit if:
(i) The department determines that an
applicant is not entitled to make purchases at wholesale or is otherwise
prohibited from using a reseller permit based on the nature of the applicant's
business;
(ii) The applicant has
been assessed the penalty for the misuse of a resale certificate or a reseller
permit;
(iii) The application
contains any material misstatement;
(iv) The application is incomplete;
(v) The applicant has an outstanding tax
liability due to the department; or
(vi) The department determines that denial of
the application is in the best interest of collecting the taxes due under Title
82 RCW.
(c) The
department's decision to approve or deny an application may be based on excise
tax returns previously filed with the department by the applicant, a current or
previous examination of the applicant's books and records by the department,
information provided by the applicant in the master application and the
reseller permit application, and other information available to the
department.
(d) In the event that a
business has reorganized, the new business resulting from the reorganization
may be denied a reseller permit if the former business would not have qualified
for a reseller permit under (a) or (b) of this subsection. For purposes of this
subsection, "reorganize" means:
(i) The
transfer, however effected, of a majority of the assets of one business to
another business where any of the persons having an interest in the ownership
or management in the former business maintain an ownership or management
interest in the new business, either directly or indirectly;
(ii) A mere change in identity or form of
ownership, however effected; or
(iii) The new business is a mere continuation
of the former business based on significant shared features such as owners,
personnel, assets, or general business activity.
(204)
What if I am a new business and
don't have a past reporting history? New businesses will generally be
issued permits if they indicate they will engage in activity taxable under a
retailing, wholesaling, or manufacturing B&O tax classification.
(205)
What if I don't get a reseller
permit and some of my purchases qualify as wholesale purchases? Some
taxpayers that do not qualify for a reseller permit make occasional wholesale
purchases. In these circumstances, the taxpayer must pay retail sales tax on
these purchases and then claim a "taxable amount for tax paid at source"
deduction on its excise tax return. However, such a deduction in respect to the
purchase of services is not permitted if the services are not of a type that
can be sold at wholesale under the definition of wholesale sale in
RCW
82.04.060.
Alternatively, the taxpayer may request a refund from the
department of retail sales tax it paid on purchases that are later resold
without being used (intervening use) by the taxpayer or for purchases that
would otherwise have met the definition of wholesale sale if the taxpayer had
provided the seller with a reseller permit or uniform exemption certificate as
authorized in
RCW
82.04.470. For instructions on requesting a
refund see WAC
458-20-229.
Part III - Contractors
(301)
How does a contractor obtain a
reseller permit? The department may automatically issue a reseller
permit to a contractor if the department is satisfied that the contractor is
entitled to make purchases at wholesale and that issuing the reseller permit is
unlikely to jeopardize collection of sales taxes due based on the criteria
discussed in subsection (303) of this rule.
Contractors that do not receive an automatically issued
reseller permit may apply to the department to obtain a reseller permit in the
same manner as provided in subsection (201) of this rule. However, the
application identifies information specific to contractors that must be
provided.
(302)
When
does a contractor apply for a reseller permit? The same guidelines for
business applicants as provided in subsection (202) of this rule also apply to
contractor applicants.
(303)
What are the criteria specific to contractors to receive a reseller
permit?
(a) The department may issue a
permit to a contractor that:
(i) Provides a
completed application with no material misstatement as that term is defined in
this rule;
(ii) Demonstrates it is
entitled to make purchases at wholesale; and
(iii) Reported on its application at least 25
percent of its total dollar amount of material and labor purchases in the
preceding 24 months were for retail and wholesale construction activities
performed by the contractor.
The department may approve an application not meeting these
criteria if the department is satisfied that approval is unlikely to jeopardize
collection of the taxes due under Title 82 RCW.
(b) If the criteria in (a) of this subsection
are satisfied, the department will then consider the following factors to
determine whether to issue a reseller permit to a contractor:
(i) Whether the contractor has an active tax
reporting account with the department;
(ii) Whether the contractor has reported
gross income on its excise tax returns covering a monthly or quarterly period
during the immediately preceding six months or, if the contractor reports on an
annual basis, on the immediately preceding annual excise tax return;
(iii) Whether the contractor has the
appropriate certification and licensing with the Washington state department of
labor and industries;
(iv) Whether
the contractor has been assessed the penalty for the misuse of a resale
certificate or a reseller permit;
(v) Whether the contractor has an outstanding
tax liability due to the department; and
(vi) Any other factor resulting in a
determination by the department that denial of the contractor's application is
in the best interest of collecting the taxes due under Title 82 RCW.
(c) The department's decision to
approve or deny an application may be based on the same materials and
information as discussed in subsection (203)(c) of this rule.
(d) The provisions of subsection (203)(d) of
this rule apply equally to contractors.
Example 2. DC Contracting is a speculative
homebuilder and also purchases houses to renovate and sell, sometimes referred
to as flipping. A speculative builder is the consumer of all materials
incorporated into the real estate including houses purchased for flipping.
Retail sales tax is owed on all supplies and services DC Contracting purchases,
unless there is an applicable exemption. DC Contracting would not qualify for a
reseller permit under these facts.
(304)
What if a contractor does not
obtain a reseller permit and some of its purchases do qualify as wholesale
purchases? The provisions of subsection (205) of this rule apply equally
to contractors.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
82.32.780, and
82.32.783. 10-14-080, §
458-20-10201, filed 7/1/10, effective
8/1/10.