Current through Register Vol. 24-24, December 15, 2024
(1)
Introduction. This rule
provides general use tax-reporting information for consumers. It discusses who
is responsible for remitting use tax, and when and how to remit the tax. The
rule also explains the imposition of use tax as it applies to the use of
tangible personal property within this state when the acquisition of the
tangible personal property was not subject to retail sales or deferred sales
tax.
(a)
Examples. Examples found
in this rule 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.
(b)
Additional
information available. For information on use tax exemptions please
refer to chapter 82.12 RCW. When appropriate, this rule refers the reader to
applicable statutes and rules. In addition, the reader may wish to refer to the
following:
(i) WAC
458-20-112, Value of products,
provides information on the measure of tax for certain sales.
(ii) WAC
458-20-145, Local sales and use
tax, provides information on sourcing local sales and use taxes.
(iii) WAC
458-20-15503, Digital products,
provides information on sales and use tax liability on digital products such
as: Digital goods, including digital audio works, digital audio-visual works,
and digital books; digital automated services; digital codes used to obtain
digital goods or digital automated services; and remote-access
software.
(iv) WAC
458-20-169, Nonprofit
organizations, provides information on a use tax exemption for donated items to
a nonprofit charitable organization.
(v) WAC
458-20-17803, Use tax on
promotional material, provides information about the use tax reporting
responsibilities of persons who distribute or cause the distribution of
promotional material, except newspapers, the primary purpose of which is to
promote the sale of products or services in Washington.
(vi) WAC
458-20-190, Sales to and by the
United States- Doing business on federal reservations-Sales to foreign
governments, provides tax reporting information for businesses doing business
with the United States.
(vii) WAC
458-20-192, Indians-Indian
country, provides information on use tax pertaining to Indians and Indian
tribes and use tax pertaining to non-Indians in Indian country.
(viii) WAC
458-20-257, Warranties and
service contracts, provides information on tax responsibilities of persons
selling or performing services covered by warranties, service contracts, and
mixed agreements for tangible personal property.
(2)
What is use tax? Use tax
complements the retail sales tax, and in most cases mirrors the retail sales
tax. Articles of tangible personal property used or certain services purchased
in Washington are subject to use tax when the state's retail sales tax has not
been paid, or where an exemption is not available. Tangible personal property
or services used or purchased by the user in any manner are taxable including,
but not limited to:
* Purchases directly from out-of-state sellers;
* Purchases through the internet, telemarketing, mail order;
or
* Acquisitions at casual or isolated sales.
(a)
Example 1. ABC Company (ABC)
orders office supplies from out-of-state vendors and also through catalogs. In
addition, ABC pays annual subscriptions for magazines for their own use. None
of these vendors is required to collect Washington's retail sales tax. Use tax
is due on all taxable items ordered including the annual
subscriptions.
(b)
Example
2. Mary is a music instructor that teaches adults how to play the piano.
Mary does not charge her students retail sales tax on the costs of the weekly
piano lessons. Use tax is not due on the lessons, as the lessons are not a
retail sales taxable service. See WAC
458-20-224, Service and other
business activities.
(3)
"Use" defined. For purposes of this rule, "use," "used," "using,"
or "put to use" have their ordinary meaning and include the first act by which
a person takes or assumes dominion or control over the article (as a consumer).
It includes installation, storage, withdrawal from storage, or any other act
preparatory to subsequent actual use or consumption within the state. (See
RCW
82.12.010.) Multiple uses of the same article
by the same person do not generally result in multiple use tax
liabilities.
(4)
Measure of
tax - Value of article used. Use tax generally is levied and collected
on an amount equal to the value of the article used by the taxpayer.
RCW
82.12.010 defines this value to generally be
the purchase price of the article. There are a number of specific situations
where this value may be different than the amount of consideration paid or
given by the buyer to the seller. See subsection (7) of this rule for
exceptions.
(a)
When the value is the
purchase price. The term "purchase price" has the same meaning as
"selling price." The selling price is the total amount of consideration, except
trade-in property of like kind, including cash, credit, property, and services,
for which tangible personal property is sold, leased, or rented, valued in
money, whether received in money or otherwise. The selling price, and therefore
the "value of the article used" also includes delivery charges. Delivery
charges are charges made by the seller for preparing and delivering tangible
personal property to a location designated by the buyer and include, but is not
limited to, charges for transportation, shipping, postage, handling, crating,
and packing. (See
RCW
82.08.010 and
82.12.010.)
(b)
When the purchase price does not
represent true value. When an article is sold under conditions in which
the purchase price does not represent the true value, the "value of the article
used" is to be determined as nearly as possible according to the retail selling
price at place of use of similar products of like quality and character. (See
RCW
82.12.010.) This is frequently referred to as
the fair market value of the property. For additional information regarding the
measure of tax for articles in these situations, refer to WAC
458-20-112, Value of products.
Refer to subsection (4)(i)(i) of this rule for determining use tax when there
is no similar article of like quality and character.
A comparison and examination of arm's length sales transactions
is required when determining the value of the article used on the basis of the
retail selling price of similar products. An arm's length sale generally
involves a transaction negotiated by unrelated parties, each acting in his or
her own self-interest.
(i) In an arm's
length sales transaction, the value placed on the property by the parties to
the transaction may be persuasive evidence of the true value of the property.
Where there is a conflict regarding the true value of tangible personal
property between sales documents, entries in the accounting records, or value
reported for use tax purposes, the department often looks to the person's
accounting records as an indication of the minimum value of capitalized
property. Neither the department nor the taxpayer is necessarily bound by this
value if it is established that the entry in the books of account does not
fairly represent the true value of the article used.
(ii) Some arm's length sales transactions
involve multiple pieces of property or different types of property (such as
when both real and personal property are sold). While the total sales price may
represent a true value for the property in total, the values allocated to the
specific components may not in and of themselves represent true values for
those components. This is especially apparent when the values assigned by the
parties to the sales transaction vary from those entered into the accounting
records or reported for use tax purposes. In such cases, the value of the
article used for the purpose of the use tax must be determined as nearly as
possible according to the retail selling price, at the place of use, of similar
products of like quality and character.
(c)
Property acquired and used outside
Washington before use occurs in Washington. The purchase price of
property acquired and used outside Washington before being used in this state
may not represent the property's true value. Under these circumstances, the
value of article used is the retail selling price at place of use of similar
products of like quality and character as of the time the article is first used
in Washington.
(d)
Imported
property. When property is imported from outside the United States for
use in Washington state, the value of the article used includes any amount of
tariff or duty paid with respect to importation.
(e)
Articles produced for commercial or
industrial use. A person who extracts or manufactures products or
by-products for commercial or industrial use is subject to use tax and the
business and occupation (B&O) tax on the value of products or by-products
used. "Commercial or industrial use" is the use of products, including
by-products, as a consumer by the person who extracted or manufactured the
products or by-products. See WAC
458-20-134, Commercial or
industrial use and WAC
458-20-136, Manufacturing,
processing for hire, fabricating.
Tax applies even if the person is not generally in the business
of extracting, producing, or manufacturing the products, or the extracting or
manufacturing activity is incidental to the person's primary business activity.
Thus, a clothing retailer who manufactures signs or other materials for display
purposes incurs a liability even though the clothing retailer is not otherwise
in the business of manufacturing signs and other display materials for
sale.
(i) The extractor or
manufacturer is responsible for remitting retail sales or use tax on all
materials used while developing or producing an article for commercial or
industrial use. This includes materials that are not components of the
completed article.
(ii) The value
of the extracted or manufactured article is subject to use tax when the article
is completed and used. The measure of use tax due for the completed article may
be reduced by the value of any materials actually incorporated into that
article if the manufacturer or extractor previously paid sales or use tax on
the materials. See subsection (4)(g) of this rule for an explanation of the
measure of tax for a completed prototype.
(f)
Bailment. For property
acquired by bailment, the "value of the article used" for the bailee is an
amount representing a reasonable rental for the use of the bailed article,
determined as nearly as possible according to the value of such use at the
places of use of similar products of like quality and character. (See
RCW
82.12.010.) If the nature of the article is
such that it can only be used once, the reasonable rental value is the full
value of the article used. See also WAC
458-20-211, Leases or rentals of
tangible personal property, bailments.
(g)
Prototypes. The value of the
article used with respect to an article manufactured or produced for purposes
of serving as a prototype for the development of a new or improved product is:
* The retail selling price of such new or improved product when
first offered for sale; or
* The value of materials incorporated into the prototype in
cases where the new or improved product is not offered for sale. (See
RCW
82.12.010.)
(h)
Articles manufactured and used in
the production of products for the department of defense. When articles
are manufactured and used in the production of products for the department of
defense, use tax is due except where there is an exemption. The value of the
article used with respect to an article manufactured or produced by the user
and used in the manufacture or production of products sold or to be sold to the
department of defense of the United States is the value of the ingredients of
the manufactured or produced article. (See
RCW
82.12.010.) However, refer to WAC
458-20-13601, Manufacturers and
processors for hire-Sales and use tax exemption for machinery and equipment, to
determine if such articles qualify for exemption under
RCW
82.12.02565.
(i)
Property temporarily brought into
Washington for business use. In the case of articles owned by a user
engaged in business outside the state which are brought into the state for no
more than 180 days in any period of 365 consecutive days and which are
temporarily used for business purposes by the person in this state, the value
of the article used must be an amount representing a reasonable rental for the
use of the articles, unless the person has paid tax under chapter 82.08 or
82.12 RCW upon the full value of the article used.
However, this measure of "value of article used" is a separate
provision from
RCW
82.12.0251 use tax exemption. The use tax
exemption is provided to nonresidents bringing property into Washington for his
or her use or enjoyment while temporarily within the state, unless the property
is used in conducting a nontransitory business activity. The term
"nontransitory business activity," for the purposes of this exemption, means
and includes the business of extracting, manufacturing, selling tangible and
intangible property, printing, publishing, and performing contracts for
constructing or improving real or personal property. It does not include the
business of conducting a circus or other form of amusement when the personnel
and property of such business regularly moves from one state into another, nor
does it include casual or incidental business done by a nonresident lawyer,
doctor or accountant.
(i)
Reasonable rental value. A reasonable rental value is normally
determined by the rental price or using the fair market rental value of similar
products of like quality and character if rental price is not reasonable. If a
reasonable rental value cannot be determined because of the nature of property,
such as it may not be possible to find similar products of like quality and
character, monthly reasonable rental value may be determined based on
depreciation plus one percent (per month) of the purchase price. For the
purpose of this computation, depreciation should be computed on a straight-line
basis with an assumption that there is no salvage value. The life of the asset
must be based on "book" life rather than an accelerated life that might be used
for federal tax purposes. This calculation applies even if the asset is fully
depreciated.
(ii)
Example. A piece of equipment that originally cost $100,000 and
has a book life of 48 months results in a monthly rental value of $3,083
((100,000/48) + (100,000 x .01)). This monthly value applies even if the asset
is fully depreciated or is greater or less than the actual depreciation used
for federal tax purposes. A lesser value can be used if the taxpayer retains
documentation supporting the lesser value and that value is based on rental
values.
(j)
Special
provisions for vessel dealers and manufacturers. The value of an article
used for a vessel held in inventory and used by a vessel dealer or vessel
manufacturer for personal use is the reasonable rental value of the vessel
used. This value applies only if the vessel dealer or manufacturer can show
that the vessel is truly held for sale and that the dealer or manufacturer is
and has been making good faith efforts to sell the vessel. (See
RCW
82.12.802.) This may result in a vessel
manufacturer incurring multiple use tax liabilities with respect to multiple
uses of the same vessel.
The use of a vessel by a vessel dealer or vessel manufacturer
for certain purposes is not subject to use tax. For specific information on
these exemptions see
RCW
82.12.800 and
82.12.801.
(k)
Special provision for asphalt and
aggregate. In the case of a person manufacturing or extracting asphalt
or aggregates used in providing services taxable under
RCW
82.04.280 (1)(b), the value
of the asphalt or aggregates used is based on cost. Specifically, the value of
the asphalt or aggregates equals the sum of all direct and indirect costs
attributable to the asphalt or aggregates used, plus a public road construction
market adjustment of five percent of those costs.
(5)
Who is liable for the tax?
RCW
82.12.020 imposes use tax upon every person
using tangible personal property or certain retail services as a consumer in
the state of Washington. The law does not distinguish between persons using
property (or certain retail services) for business or personal use. Thus, a
Washington resident purchasing personal items via the internet or through a
mail-order catalog has the same legal responsibility to report and remit use
tax as does a corporation purchasing office supplies. The rate of the use tax
is the same as the retail sales tax rate in the location where the property is
used. Refer to WAC
458-20-145, Local sales and use
tax, for further discussion about determining where use occurs.
(a)
When tax liability arises.
Use tax is owed at the time the tangible personal property is first put to use
in this state, unless an exemption is available.
(b)
Reporting and remitting payment to
the department of revenue.
(i)
Registered taxpayers. Persons registered with the department under
RCW
82.32.030 to do business in Washington should
use their excise tax return to report and remit use tax.
(ii)
Unregistered persons.
Persons not required to be registered with the department should use a Consumer
Use Tax Return to report and remit use tax. The Consumer Use Tax Return is
available by:
(A) Using the department's
website at dor.wa.gov;
(B) Calling
the department's telephone information center at 360-705-6705; or
(C) Requesting the form at any of the
department's local field offices.
The completed Consumer Use Tax Return, with payment, is due on
or before the 25th day of the month following the month in which the tax
liability occurs. For example, a person acquires clothing without payment of
the retail sales tax during August. The Consumer Use Tax Return and the tax are
due by September 25th.
The return and payment can be submitted electronically using
the department's online system at dor.wa.gov, mailed, or delivered to any of
the department's local field offices.
(6)
How does use tax differ
from the retail sales tax? There are circumstances where the law does
not provide a use tax exemption to complement a retail sales tax exemption.
Where there is no complementary use tax exemption, the buyer or user is still
responsible for remitting use tax on his or her use of the purchased property.
For instance, there is no complementary use tax exemption to
the retail sales tax exemption in
RCW
82.08.0251. This exemption provides a retail
sales tax exemption for articles acquired in casual sales transactions, if the
seller is not required to be registered with the department. Because there is
no complementary use tax exemption, the buyer or user is responsible for
remitting the use tax on his or her use of the purchased property. For example,
if a person purchases furniture through a classified ad from a homeowner, the
buyer is responsible for reporting and paying the use tax although the sale is
exempt from retail sales tax.
(7)
Exceptions. The law provides
certain exceptions to the imposition of tax on a single event. These exceptions
occur when the law provides a method of determining the measure of tax
different than the full value of the article being used.
(a)
Destroyed property. The mere
destruction or discarding of tangible personal property as unusable or
worthless is usually not considered a taxable "use." The following examples
identify a number of facts and then state a conclusion.
(i)
Example 4. AA Computer
Software (AA) has some obsolete inventory that will no longer sell as an
updated version of the software is now available for purchase. AA decides to
throw away this inventory even though it has never been used. As the software
was never used, use tax is not owed on the destroyed inventory.
(ii)
Example 5. WW Dealer
purchases a used vehicle for resale. WW Dealer publicizes an upcoming sale by
airing a television commercial in which WW Dealer destroys the vehicle. WW
Dealer's destruction of the vehicle for publicity purposes is considered use by
a consumer. The vehicle is subject to use tax sourced at the location where WW
Dealer destroys the vehicle.
(b)
Tangible personal property acquired
by gift or donation. Using property acquired by gift or donation is
subject to the use tax, unless the person giving or donating the property
previously paid or remitted Washington retail sales or use tax on the purchase
or use of the property. (See
RCW
82.12.020.) However, a credit for tax paid in
another jurisdiction is available if documentation of tax paid is provided. See
subsection (8) of this rule for additional information.
Use tax does not apply when the same property is given or
donated back to the original giver or donor if the original giver or donor
previously paid the retail sales tax or use tax.
Example 6. John purchases a vehicle, pays retail
sales tax on the purchase, and gives the vehicle to Mary. Mary's use of the
vehicle is not subject to use tax because John paid sales tax when he purchased
the vehicle. After two years, Mary returns the vehicle to John. John's use of
the vehicle is not subject to use tax because he paid sales tax when he
originally purchased the vehicle. However, use tax is due if Mary gives or
donates the vehicle to a person other than John because Mary has not previously
paid retail sales or use tax.
(c)
Tangible personal property put to
both an exempt and taxable use. If property is first used for an exempt
or nontaxable purpose and is later used for a nonexempt or taxable purpose, use
tax is due on the value of the property when first used for the nonexempt or
taxable purpose. For instance,
RCW
82.12.0251 provides a use tax exemption for
the temporary use within Washington of watercraft brought in by certain
nonresidents. (See WAC
458-20-238, Sales of watercraft
to nonresidents-Use of watercraft in Washington by nonresidents, for a detailed
explanation of the exemption requirements.) However, use tax is due if the
nonresident exceeds the temporary use threshold or the nonresident subsequently
becomes a Washington resident.
(d)
Intervening use of property purchased for resale. Persons
purchasing tangible personal property for resale in the regular course of
business may purchase the property at wholesale without paying retail sales tax
provided the property is not put to intervening use, and the buyer provides the
seller with a completed reseller permit. (See
RCW
82.04.050 and
82.04.060.)
A buyer who purchases taxable property at wholesale and
subsequently puts the property to intervening use is subject to either the
retail sales tax (commonly referred to as "deferred retail sales tax") or use
tax, unless a specific use tax exemption applies to the intervening use. The
tax applies even if the property is at all times held out for sale and is in
fact later sold. Tax is due even if the intervening use is the result of an
unforeseen circumstance, such as when property is purchased for resale, the
customer fails to satisfy the terms of the sales agreement, and the property is
used until another customer is found. See WAC
458-20-102 Reseller permits
regarding taxreporting requirements when a person purchases property for both
resale and consumption.
(e)
Using inventory to promote sales. Intervening use does not include
the use of inventory for floor or window display purposes if that merchandise
is subsequently sold as new merchandise. Likewise, intervening use does not
include the use of inventory for demonstration purposes occurring with efforts
to sell the same merchandise if that merchandise is subsequently sold as new
merchandise. The fact that the selling price may be discounted because the
property is shop worn from display or demonstration is not, by itself,
controlling for the purposes of determining whether intervening use has
occurred.
Evidence that property has been put to intervening use
includes, but is not limited to, the following:
(i)
Property not sold as new
merchandise. Intervening use occurs if, after use of the property for
display or demonstration purposes, the property can no longer be sold as new
merchandise. An indication that intervening use has occurred is if property is
without a new model warranty if the sale of the property normally includes such
a warranty.
(ii)
Capitalizing
demonstrator or display property. The capitalization and depreciation of
property is evidence of intervening use. Thus, there is a rebuttable
presumption that intervening use occurs if the accounting records identify the
property as a demonstrator or as display merchandise. The burden is on the
person making such entries in the accounting records to substantiate any claims
the property was not put to intervening use.
(iii)
Loaning property to promote
sales. Intervening use includes loaning property to a customer or
potential customer for the purpose of promoting sales of other products. For
example, intervening use occurs if a coffee manufacturer or distributor loans
brewing equipment to a customer to promote coffee sales, even if the equipment
is subsequently sold to the same or different customer. In this example, the
coffee manufacturer or distributor loaning the equipment would owe use tax on
the full value of the equipment. If the manufacturer or distributor had not
paid use tax, the customer would owe use tax on the reasonable rental value as
this is a bailment situation. See subsection (4)(f) of this section for the
measure of tax on bailed articles.
(f)
Effect of the trade-in
exclusion. The exclusion for the value of trade-in property from the
measure of tax applies only if the trade-in property is of the same general
type or classification as the property for which it was traded-in. There is no
requirement that Washington's retail sales or use tax be previously paid on the
trade-in property. There is also no requirement that the property subject to
use tax be acquired in Washington, or that the user be a Washington resident at
the time he or she acquired the property. For additional information refer to
WAC 458-20-247, Trade-ins, selling
price, sellers' tax measure.
(8)
Credit for taxes paid in other
jurisdictions.
RCW
82.12.035 provides a credit against
Washington's use tax for legally imposed retail sales or use taxes paid by the
purchaser to: Any other state, possession, territory, or commonwealth of the
United States, or any political subdivision of a state, the District of
Columbia, or any foreign country or political subdivision of a foreign country.
(See RCW
82.56.010.)
(a) This use tax credit is available only if
the present user, or his or her bailor or donor, has documentation that shows
the retail sales or use tax was paid with respect to such property, extended
warranty, digital products, digital codes, or service defined as a retail sale
in RCW
82.04.050 to the other taxing
jurisdiction.
(b) This credit is
not available for other types of taxes such as, but not limited to, value-added
taxes (VATs).
(c) For the purposes
of allocating state and local use taxes, the department first applies the
credit against the amount of any use tax due the state. Any unused portion of
the credit is then applied against the amount of any use tax due to local
jurisdictions.
RCW
82.56.010, Multistate Tax Compact, Article V.
Elements of Sales and Use Tax Laws.
(9)
No apportionment of use tax
liability. Unless specifically provided by law, the value of the article
or use tax liability may not be apportioned even though the user may use the
property both within and without Washington, or use the property for both
taxable and exempt purposes.
(a)
Example
7. A construction company using an airplane for traveling to and from
its Washington office and out-of-state job sites must remit use tax on the full
value of the airplane, even if the airplane was purchased and delivery taken
outside Washington. There is no apportionment of this value even though the
airplane is used both within and outside of Washington.
(b)
Exemption. For an exemption
pertaining to use tax liability, see WAC
458-20-17401, Use tax liability
for motor vehicles, trailers, and parts used by motor carriers operating in
interstate or foreign commerce.
Statutory Authority:
RCW
82.32.300. 87-01-050 (Order ET 86-19), §
458-20-178, filed 12/16/86; Order ET 71-1, § 458-20-178, filed 7/22/71;
Order ET 70-3, § 458-20-178 (Rule 178), filed 5/29/70, effective
7/1/70.
