Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule explains:
(a) The application of business and
occupation (B&O), retail sales, and use taxes to the business activities of
funeral establishments; and
(b) The
application of tax to income derived from prearrangement funeral service
contracts.
For the purposes of this rule, the term "funeral establishment"
means a person licensed under
RCW
18.39.145. Persons operating cemeteries
should refer to WAC
458-20-154 (Cemeteries,
crematories, columbaria) for tax-reporting information.
The funeral and cemetery board (board) regulates funeral
establishments. For funeral establishments, refer to
chapter
18.39 RCW and chapters
308-47, 308-48, and 308-49 WAC for information on the laws and administrative
rules governing their business activities.
(2)
General tax reporting
responsibilities. The gross proceeds attributable to funeral activities
are taxable when income is accrued in the books and records or when services
are performed or merchandise is delivered, whichever is earlier.
The gross proceeds for funeral services are subject to tax
under the service and other activities classification of the B&O tax. The
gross proceeds from the retail sales of tangible personal property such as
urns, caskets, clothing, outside casket cases, floral arrangements, plants, and
acknowledgment cards are subject to tax under the retailing classification of
the B&O tax. Funeral establishments are also responsible for collecting and
remitting to the department of revenue (department) retail sales tax on retail
sales of tangible personal property unless specifically exempt by law.
Funeral establishments commonly quote a lump sum price for a
standard funeral service, which includes the furnishing of funeral services and
tangible personal property. Where the funeral establishment quotes a lump sum
price for a standard funeral service, which includes both the sale of a casket
and a charge for the rendering of service, the retail sales tax is collected
upon one-half of such lump sum price. Clothing, outside case (a concrete or
metal box into which the casket is placed) and other tangible personal property
furnished in addition to the casket must be billed separately and the retail
sales tax collected thereon.
(a)
Reimbursement for accommodation expenditures. Amounts received by
a funeral establishment as reimbursement for goods or services provided by
persons not employed by, affiliated, or associated with the funeral
establishment may be deducted from the measure of the B&O tax if these
amounts have been reported as gross income on the funeral establishment's
excise tax return. These amounts are deductible if advanced to accommodate the
customer and separately itemized on the billing statement or invoice in the
exact amount of the expenditure. See
RCW
82.04.4296.
(b)
In-state services with out-of-state
interment. A funeral establishment may perform funeral services or other
services such as preparing the remains of a deceased person and placing the
remains in a casket within Washington, with the remains subsequently removed to
another state for interment. In these cases, the B&O and retail sales taxes
generally apply to the income received from the sale of funeral merchandise and
services as explained in this subsection. The merchandise (e.g., casket or urn)
is delivered to the buyer within Washington when the merchandise is used in
performing these services, even if interment subsequently occurs outside the
state.
Neither B&O nor retail sales taxes apply to the sale of
tangible personal property, without intervening use, delivered by the seller to
the buyer at an out-of-state location. Refer to WAC
458-20-193 (Inbound and outbound
interstate sales of tangible personal property) for more information regarding
the delivery requirements for out-of-state sales of tangible personal
property.
(c)
Sales to
the federal government. Sales of tangible personal property directly to
the federal government are exempt from the retail sales tax, though the seller
remains subject to B&O tax unless a specific exemption applies. Sales of
tangible personal property to other persons, whether paid with federal funds or
through a reimbursement arrangement, are fully subject to the retail sales tax.
For additional information about the taxability of sales to the federal
government, refer to WAC
458-20-190 (Sales to and by the
United States-Doing business on federal reservations-Sales to foreign
governments).
(3)
Funeral establishments purchasing tangible personal property.
Generally, retail sales tax is due when purchasing items used or consumed by
funeral establishments when providing professional services. These items
generally include, but are not limited to, equipment, tools, furniture, and all
preparation room supplies such as embalming fluid and other chemicals,
solvents, waxes, cosmetics, eye caps, gauze, and cotton.
(a)
Items purchased for resale.
Tangible personal property purchased for resale without intervening use is not
subject to retail sales tax. Property commonly purchased for resale by funeral
establishments includes, but is not limited to, urns, caskets, clothing,
outside casket cases, flowers, plants, and acknowledgment cards. A funeral
establishment purchasing tangible personal property for resale must provide to
the seller, a reseller permit to document the wholesale nature of the sale as
provided in WAC
458-20-102 (Reseller
permits).
(b)
Deferred sales
and use tax. If the seller does not collect retail sales tax on a retail
sale, the buyer must remit the retail sales tax (commonly referred to as
"deferred sales tax") or use tax directly to the department unless specifically
exempt by law. For detailed information regarding use tax, refer to WAC
458-20-178 (Use tax).
(4)
Prearrangement contracts
and trusts. Funeral establishments often enter into prearrangement
contracts requiring them to provide funeral services and merchandise at some
future date. Unless otherwise exempt, the law requires funeral establishments
to place a portion of the cash purchase price of the contract (at least ninety
percent as of the effective date of this section), excluding retail sales tax,
into one or more prearrangement funeral service trusts. Withdrawal of trust
funds may only occur upon fulfillment or cancellation of the contract. See
chapter
18.39 RCW.
(a)
When does tax liability
arise? Amounts placed in prearrangement funeral service trusts are
subject to excise tax upon withdrawal from the trust accounts. In other words,
the amounts are taxable upon fulfillment or cancellation of the contract. Refer
to subsection (2) of this section (General tax reporting responsibilities) for
the tax treatment of amounts related to the fulfillment of the
contract.
(b)
Retail sales
tax - Prearrangement funeral service trust accounts. If retail sales tax
paid by the buyer is placed into a prearrangement funeral service trust
account, the tax is reported upon fulfillment of the contract and remitted to
the department at that time.
If retail sales tax paid by the buyer is not placed into a
prearrangement funeral service trust account, the tax must be reported on the
excise tax return for the current reporting period and remitted to the
department.
Upon cancellation of a prearrangement contract, a refund of
retail sales tax remitted by a funeral establishment to the department is
subject to the time limitations on refunds in
RCW
82.32.060. For example, the law prohibits the
department from refunding retail sales tax to a funeral establishment for a
prearrangement contract that is canceled five years after the retail sales tax
associated with the contract is remitted to the department. See WAC
458-20-229
(Refunds).
(c)
Contract cancellation and trust administration fees. Amounts
retained by the funeral establishment when a prearrangement funeral service
contract is canceled are subject to the service and other activities B&O
tax, except that any amounts allocable to a retail sale of merchandise are
subject to retailing B&O and retail sales taxes. Administration fees
deducted from a prearrangement funeral service trust by the administrator are
also subject to the service and other activities B&O tax.
(5)
Sourcing. In
general, the place of sale occurs where the body is placed in the casket. For
other sourcing information, refer to WAC
458-20-145.
(6)
Examples. The following
examples identify a number of facts and state a conclusion regarding the
taxability of funeral establishments. The tax results of other situations must
be determined after a review of all of the facts and circumstances. Use these
examples only as a general guide.
(a) John
and Jane Doe contracted with ABC Funeral Home (ABC) for the funeral of a
deceased relative. John and Jane also purchased a casket from ABC. Funeral
services purchased from ABC included preparing the body of the deceased for
viewing, arranging for the final disposition, providing facilities for the
visitation and funeral service, and transporting the deceased and the mourners
to the place of final disposition.
(i) ABC
owes service and other activities B&O tax for the funeral services
charge.
(ii) The charge for the
casket is subject to retailing B&O and retail sales taxes.
(b) John and Jane Doe entered into
a prearrangement funeral service contract with ABC for the purchase of funeral
merchandise and services to be provided upon their deaths. John and Jane made a
down payment when signing the contract and agreed to pay the balance in sixty
monthly installments. The merchandise and services John and Jane purchased
include a casket, preparing the body of the deceased for viewing, arranging for
the final disposition, providing facilities for the visitation and funeral
service, and transporting the deceased and the mourners to the place of final
disposition. The contract itemizes retail sales tax and provides for a finance
charge on the unpaid balance of the contract. ABC places all receipts under the
contract, including finance charges, into a prearrangement funeral service
trust account.
ABC must report:
(i)
The charges for funeral services and the finance charges under the service and
other activities B&O tax classification at the time they perform the
services; and
(ii) The charge for
the casket is subject to retailing B&O and retail sales tax at the time it
is used.
Statutory Authority:
RCW
82.32.300. 83-07-033 (Order ET 83-16), §
458-20-153, filed 3/15/83; Order ET 70-3, § 458-20-153 (Rule 153), filed
5/29/70, effective 7/1/70.