Washington Administrative Code
Title 458 - Revenue, Department of
Chapter 458-20 - Excise tax rules
Section 458-20-15501 - Taxation of computer systems and hardware
Universal Citation: WA Admin Code 458-20-15501
Current through Register Vol. 24-06, March 15, 2024
(1) Taxation of computer systems.
(a)
What is a
computer? A "computer" is an electronic device that accepts information
in digital or similar form and manipulates it for a result based on a sequence
of instructions.
RCW
82.04.215. Examples of a computer include,
but are not limited to, mainframe computer, laptop, workstation, and desktop
computer. "Computer" also includes automatic data processing equipment, which
is a computer used for data processing purposes. "Computer" does not include
any computer software or peripheral devices.
(b)
Computer systems and computer
networks distinguished. A "computer system" is a functional unit,
consisting of one computer and associated computer software, whereas a computer
network is two or more computers and associated computer software that uses
common storage. A computer system may or may not include peripheral
devices.
(c)
Wholesale sale
of computer systems. Gross proceeds of sales of computer systems to
persons other than consumers (e.g., sales for resale without intervening use)
are subject to B&O tax under the wholesaling classification. To verify the
wholesale nature of the sale, the seller should obtain a reseller permit from
the buyer as provided by WAC
458-20-102 (Reseller
permits).
(d)
Retail sale of
computer systems. Gross proceeds of sales of computer systems to
consumers are subject to B&O tax under the retailing classification.
Persons making retail sales are responsible for collecting retail sales tax at
the time of sale and remitting the tax to the department, unless the sale is
specifically exempt by law. If the seller is required to collect Washington
sales tax (such as in the case of the seller having nexus with Washington), but
does not collect Washington sales tax, the buyer is responsible for remitting
retail sales tax (commonly referred to as deferred sales tax), unless the sale
is specifically exempt by law. If the seller is not required to collect
Washington sales tax, then the buyer is responsible for remitting use tax,
unless the transaction is specifically exempt by law. Separately stated charges
for custom software sold with the computer system are subject to service
B&O tax.
(e)
Manufacturing of computer systems. Persons manufacturing computer
systems are subject to manufacturing B&O tax upon the value of the
products. See WAC
458-20-112 (Value of products)
and 458-20-136 (Manufacturing, processing for hire, fabricating). Manufacturers
of computer systems who sell their products at retail or wholesale are also
subject to either the retailing or wholesaling B&O tax, as the case may be.
In such cases the manufacturer must report under both the "production"
(manufacturing) and "selling" (wholesaling or retailing) B&O tax
classifications and may claim a multiple activities tax credit (MATC). See WAC
458-20-19301 (Multiple activities
tax credits) for detailed information about the MATC.
(i) Separately stated charges for custom
programming sold with the computer system are not subject to manufacturing
B&O tax, but are subject to service B&O tax.
(ii) Separately stated charges for computer
software sold and installed after the sale of a computer system are not subject
to manufacturing B&O tax.
(iii)
The combining of a computer system with certain peripheral devices is
considered a packaging activity not subject to manufacturing B&O tax, when
the following occurs:
(A) The peripheral
devices remain in the original packaging;
(B) The person does not attach its own label
to the peripheral devices;
(C) The
person maintains a separate inventory of the peripheral devices for sale apart
from the sale of the computer system; and
(D) The charge for the sale of peripheral
devices is separately stated from the charge for the sale of computer
systems.
(2) Examples.
(a) ABC Computers, Inc., an in-state
manufacturer, manufactures and sells at retail computer systems. ABC sells a
computer system to Steve for one flat charge. The computer system includes a
disk drive, memory, CPU, keyboard, mouse, monitor, and bundled prewritten
computer software. ABC is subject to retailing B&O tax and must collect
retail sales tax on the sale to Steve. In addition, ABC is subject to
manufacturing B&O tax on the value of the product sold (which is generally
the sales price). ABC is entitled to claim a multiple activities tax
credit.
(b) ADE Computers, Inc.,
manufactures and sells computer systems at retail to customers. ADE sells to
Julie a computer system with certain peripheral devices at separate charges.
The computer system without the peripheral devices consists of a disk drive,
memory, CPU, and bundled prewritten computer software. The peripheral devices
include a keyboard, mouse, and monitor. All peripheral devices remain in the
original packaging of the manufacturers. ADE does not attach its own label to
the peripheral devices. Finally, ADE maintains a separate inventory of the
peripheral devices for sale apart from the sale of ADE's computer systems. ADE
is subject to retailing B&O tax and must collect retail sales tax from
Julie on the sales of the computer system including the peripheral devices. ADE
is subject to manufacturing B&O tax on the value of the computer system
excluding the peripheral devices. ADE is entitled to claim a multiple
activities tax credit. ADE is not subject to manufacturing B&O tax on the
value of the peripheral devices because the combining of a computer system with
the peripheral devices in this case constitutes packaging activities.
(c) AFG Computers, Inc., an in-state company,
manufactures and sells at retail computer systems. AFG sells a computer system
to Joe for a lump sum. Joe purchases from AFG, as part of the sales package,
prewritten computer software developed by a third-party software developer. AFG
installs the prewritten computer software to Joe's computer. AFG is subject to
retailing B&O tax and must collect retail sales tax from Joe on the sale of
the computer system, including the bundled prewritten computer software. Also,
AFG is subject to manufacturing B&O tax on the value of the computer
system, including the value of the prewritten computer software. AFG is
entitled to claim a multiple activities tax credit.
(d) Same facts as (c) of this subsection,
except that AFG sells and installs the prewritten computer software after Joe
purchases and takes possession of the computer system. AFG is subject to
retailing B&O tax and must collect retail sales tax from Joe on the sale of
the computer system and the prewritten computer software. Also, AFG is subject
to manufacturing B&O tax on the value of the computer system. AFG is
entitled to claim a multiple activities tax credit. AFG is not subject to
manufacturing B&O tax on the value of the prewritten computer software
because the installation of the software by AFG is not a part of AFG's
manufacturing activity.
(3) Taxation of computer hardware, both internal and external peripheral devices.
(a)
What is computer hardware?
For purposes of this section, "computer hardware" includes, but is not limited
to, the mechanical, magnetic, electronic, or electrical components of a
computer system such as towers, motherboards, central processing units (CPU),
hard disk drives, memory, as well as internal and external peripheral devices
such as compact disk read-only memory (CD-ROM) drives, compact disk rewritable
(CD-RW) drives, zip drives, internal and external modems, wireless fidelity
(Wi-Fi) devices, floppy disks, compact disks (CDs), digital versatile disks
(DVDs), cables, mice, keyboards, printers, monitors, scanners, web cameras,
speakers, and microphones.
(b)
Wholesale sale of computer hardware. Gross proceeds of sales of
computer hardware to persons other than consumers (e.g., sales for resale
without intervening use) are subject to B&O tax under the wholesaling
classification. To verify the wholesale nature of the sale, the seller should
obtain a reseller permit from the buyer as provided by WAC
458-20-102 (Reseller
permits).
(c)
Retail sale of
computer hardware. Gross proceeds of sales of computer hardware to
consumers are subject to B&O tax under the retailing classification.
Persons making retail sales are responsible for collecting retail sales tax at
the time of sale and remitting the tax to the department, unless the sale is
specifically exempt by law.
(d)
Manufacturing of computer hardware. Persons manufacturing computer
hardware are subject to manufacturing B&O tax upon the value of the
products. See WAC
458-20-112 (Value of products)
and 458-20-136 (Manufacturing, processing for hire, fabricating). Manufacturers
of computer hardware who sell their products at retail or wholesale are also
subject to either the retailing or wholesaling B&O tax, as the case may be.
In such cases the manufacturer must report under both the "production"
(manufacturing) and "selling" (wholesaling or retailing) B&O tax
classifications and may claim a multiple activities tax credit (MATC). See WAC
458-20-19301 (Multiple activities
tax credits) for detailed information about the MATC.
(4) Examples.
(a) ALM Computers, Inc., purchases used
computers. ALM replaces a built-in CD-ROM drive with a CD-RW drive and adds a
zip drive, additional memory, and an upgraded CPU. ALM is engaged in
manufacturing activity subject to manufacturing B&O tax with respect to
that computer.
(b) AJK Computers,
Inc., acquires damaged computers for refurbishment and sale. AJK removes
damaged hardware components and replaces them with new components without
upgrading these components. Refurbishing computers in this manner is not a
manufacturing activity. Retail sales of such refurbished computers are subject
to retailing B&O tax and retail sales tax.
(c) APQ Computers, Inc., purchases computers
for refurbishment and sale. APQ replaces the failed zip drive on one of the
computers with an upgraded zip drive because the upgrade is the nearest version
of the failed component that is available. The manufacturer has discontinued
manufacturing the original version of the zip drive because of a flaw in the
design. APQ is not engaged in manufacturing activity with respect to that
computer. Retail sale of that refurbished computer is subject to retailing
B&O tax and retail sales tax.
(d) ATV Computers, Inc., is hired by a call
center company to repair damaged computers. ATV removes damaged hardware
components and replaces them with new components without upgrading these
components. Refurbishing computers in this manner is not a manufacturing
activity; however, it is a retail service. Refurbishing computers in this
manner is subject to retailing B&O tax and retail sales tax must be
collected. See WAC
458-20-173 (Installing, cleaning,
repairing or otherwise altering or improving personal property of consumers)
for more information on repairs and maintenance.
(5) Taxation of other activities associated with computer hardware.
(a)
Installing computer hardware. Gross proceeds of sales for
installing computer hardware are subject to wholesaling or retailing B&O
tax, as the case may be. Installation of computer hardware for consumers is
subject to retail sales tax. See
RCW
82.32.730 (sourcing) for more information on
sourcing retail sales of computer services. See WAC
458-20-173 (Installing, cleaning,
repairing or otherwise altering or improving personal property of consumers)
for more information on installations.
(b)
Repairing or maintaining computer
hardware. Gross proceeds of sales for repair or maintenance of computer
hardware are subject to wholesaling or retailing B&O tax. Repair of
computer hardware for consumers is subject to retail sales tax. See
RCW
82.32.730 for more information on sourcing.
See WAC 458-20-173 (Installing, cleaning,
repairing or otherwise altering or improving personal property of consumers)
for more information on repairs and maintenance. Also, see WAC
458-20-257 (Warranties and
maintenance agreements) for information about repair performed as part of a
warranty or maintenance agreement.
Statutory Authority: RCW 82.32.200 and 82.01.060. 13-06-015, § 458-20-15501, filed 2/25/13, effective 3/28/13. Statutory Authority: RCW 82.32.300 and 82.01.060(2). 09-01-088, § 458-20-15501, filed 12/16/08, effective 1/16/09.
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