Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This section provides information regarding the use
of resale certificates, which were the documents used to substantiate the
wholesale nature of a sales transaction occurring prior to January 1, 2010.
Resale certificates cannot be used to substantiate wholesale sales made after
December 31, 2009.
This section provides information that applies to periods prior
to January 1, 2010. It explains the conditions under which a buyer may furnish
a resale certificate to a seller, and explains the information and language
required on the resale certificate. This section also provides tax reporting
information to persons who purchase articles or services for dual purposes
(i.e., for both resale and consumption).
(a)
Legislation passed in 2009.
Effective January 1, 2010, reseller permits issued by the department of revenue
(department) replace resale certificates as the documentation necessary to
substantiate the wholesale nature of a sales transaction (chapter 563, Laws of
2009).
Businesses should consult:
* WAC
458-20-102 (Reseller permits) for
more information about the use of reseller permits to substantiate wholesale
sales beginning January 1, 2010;
* WAC
458-20-10201 (Application process
and eligibility requirements for reseller permits) for more information about
the application process and eligibility requirements for obtaining a reseller
permit; and
* WAC
458-20-10202 (Brief adjudicative
proceedings for matters related to reseller permits) for more information about
the procedures for appealing the denial of an application for a reseller
permit.
(b)
Legislation passed in 2003. In 2003, the legislature enacted
legislation conforming state law to portions of the national Streamlined Sales
and Use Tax Agreement (chapter 168, Laws of 2003), which eliminates the good
faith requirement when the seller takes from the buyer a resale certificate and
also eliminates signature requirements for certificates provided in a format
other than paper. These changes apply to resale certificates taken on and after
July 1, 2004.
(c)
Legislation
passed in 2007. Additional Streamlined Sales and Use Tax Agreement
legislation was enacted in 2007 (chapter 6, Laws of 2007). It eliminates the
provision that resale certificates are only valid for four years from the date
they are issued to the seller, as long as there is a recurring business
relationship between the buyer and seller. This change is effective on July 1,
2008.
(2)
What is a
resale certificate? The resale certificate is a document or combination
of documents that substantiates the wholesale nature of a sale. The resale
certificate cannot be used for purchases that are not purchases at wholesale,
or where a more specific certificate, affidavit, or other documentary evidence
is required by statute or other section of chapter 458-20 WAC. While the resale
certificate may come in different forms, all resale certificates must satisfy
the language and information requirements of
RCW
82.04.470.
(a)
What is the scope of a resale
certificate? Depending on the statements made on the resale certificate,
the resale certificate may authorize the buyer to purchase at wholesale all
products or services being purchased from a particular seller, or may authorize
only selected products or services to be purchased at wholesale. The provisions
of the resale certificate may be limited to a single sales transaction, or may
apply to all sales transactions as long as the seller has a recurring business
relationship with the buyer. A "recurring business relationship" means at least
one sale transaction within a period of 12 consecutive months. Whatever its
form and/or purpose, the resale certificate must be completed in its entirety
and signed by a person who is authorized to make such a representation on
behalf of the buyer.
(b)
Who
may issue and sign certificates? The buyer may authorize any person in
its employ to issue and sign resale certificates on the buyer's behalf. The
buyer is, however, responsible for the information contained on the resale
certificate. A resale certificate is not required to be completed by every
person ordering or making the actual purchase of articles or services on behalf
of the buyer. For example, a construction company that authorizes only its
bookkeeper to issue resale certificates on its behalf may authorize both the
bookkeeper and a job foreman to purchase items under the provisions of the
resale certificate. The construction company is not required to provide, nor is
the seller required to obtain, a resale certificate signed by each person
making purchases on behalf of the construction company.
The buyer is responsible for educating all persons authorized
to issue and/or use the resale certificate on the proper use of the buyer's
resale certificate privileges.
(3)
Resale certificate renewal.
Prior to July 1, 2008, resale certificates must be renewed at least every four
years. As of July 1, 2008, the requirement to renew resale certificates at
least every four years has been eliminated. The buyer must renew its resale
certificate whenever a change in the ownership of the buyer's business requires
a new tax registration. (See WAC
458-20-101 Tax registration and
tax reporting.) The buyer may not make purchases under the authority of a
resale certificate bearing a tax registration number that has been canceled or
revoked by the department of revenue (department).
(4)
Sales at wholesale. All
sales are treated as retail sales unless the seller takes from the buyer a
properly executed resale certificate. Resale certificates may only be used for
sales at wholesale and may not be used as proof of entitlement to retail sales
tax exemptions otherwise provided by law.
(a)
When may a buyer issue a resale certificate? The buyer may issue a
resale certificate only when the property or services purchased are:
(i) For resale in the regular course of the
buyer's business without intervening use by the buyer;
(ii) To be used as an ingredient or component
part of a new article of tangible personal property to be produced for
sale;
(iii) A chemical to be used
in processing an article to be produced for sale (see WAC
458-20-113 on chemicals used in
processing);
(iv) To be used in
processing ferrosilicon that is subsequently used in producing magnesium for
sale;
(v) Provided to consumers as
a part of competitive telephone service, as defined in
RCW
82.04.065;
(vi) Feed, seed, seedlings, fertilizer, spray
materials, or agents for enhanced pollination including insects such as bees
for use in the federal conservation reserve program or its successor
administered by the United States Department of Agriculture; or
(vii) Feed, seed, seedlings, fertilizer,
spray materials, or agents for enhanced pollination including insects such as
bees for use by a farmer for producing for sale any agricultural product. (See
WAC 458-20-210 on sales to and by
farmers.)
(b)
Required information. All resale certificates, whether paper or
nonpaper format, must contain the following information:
(i) The name and address of the
buyer;
(ii) The uniform business
identifier or tax registration number of the buyer, if the buyer is required to
be registered with the department;
(iii) The type of business;
(iv) The categories of items or services to
be purchased at wholesale, unless the buyer is in a business classification
that may present a blanket resale certificate as provided by the department by
rule;
(v) The date on which the
certificate was provided;
(vi) A
statement that the items or services purchased either are purchased for resale
in the regular course of business or are otherwise purchased at wholesale;
and
(vii) A statement that the
buyer acknowledges that the buyer is solely responsible for purchasing within
the categories specified on the certificate and that misuse of the resale
certificate subjects the buyer to a penalty of 50 percent of the tax due, in
addition to the tax, interest, and any other penalties imposed by
law.
(c)
Additional
requirements for paper certificates. In addition to the requirements
stated in (b) of this subsection, paper certificates must contain the
following:
(i) The name of the individual
authorized to sign the certificate, printed in a legible fashion;
(ii) The signature of the authorized
individual; and
(iii) The name of
the seller.
RCW
82.04.470.
(5)
Seller's responsibilities.
When a seller receives and accepts from the buyer a resale certificate at the
time of the sale, or has a resale certificate on file at the time of the sale,
or obtains a resale certificate from the buyer within 120 days after the sale,
the seller is relieved of liability for retail sales tax with respect to the
sale covered by the resale certificate. The seller may accept a legible fax, a
duplicate copy of an original resale certificate, or a certificate in a format
other than paper.
(a) If the seller has not
obtained an appropriate resale certificate or other acceptable documentary
evidence (see subsection (8) of this section), the seller is personally liable
for the tax due unless it can sustain the burden of proving through facts and
circumstances that the property was sold for one of the purposes set forth in
subsection (4)(a) of this section. The department will consider all evidence
presented by the seller, including the circumstances of the sales transaction
itself, when determining whether the seller has met its burden of proof. It is
the seller's responsibility to provide the information necessary to evaluate
the facts and circumstances of all sales transactions for which resale
certificates are not obtained. Facts and circumstances that should be
considered include, but are not necessarily limited to, the following:
(i) The nature of the buyer's business. The
items being purchased at wholesale must be consistent with the buyer's
business. For example, a buyer having a business name of "Ace Used Cars" would
generally not be expected to be in the business of selling furniture;
(ii) The nature of the items sold. The items
sold must be of a type that would normally be purchased at wholesale by the
buyer; and
(iii) Additional
documentation. Other available documents, such as purchase orders and shipping
instructions, should be considered in determining whether they support a
finding that the sales are sales at wholesale.
(b) If the seller is required to make payment
to the department, and later is able to present the department with proper
documentation or prove by facts and circumstances that the sales in question
are wholesale sales, the seller may in writing request a refund of the taxes
paid along with the applicable interest. Both the request and the documentation
or proof that the sales in question are wholesale sales must be submitted to
the department within the statutory time limitations provided by
RCW
82.32.060. (See WAC
458-20-229 Refunds.) However,
refer to (f) of this subsection in event of an audit situation.
(c)
Timing requirements for single
orders with multiple billings. If a single order or contract will result
in multiple billings to the buyer, and the appropriate resale certificate was
not obtained or on file at the time the order was placed or the contract
entered, the resale certificate must be received by the seller within 120 days
after the first billing. For example, a subcontractor entering into a
construction contract for which it has not received a resale certificate must
obtain the certificate within 120 days of the initial construction draw
request, even though the construction project may not be completed at that time
and additional draw requests will follow.
(d)
Requirements for resale
certificates obtained after 120 days have passed. If the resale
certificate is obtained more than 120 days after the sale or sales in question,
the resale certificate must be specific to the sale or sales. The certificate
must specifically identify the sales in question on its face, or be accompanied
by other documentation signed by the buyer specifically identifying the sales
in question and stating that the provisions of the accompanying resale
certificate apply. A nonspecific resale certificate that is not obtained within
120 days is generally not, in and of itself, acceptable proof of the wholesale
nature of the sales in question. The resale certificate and/or required
documentation must be obtained within the statutory time limitations provided
by RCW
82.32.050.
(e)
Examples. The following
examples explain the seller's documentary requirements in typical situations
when obtaining a resale certificate more than 120 days after the sale. These
examples should be used only as a general guide. The tax results of other
situations must be determined after a review of all of the facts and
circumstances.
(i) Beginning in January of
year 1, MN Company regularly makes sales to ABC Inc. In June of the same year,
MN discovers ABC has not provided a resale certificate. MN requests a resale
certificate from ABC and, as the resale certificate will not be received within
120 days of many of the past sales transactions, requests that the resale
certificate specifically identify those past sales subject to the provisions of
the certificate. MN receives a legible fax copy of an original resale
certificate from ABC on July 1st of that year. Accompanying the resale
certificate is a memo providing a list of the invoice numbers for all past
sales transactions through May 15th of that year. This memo also states that
the provisions of the resale certificate apply to all past and future sales,
including those listed. MN Company has satisfied the requirement that it obtain
a resale certificate specific to the sales in question.
(ii) XYZ Company makes three sales to MP Inc.
in October of year 1 and does not charge retail sales tax. In the review of its
resale certificate file in April of the following year, XYZ discovers it has
not received a resale certificate from MP Inc. and immediately requests a
certificate. As the resale certificate will not be received within 120 days of
the sales in question, XYZ requests that MP provide a resale certificate
identifying the sales in question. MP provides XYZ with a resale certificate
that does not identify the sales in question, but simply states "applies to all
past purchases." XYZ Company has not satisfied its responsibility to obtain an
appropriate resale certificate. As XYZ failed to secure a resale certificate
within a reasonable period of time, XYZ must obtain a certificate specifically
identifying the sales in question or prove through other facts and
circumstances that these sales are wholesale sales. (Refer to (a) of this
subsection for information on how a seller can prove through other facts and
circumstances that a sale is a wholesale sale.) It remains the seller's burden
to prove the wholesale nature of the sales made to a buyer if the seller has
not obtained a valid resale certificate within 120 days of the
sale.
(f)
Additional time to secure documentation in audit situation. If in
event of an audit the department discovers that the seller has not secured, as
described in this subsection (5), the necessary resale certificates and/or
documentation, the seller will generally be allowed 120 days in which to obtain
and present appropriate resale certificates and/or documentation, or prove by
facts and circumstances the sales in question are wholesale sales. The time
allotted to the seller shall commence from the date the auditor initially
provides the seller with the results of the auditor's wholesale sales review.
The processing of the audit report will not be delayed as a result of the
seller's failure within the allotted time to secure and present appropriate
documentation, or its inability to prove by facts and circumstances that the
sales in question were wholesale sales.
(6)
Penalty for improper use.
Any buyer who uses a resale certificate to purchase items or services without
payment of sales tax and who is not entitled to use the certificate for the
purchase will be assessed a penalty of 50 percent of the tax due on the
improperly purchased item or service. This penalty is in addition to all other
taxes, penalties, and interest due, and can be imposed even if there was no
intent to evade the payment of retail sales tax. The penalty will be assessed
by the department and applies only to the buyer. However, see subsection (12)
of this section for situations in which the department may waive the penalty.
Persons who purchase articles or services for dual purposes
(i.e., some for their own consumption and some for resale) should refer to
subsection (11) of this section to determine whether they may give a resale
certificate to the seller.
(7)
Resale certificate - suggested
form. While there may be different forms of the resale certificate, all
resale certificates must satisfy the language and information requirements
provided by
RCW
82.04.470. The resale certificate is
available on the department's internet site at http://dor.wa.gov, or can be obtained by
calling the department's telephone information center at 360-705-6705 or by
writing:
Taxpayer Services
Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478
A resale certificate may be in any other form that contains
substantially the same information and language, except that certificates
provided in a format other than paper are not required to include the printed
name of the person authorized to sign the certificate, the signature of the
authorized individual, or the name of the seller.
Effective July 1, 2008, buyers also have the option of using a
Streamlined Sales and Use Tax Agreement Certificate of Exemption, which has
been modified for Washington state laws. It can also be found on the
department's internet site at http://dor.wa.gov.
(a)
Buyer's responsibility to specify
products or services purchased at wholesale.
RCW
82.04.470 requires the buyer making purchases
at wholesale to specify the kinds of products or services subject to the
provisions of the resale certificate. A buyer who will purchase some of the
items at wholesale, and consume and pay tax on some other items being purchased
from the same seller, must use terms specific enough to clearly indicate to the
seller what kinds of products or services the buyer is authorized to purchase
at wholesale.
(i) The buyer may list the
particular products or services to be purchased at wholesale, or provide
general category descriptions of these products or services. The terms used to
describe these categories must be descriptive enough to restrict the
application of the resale certificate provisions to those products or services
that the buyer is authorized to purchase at wholesale. The following are
examples of terms used to describe categories of products purchased at
wholesale, and businesses that may be eligible to use such terms on their
resale certificates:
(A) "Hardware" for use by
a general merchandise or building material supply store, "computer hardware"
for use by a computer retailer;
(B)
"Paint" or "painting supplies" for use by a general merchandise or paint
retailer, "automotive paint" for use by an automotive repair shop;
and
(C) "Building materials" or
"subcontract work" for use by prime contractors performing residential home
construction, "wiring" or "lighting fixtures" for use by an electrical
contractor.
(ii) The
buyer must remit retail sales tax on any taxable product or service not listed
on the resale certificate provided to the seller. If the buyer gave a resale
certificate to the seller and later used an item listed on the certificate, or
if the seller failed to collect the sales tax on items not listed on the
certificate, the buyer must remit the deferred sales or use tax due directly to
the department.
(iii)
RCW
82.08.050 provides that each seller shall
collect from the buyer the full amount of retail sales tax due on each retail
sale. If the department finds that the seller has engaged in a consistent
pattern of failing to properly charge sales tax on items not purchased at
wholesale (i.e., not listed on the resale certificate), it may hold the seller
liable for the uncollected sales tax.
(iv) Persons having specific questions
regarding the use of terms to describe products or services purchased at
wholesale may submit their questions to the department for ruling. The
department may be contacted on the internet at
http://dor.wa.gov/ or by writing:
Taxpayer Services
Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478
(b)
Blanket resale certificates.
A buyer who will purchase at wholesale all of the products or services being
purchased from a particular seller will not be required to specifically
describe the items or item categories on the resale certificate. If the
certificate form provides for a description of the products or services being
purchased at wholesale the buyer may specify "all products and/or services" (or
make a similar designation). A resale certificate completed in this manner is
often described as a blanket resale certificate.
(i) The resale certificate used by the buyer
must, in all cases, be completed in its entirety. A resale certificate in which
the section for the description of the items being purchased at wholesale is
left blank by the buyer will not be considered a properly executed resale
certificate.
(ii) As of July 1,
2008, renewal or updating of blanket resale certificates is not required as
long as the seller has a recurring business relationship with the buyer. A
"recurring business relationship" means at least one sale transaction within a
period of 12 consecutive months.
To effectively administer this provision during an audit, the
department will accept a resale certificate as evidence for wholesale sales
that occur within four years of the certificate's effective date without
evidence of sales transactions being made once every 12 months. For sales
transactions made more than four years after the date of the properly completed
resale certificate, the seller must substantiate that a recurring business
relationship with the buyer has occurred for any sales outside the period of
more than four years after the effective date of the resale certificate.
(c)
Resale
certificates for single transactions. If the resale certificate is used
for a single transaction, the language and information required of a resale
certificate may be written or stamped upon a purchase order or invoice. The
language contained in a "single use" resale certificate should be modified to
delete any reference to subsequent orders or purchases.
(d)
Examples. The following
examples explain the proper use of types of resale certificates in typical
situations. These examples should be used only as a general guide. The tax
status of other situations must be determined after a review of all of the
facts and circumstances.
(i) ABC is an
automobile repair shop purchasing automobile parts for resale and tools for its
own use from DE Supply. ABC must provide DE Supply with a resale certificate
limiting the certificate's application to automobile part purchases. However,
should ABC withdraw parts from inventory to install in its own tow truck,
deferred retail sales tax or use tax must be remitted directly to the
department. The buyer has the responsibility to report deferred retail sales
tax or use tax upon any item put to its own use, including items for which it
gave a resale certificate and later used for its own use.
(ii) X Company is a retailer selling lumber,
hardware, tools, automotive parts, and household appliances. X Company
regularly purchases lumber, hardware, and tools from Z Distributing. While
these products are generally purchased for resale, X Company occasionally
withdraws some of these products from inventory for its own use. X Company may
provide Z Distributing with a resale certificate specifying "all products
purchased" are purchased at wholesale. However, whenever X Company removes any
product from inventory to put to its own use, deferred retail sales tax or use
tax must be remitted to the department.
(iii) TM Company is a manufacturer of
electric motors. When making purchases from its suppliers, TM issues a paper
purchase order. This purchase order contains the information required of a
resale certificate and a signature of the person ordering the items on behalf
of TM. This purchase order includes a box that, if marked, indicates to the
supplier that all or certain designated items purchased are being purchased at
wholesale.
When the box indicating the purchases are being made at
wholesale is marked, the purchase order can be accepted as a resale
certificate. As TM Company's purchase orders are being accepted as resale
certificates, they must be retained by the seller for at least five years. (See
WAC 458-20-254
Recordkeeping.)
(8)
Other documentary evidence.
Other documentary evidence may be used by the seller and buyer in lieu of the
resale certificate form described in this section. However, this documentary
evidence must collectively contain the information and language generally
required of a resale certificate. The conditions and restrictions applicable to
the use of resale certificates apply equally to other documentary evidence used
in lieu of the resale certificate form in this section. The following are
examples of documentary evidence that will be accepted to show that sales were
at wholesale:
(a)
Combination of
documentary evidence. A combination of documentation kept on file, such
as a membership card or application, and a sales invoice or "certificate" taken
at the point of sale with the purchases listed, provided:
(i) The documentation kept on file contains
all information required on a resale certificate, including, for paper
certificates, the names and signatures of all persons authorized to make
purchases at wholesale; and
(ii)
The sales invoice or "certificate" taken at the point of sale must contain the
following:
(A) Language certifying the
purchase is made at wholesale, with acknowledgment of the penalties for the
misuse of resale certificate privileges, as generally required of a resale
certificate; and
(B) The name and
registration number of the buyer/business, and, if a paper certificate, an
authorized signature.
(b)
Contracts of sale. A
contract of sale that within the body of the contract provides the language and
information generally required of a resale certificate. The contract of sale
must specify the products or services subject to the resale certificate
privileges.
(c)
Other
preapproved documentary evidence. Any other documentary evidence that
has been approved in advance and in writing by the department.
(9)
Sales to nonresident
buyers. If the buyer is a nonresident who is not engaged in business in
this state, but buys articles here for the purpose of resale in the regular
course of business outside this state, the seller must take from the buyer a
resale certificate as described in this section. The seller may accept a resale
certificate from an unregistered nonresident buyer with the registration number
information omitted, provided the balance of the resale certificate is
completed in its entirety. The resale certificate should contain a statement
that the items are being purchased for resale outside Washington.
(10)
Sales to farmers. Farmers
selling agricultural products only at wholesale are not required to register
with the department. (See WAC
458-20-101 Tax registration and
tax reporting.) When making wholesale sales to farmers (including farmers
operating in other states), the seller must take from the farmer a resale
certificate as described in this section. Farmers not required to be registered
with the department may provide, and the seller may accept, resale certificates
with the registration number information omitted, provided the balance of the
certificates are completed in full. Persons making sales to farmers should also
refer to WAC
458-20-210 (Sales of tangible
personal property for farming-Sales of agricultural products by
farmers).
(11)
Purchases for
dual purposes. A buyer normally engaged in both consuming and reselling
certain types of tangible personal property, and not able to determine at the
time of purchase whether the particular property purchased will be consumed or
resold, must purchase according to the general nature of his or her business.
RCW
82.08.130. If the buyer principally consumes
the articles in question, the buyer should not give a resale certificate for
any part of the purchase. If the buyer principally resells the articles, the
buyer may issue a resale certificate for the entire purchase. For the purposes
of this subsection, the term "principally" means greater than 50 percent.
(a)
Deferred sales tax
liability. If the buyer gives a resale certificate for all purchases and
thereafter consumes some of the articles purchased, the buyer must set up in
his or her books of account the value of the article used and remit to the
department the applicable deferred sales tax. The deferred sales tax liability
should be reported under the use tax classification on the buyer's excise tax
return.
(i) Buyers making purchases for dual
purposes under the provisions of a resale certificate must remit deferred sales
tax on all products or services they consume. If the buyer fails to make a good
faith effort to remit this tax liability, the penalty for the misuse of resale
certificate privileges may be assessed. This penalty will apply to the
unremitted portion of the deferred sales tax liability.
A buyer will generally be considered to be making a good faith
effort to report its deferred sales tax liability if the buyer discovers a
minimum of 80 percent of the tax liability within 120 days of purchase, and
remits the full amount of the discovered tax liability upon the next excise tax
return. However, if the buyer does not satisfy this 80 percent threshold and
can show by other facts and circumstances that it made a good faith effort to
report the tax liability, the penalty will not be assessed. Likewise, if the
department can show by other facts and circumstances that the buyer did not
make a good faith effort in remitting its tax liability the penalty will be
assessed, even if the 80 percent threshold is satisfied.
(ii) The following example illustrates the
use of a resale certificate for dual-use purchases. This example should be used
only as a general guide. The tax status of other situations must be determined
after a review of all of the facts and circumstances. BC Contracting operates
both as a prime contractor and speculative builder of residential homes. BC
Contracting purchases building materials from Seller D that are principally
incorporated into projects upon which BC acts as a prime contractor. BC
provides Seller D with a resale certificate and purchases all building
materials at wholesale. BC must remit deferred sales tax upon all building
materials incorporated into the speculative projects to be considered to be
properly using its resale certificate privileges. The failure to make a good
faith effort to identify and remit this tax liability may result in the
assessment of the 50 percent penalty for the misuse of resale certificate
privileges.
(b)
Tax
paid at source deduction. If the buyer has not given a resale
certificate, but has paid retail sales tax on all articles of tangible personal
property and subsequently resells a portion of the articles, the buyer must
collect the retail sales tax from its retail customers as provided by law. When
reporting these sales on the excise tax return, the buyer may then claim a
deduction in the amount the buyer paid for the property resold.
(i) This deduction may be claimed under the
retail sales tax classification only. It must be identified as a "taxable
amount for tax paid at source" deduction on the deduction detail worksheet,
which must be filed with the excise tax return. Failure to properly identify
the deduction may result in the disallowance of the deduction. When completing
the local sales tax portion of the tax return, the deduction must be computed
at the local sales tax rate paid to the seller, and credited to the seller's
tax location code.
(ii) The
following example illustrates the tax paid at source deduction on or after July
1, 2008. This example should be used only as a general guide. The tax status of
other situations must be determined after a review of all of the facts and
circumstances. Seller A is located in Spokane, Washington and purchases
equipment parts for dual purposes from a supplier located in Seattle,
Washington. The supplier ships the parts to Spokane. Seller A does not issue a
resale certificate for the purchase, and remits retail sales tax to the
supplier at the Spokane tax rate. A portion of these parts are sold and shipped
to Customer B in Kennewick, with retail sales tax collected at the Kennewick
tax rate. Seller A must report the amount of the sale to Customer B on its
excise tax return, compute the local sales tax liability at the Kennewick rate,
and code this liability to the location code for Kennewick (0302). Seller A
would claim the tax paid at source deduction for the cost of the parts resold
to Customer B, compute the local sales tax credit at the Spokane rate, and code
this deduction amount to the location code for Spokane (3210).
(iii) Claim for deduction will be allowed
only if the taxpayer keeps and preserves records in support of the deduction
that show the names of the persons from whom such articles were purchased, the
date of the purchase, the type of articles, the amount of the purchase and the
amount of tax that was paid.
(iv)
Should the buyer resell the articles at wholesale, or under other situations
where retail sales tax is not to be collected, the claim for the tax paid at
source deduction on a particular excise tax return may result in a credit. In
such cases, the department will issue a credit notice that may be used against
future tax liabilities. However, a taxpayer may request in writing a refund
from the department.
(12)
Waiver of penalty for resale
certificate misuse. The department may waive the penalty imposed for
resale certificate misuse upon finding that the use of the certificate to
purchase items or services by a person not entitled to use the certificate for
that purpose was due to circumstances beyond the control of the buyer. However,
the use of a resale certificate to purchase items or services for personal use
outside of the business does not qualify for the waiver or cancellation of the
penalty. The penalty will not be waived merely because the buyer was not aware
of either the proper use of the resale certificate or the penalty. In all cases
the burden of proving the facts is upon the buyer.
(a)
Considerations for waiver.
Situations under which a waiver of the penalty will be considered by the
department include, but are not necessarily limited to, the following:
(i) The resale certificate was properly used
to purchase products or services for dual purposes; or the buyer was eligible
to issue the resale certificate; and the buyer made a good faith effort to
discover all of its deferred sales tax liability within 120 days of purchase;
and the buyer remitted the discovered tax liability upon the next excise tax
return. (Refer to subsection (11)(a)(i) of this section for an explanation of
what constitutes "good faith effort.")
(ii) The certificate was issued and/or
purchases were made without the knowledge of the buyer, and had no connection
with the buyer's business activities. However, the penalty for the misuse of
resale certificate privileges may be applied to the person actually issuing
and/or using the resale certificate without knowledge of the buyer.
(b)
One time waiver of
penalty for inadvertent or unintentional resale certificate misuse. The
penalty prescribed for the misuse of the resale certificate may be waived or
canceled on a one time only basis if such misuse was inadvertent or
unintentional, and the item was purchased for use within the business. If the
department does grant a one time waiver of the penalty, the buyer will be
provided written notification at that time.
(c)
Examples. The following are
examples of typical situations where the 50 percent penalty for the misuse of
resale privileges will or will not be assessed. These examples should be used
only as a general guide. The tax status of other situations must be determined
after a review of all of the facts and circumstances.
(i) ABC Manufacturing purchases electrical
wiring and tools from X Supply. The electrical wiring is purchased for dual
purposes, i.e., for resale and for consumption, with more than 50 percent of
the wiring purchases becoming a component of items that ABC manufactures for
sale. ABC Manufacturing issues a resale certificate to X Supply specifying
"electrical wiring" as the category of items purchased for resale. ABC
regularly reviews its purchases and remits deferred sales tax upon the wiring
it uses as a consumer.
ABC is subsequently audited by the department and it is
discovered that ABC Manufacturing failed to remit deferred sales tax upon three
purchases of wiring for consumption. The unreported tax liability attributable
to these three purchases is less than five percent of the total deferred sales
tax liability for wiring purchases made from X Supply. It is also determined
that the failure to remit deferred sales tax upon these purchases was merely an
oversight. The 50 percent penalty for the misuse of resale certificate
privileges does not apply, even though ABC failed to remit deferred sales tax
on these purchases. The resale certificate was properly issued, and ABC
remitted to the department more than 80 percent of the deferred sales tax
liability for wiring purchases from X Supply.
(ii) During a routine audit examination of a
jewelry store, the department discovers that a dentist has provided a resale
certificate for the purchase of a necklace. This resale certificate indicates
that in addition to operating a dentistry practice, the dentist also sells
jewelry. The resale certificate contains the information required under
RCW
82.04.470.
Upon further investigation, the department finds that the
dentist is not engaged in selling jewelry. The department will look to the
dentist for payment of the applicable retail sales tax. In addition, the
dentist will be assessed the 50 percent penalty for the misuse of resale
certificate privileges. The penalty will not be waived or canceled as the
dentist misused the resale certificate privileges to purchase a necklace for
personal use.
(iii) During a
routine audit examination of a computer dealer, it is discovered that a resale
certificate was obtained from a bookkeeping service. The resale certificate was
completed in its entirety and accepted by the dealer. Upon further
investigation it is discovered that the bookkeeping service had no knowledge of
the resale certificate, and had made no payment to the computer dealer. The
employee who signed the resale certificate had purchased the computer for
personal use, and had personally made payment to the computer dealer.
The 50 percent penalty for the misuse of the resale certificate
privileges will be waived for the bookkeeping service. The bookkeeping service
had no knowledge of the purchase or unauthorized use of the resale certificate.
However, the department will look to the employee for payment of the taxes and
the 50 percent penalty for the misuse of resale certificate privileges.
(iv) During an audit examination
it is discovered that XYZ Corporation, a duplicating company, purchased copying
equipment for its own use. XYZ Corporation issued a resale certificate to the
seller despite the fact that XYZ does not sell copying equipment. XYZ also
failed to remit either the deferred sales or use tax to the department. As a
result of a previous investigation by the department, XYZ had been informed in
writing that retail sales and/or use tax applied to all such purchases. The 50
percent penalty for the misuse of resale certificate privileges will be
assessed. XYZ was not eligible to provide a resale certificate for the purchase
of copying equipment, and had previously been so informed. The penalty will
apply to the unremitted deferred sales tax liability.
(v) AZ Construction issued a resale
certificate to a building material supplier for the purchase of "pins" and
"loads." The "pins" are fasteners that become a component part of the finished
structure. The "load" is a powder charge that is used to drive the "pin" into
the materials being fastened together. AZ Construction is informed during the
course of an audit examination that it is considered the consumer of the
"loads" and may not issue a resale certificate for its purchase thereof. AZ
Construction indicates that it was unaware that a resale certificate could not
be issued for the purchase of "loads," and there is no indication that AZ
Construction had previously been so informed.
The failure to be aware of the proper use of the resale
certificate is not generally grounds for waiving the 50 percent penalty for the
misuse of resale certificate privileges. However, AZ Construction does qualify
for the "one time only" waiver of the penalty as the misuse of the resale
certificate privilege was unintentional and the "loads" were purchased for use
within the business.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
82.32.780, and
82.32.783. 11-12-021, §
458-20-102A, filed 5/24/11, effective
6/24/11.