Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This section explains the manner in which delivery
charges are considered for purposes of business and occupation (B&O),
retail sales, and use taxes. For information about delivery charges with regard
to promotional materials, see WAC
458-20-17803 (Use tax on
promotional materials).
(2)
What are delivery charges? "Delivery charges" means charges by the
seller for preparation and delivery to a location designated by the purchaser
of tangible personal property or services including, but not limited to,
transportation, shipping, postage, handling, crating, and packing.
(3)
Do the business and occupation
(B&O) and retail sales taxes apply to delivery charges? The measure
of the tax is "gross proceeds of sales" for B&O tax (RCW
82.04.070 ) and "selling price" for retail
sales tax (RCW 82.08.010 ). Gross proceeds of
sales and selling price include all consideration paid by the buyer, without
any deduction for costs of doing business such as material, labor, and
transportation costs, including delivery charges. Thus, delivery charges by the
seller are a component of these tax measures.
(a)
What if delivery charges are
separately itemized on the sales invoice? Amounts received by a seller
from a buyer for delivery charges are included in the measure of tax regardless
of whether charges for such costs are billed separately, itemized, or whether
the seller is also the carrier. Limiting delivery charges to the actual cost of
delivery to the seller does not affect taxability.
(b)
Does retail sales tax apply to all
delivery charges by the seller? Delivery charges by the seller making a
retail sale are a component of the selling price. If the sale of the tangible
personal property or service is exempt from retail sales tax, such as certain
"food and food ingredients," retail sales tax does not apply to the selling
price, including delivery charges, associated with that sale. Similarly, if the
product is sold at wholesale, retail sales tax does not apply to the delivery
charges of that sale.
If a retail sale consists of both taxable and nontaxable
tangible personal property, and delivery charges are a component of the selling
price, retail sales tax applies to the percentage of delivery charges allocated
to the taxable tangible personal property. Retail sales tax is not due on
delivery charges allocated to exempt tangible personal property.
The seller may use either of the following percentages to
determine the taxable portion of the delivery charges:
(i) A percentage based on the total sales
price of the taxable tangible personal property compared to the total sales
price of all tangible personal property in the shipment; or
(ii) A percentage based on the total weight
of the taxable tangible personal property compared to the total weight of all
tangible personal property in the shipment.
(c)
Are there any situations in which
delivery charges by the seller may be excluded from the measure of tax?
There is no specific exclusion from the measure of tax for delivery charges by
the seller. Actual delivery costs, regardless of whether separately charged,
may be excluded from the measure of the manufacturing and extracting B&O
taxes when the products are delivered outside the state. For further
discussion, refer to WAC
458-20-112 (Value of products).
WAC 458-20-13501 (Timber harvest
operations) provides guidance regarding this issue for persons engaged in
activities associated with timber harvesting.
(d)
Delivery charges in cases of
payments to third parties. Delivery charges incurred after the buyer
takes delivery of the goods are not part of the selling price when the seller
is not liable for payment of the delivery charges. To be excluded from the
gross proceeds of sales for B&O tax and selling price for retail sales tax,
the seller must document that the buyer alone is responsible to pay the carrier
for the delivery charges.
(e)
Examples. The following examples identify a number of facts and
then state a conclusion. 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. In these examples, if the seller had been required
to collect use tax (RCW 82.12.040 ) instead of retail
sales tax (RCW 82.08.050 ), the use tax
collection responsibility remains the same as for retail sales tax. This is
because, in this context, the "value of article used" has the same meaning as
the "purchase price" or "selling price."
(i)
Example 1. Jane Doe orders a life vest from Marine Sales and
requests that the vest be mailed by the United States Postal Service to her
home. Marine Sales places the correct postage on the package using its postage
meter and separately itemizes a charge on the sales invoice to Jane at the
exact amount of the postage cost. Marine Sales is subject to the retailing
B&O tax on the gross proceeds of the sale and must collect retail sales tax
on the selling price, both of which measures of tax include the charge for
postage.
(ii)
Example
2. XYZ Corporation orders equipment from ABC Distributors and provides
ABC with a properly completed resale certificate (WAC
458-20-102A ), for purchases made
before January 1, 2010, or a reseller permit (WAC
458-20-102 ), for purchases made
on or after January 1, 2010. ABC ships the equipment using overnight air
delivery and itemizes the actual amount of its shipping costs on the sales
invoice. ABC must remit wholesaling B&O tax on the gross proceeds of sale,
which includes the amount billed as shipping charges. Since the equipment is
purchased for resale, ABC does not collect or report retail sales
tax.
(iii)
Example 3.
The facts in this example are the same as those in (ii) of this subsection
except that XYZ provides ABC with a properly completed exemption certificate.
Retail sales tax does not apply to the delivery charge because the selling
price, of which the delivery charge is a component, is exempt from retail sales
tax. However, the delivery charge is included in the gross proceeds of the
sale, and thus, is subject to retailing B&O tax.
(iv)
Example 4. Jones Computer
Supply, a distributor, makes retail sales of computer products primarily by
mail order. It is the practice of Jones Computer Supply to add a ten-dollar
handling charge for each order. No separate charge is made for actual
transportation. The handling charge is part of the measure of tax for the
retailing B&O and retail sales taxes.
(v)
Example 5. ABC Construction
in Seattle purchased a new saw from XYZ, Inc. The sales contract specifies that
ABC will contract with MNO, Inc. for shipping to Seattle and that MNO, Inc.
will pick up the saw in Spokane. ABC does contract with MNO for the shipping
and is shown as the consignor on the bill of lading. The transportation charge
is not included in the measure of tax for purposes of the retailing B&O and
retail sales taxes because ABC, the buyer, is liable for payment to MNO, for
shipping the new saw.
(4)
Delivery charges and use
tax. "Value of article used," which is the measure of the use tax for
tangible personal property, includes the amount of any delivery charge paid or
given to the seller or on behalf of the seller with respect to the purchase of
such article. Beginning July 1, 2004, both the "value of the article used" and
the "value of the service used" will be the "purchase price" in instances where
the seller is required under
RCW
82.12.040 to collect use tax from the
purchaser.
RCW
82.12.010. "Purchase price" has the same
meaning as "selling price" as described in subsection (3) of this section.
Consumers responsible for remitting use tax directly to the department should
refer to WAC
458-20-178 (Use tax).
The following examples identify a number of facts and then
state a conclusion. 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. Presume that all transactions in the following
examples occur July 1, 2004, or later.
(a)
Example 1. ABC Construction
ordered replacement parts for a saw from XYZ, Inc., a business located in
Chicago that is not required to collect Washington taxes. XYZ contracted with
MNO Freight to ship the parts from Chicago. ABC is subject to use tax on the
value of the article used (presumed to be the purchase price of the parts)
including the cost of the transportation, regardless of whether the
transportation costs are itemized.
(b)
Example 2. The facts in this
example are the same as those in (a) of this subsection except that instead of
ordering a replacement part, ABC Construction sends a broken part to XYZ, Inc.
in Chicago for repair. ABC is subject to use tax on the repair service. The
cost of transportation is included in the value of the service used, regardless
of whether the transportation costs are itemized.
(c)
Example 3. ABC Construction
ordered replacement parts for a saw from XYZ, Inc., a business located in
Chicago that is not required to collect Washington taxes. ABC hired MNO Freight
to ship the parts from Chicago and was responsible for payment. ABC may exclude
the cost of the transportation from the value on which use tax is due. The
transportation costs ABC pays MNO are not a component of the value of the
article used because the cost is not part of the consideration paid to XYZ for
the replacement parts. ABC is subject to use tax on the value of the parts,
which is presumed to be their purchase price.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
chapters
82.04,
82.08,
82.12 and
82.32 RCW. 10-06-069, §
458-20-110, filed 2/25/10, effective 3/28/10. Statutory Authority:
RCW
82.32.300,
82.01.060(2), and
chapters
82.04,
82.08 and
82.12 RCW. 08-14-026, §
458-20-110, filed 6/20/08, effective 7/21/08. Statutory Authority:
RCW
82.32.300 and
82.01.060(2).
05-02-039, § 458-20-110, filed 12/30/04, effective 1/30/05. Statutory
Authority:
RCW
82.32.300. 91-23-037, § 458-20-110,
filed 11/13/91, effective 12/14/91; Order ET 70-3, § 458-20-110 (Rule
110), filed 5/29/70, effective
7/1/70.