Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule explains the tax reporting
responsibilities of persons engaged in the business of transporting by motor
vehicle persons or property for hire. It explains transportation business and
the application of public utility tax (PUT), business and occupation (B&O),
and retail sales taxes to persons engaged in the business.
(a)
Examples. This rule contains
examples that identify a number of facts and then state a conclusion. The
examples should be used only as a general guide. The tax results of other
situations must be determined after a review of all the facts and
circumstances.
(b)
References
to related rules. The department of revenue (department) has adopted
other rules that relate to the application of the PUT. Readers may want to
refer to the rules in the following list:
(i)
WAC 458-20-104 Small business tax
relief based on income of business;
(ii) WAC
458-20-13501 Timber harvest
operations;
(iii) WAC
458-20-171 Building, repairing or
improving streets, roads, etc., which are owned by a municipal corporation or
political subdivision of the state or by the United States and which are used
primarily for foot or vehicular traffic;
(iv) WAC
458-20-174 Sales of motor
vehicles, trailers, and parts to motor carriers operating in interstate or
foreign commerce;
(v) WAC
458-20-175 Persons engaged in the
business of operating as a private or common carrier by air, rail or water in
interstate or foreign commerce;
(vi) WAC
458-20-178 Use tax and the use of
tangible personal property;
(vii)
WAC 458-20-179 Public utility tax;
and
(viii) WAC
458-20-193D Transportation,
communication, public utility activities, or other services in interstate or
foreign commerce.
(2)
What is a motor transportation
business? A "motor transportation business" is a business operating any
motor propelled vehicle transporting persons or property of others for hire and
includes, but is not limited to, the operation of any motor propelled vehicle
as an auto transportation company, common carrier, or contract carrier as
defined by
RCW
81.68.010 and
81.80.010. See
RCW
82.16.010. The term "motor transportation
business" does not include any "urban transportation business" as described in
subsection (4) of this rule.
(a) It includes
hauling for hire any extracted or manufactured material, over the state's
highways and over private roads but does not include:
(i) The transportation of logs or other
forest products exclusively on private roads or private highways (which is
subject to the service B&O tax, e.g., see WAC
458-20-13501 Timber harvest
operations); and
(ii) A log
transportation business as described in subsection (3) of this
rule.
(b) It does not
include the hauling of any earth or other substance excavated or extracted from
or taken to the right of way of a publicly owned street, place, road, or
highway, by a person taxable under the public road construction B&O tax
classification, regardless of whether or not the earth moving portion is
separately stated. See WAC
458-20-171 for more
information.
(3)
What is a log transportation business? A "log transportation
business" means the business of transporting logs by truck, except when such
transportation meets the definition of urban transportation business or occurs
exclusively on private roads. See
RCW
82.16.010. Effective August 1, 2015,
RCW
82.16.020 provides a preferential public
utility tax rate for log transportation businesses.
(4)
What is an urban transportation
business? An "urban transportation business" is a business operating any
vehicle for public use in the transportation of persons or property for hire,
when:
* Operating entirely within the corporate limits of any city or
town, or within five miles of the corporate limits thereof; or
* Operating entirely within and between cities and towns whose
corporate limits are not more than five miles apart or within five miles of the
corporate limits of either thereof.
(a)
The five mile standard.
"Operating entirely within five miles of the corporate limits thereof" means
the five-mile standard is applied on a straight line from the corporate limits
and not based on road mileage. It is immaterial how many miles the carrier
travels from the origin to the termination of the haul as long as the origin
and the termination of the haul are within five miles of the corporate limits.
See RCW
82.16.010.
(b)
What is included in urban
transportation? Urban transportation includes, but is not limited to,
the business of operating passenger vehicles of every type and also the
business of operating cartage, pickup or delivery services, including the
collection and distribution of property arriving from or destined to a point
within or without the state, whether or not such collection or distribution be
made by the person performing a local or interstate line-haul of such property.
See subsection (7)(d) of this rule for deduction information for interstate
transportation of persons or property.
(c)
What is not urban
transportation? Urban transportation does not include the business of
operating any vehicle for transporting persons or property for hire when the
origin or termination is more than five miles beyond the corporate limits of
any city (or contiguous cities) through which it passes. Thus an operation
extending from a city to a point which is more than five miles beyond its
corporate limits does not constitute urban transportation. This is true even if
the route is through intermediate cities that enable the vehicle to always be
within five miles of a city's corporate limits. See subsection (2) of this rule
for "What is a motor transportation business?"
(5)
What does "motor transportation"
and "urban transportation" include? Motor and urban transportation
include the business of operating motor-driven vehicles, on public roads, used
in transporting persons or property belonging to others, on a for-hire basis.
These terms include the business of:
(a)
Operating taxicabs, armored cars, and contract mail delivery vehicles, but do
not include the businesses of operating auto wreckers or towing vehicles
(taxable as sales at retail under
RCW
82.04.050), school buses, ambulances, nor the
collection and disposal of solid waste (taxable under the service and other
activities B&O tax classification); and
(b) Renting or leasing trucks, trailers,
buses, automobiles, and similar motor vehicles to others for use in the
conveyance of persons or property when as an incident of the rental contract
such motor vehicles are operated by the lessor or by an employee of the
lessor.
(6)
Why is
the distinction between the motor and urban transportation classifications
important? These tax classifications have different tax rates and it is
important to segregate the gross income of each activity. The gross income of
persons engaged in the business of motor transportation is taxed under the
motor transportation PUT classification. The gross income of persons engaged in
the business of urban transportation is taxed under the urban transportation
PUT classification. The gross income of persons engaged in both urban and motor
transportation is taxed under the motor transportation classification, unless
the revenue is segregated as shown by their records.
(7)
Are deductions available?
Income, as described below, may be deducted from the taxable amounts reported,
provided the amounts were originally included in the gross income. See WAC
458-20-179 for generally
applicable deductions for PUT, such as bad debt and cash discount.
(a)
Fees and charges for public
transportation services.
RCW
82.16.050 provides a deduction for amounts
derived from fees or charges imposed on persons for transit services provided
by a public transportation agency. Public transportation agencies must spend an
amount equal to the tax reduction provided by this deduction solely to:
* Adjust routes to improve access for citizens using food banks
and senior citizen services; or
* To extend or add new routes to assist low-income citizens and
seniors.
(b)
Services
furnished jointly. In general, costs of doing business are not
deductible under the public utility tax (PUT). However,
RCW
82.16.050 does allow a deduction for amounts
actually paid by a taxpayer to another person taxable under the PUT as the
latter's portion of the consideration due for services furnished jointly by
both, provided the full amount paid by the customer for the service is received
by the taxpayer and reported as gross income subject to the PUT.
This includes the amount paid to a ferry company for the
transportation of a vehicle and its contents (but not amounts paid to state
owned or operated ferries) when the vehicle is carrying freight or passengers
for hire and is being operated by a person engaged in the business of motor or
urban transportation. This does not include amounts paid for transporting such
vehicles over toll bridges.
Example 1. A customer hires ABC Transport (ABC) to
haul goods from Tacoma to a manufacturing facility in Bellingham. ABC
subcontracts part of the haul to XYZ Freight (XYZ) and has XYZ haul the goods
from Tacoma to Everett where the goods are loaded into ABC's truck and
transported to Bellingham. Assuming all other requirements of the deduction are
met, ABC may deduct the payments it makes to XYZ from its gross income as XYZ's
portion of the consideration paid by the customer for transportation services
furnished jointly by ABC and XYZ.
(c)
Transportation of commodities to
export facilities. Income received from transporting commodities from
points of origin in this state to an export elevator, wharf, dock, or ship side
on tidewater or its navigable tributaries is deductible under
RCW
82.16.050. The deduction is only available
when the commodities are forwarded, without intervening transportation, by
vessel, in their original form, to interstate or foreign destinations. However,
this deduction is not available when the point of origin and the point of
delivery to the export elevator, wharf, dock, or ship side are located within
the corporate limits of the same city or town.
(i)
Example 2. AB Transport
moves freight by tug and barge from points in Washington to terminal facilities
at tidewater ports in Washington. The freight is subsequently shipped from the
ports by vessel to interstate and foreign destinations. AB Transport may deduct
the gross income from these shipments under
RCW
82.16.050.
(ii)
Example 3. ABC Trucking
hauls widgets from the manufacturing plant to a storage area that is adjacent
to the dock. The storage area is quite large and the widgets are moved from the
storage area to alongside the ship in time for loading. The widgets are loaded
on the ship and then transported to a foreign country. ABC Trucking may take a
deduction for the amounts received for transporting the widgets from the
manufacturer to the storage area. The movement of the widgets within the
storage area is not considered "intervening transportation," but is part of the
stevedoring activity.
(iii)
Example 4. ABC Trucking hauls several types of widgets from the
manufacturing plant to a "staging area" where the widgets are sorted. After
sorting, XY Hauling transports some of the widgets from the staging area to
local buyers and other widgets to the dock that is located approximately five
miles from the staging area where the widgets are immediately loaded on a
vessel for shipment to Japan. The dock and staging area are not within the
corporate city limits of the same city. ABC Trucking may not take a deduction
for amounts received for hauling widgets to the staging area. Even though some
of the widgets ultimately were exported, ABC Trucking did not deliver the
widgets to the dock where the widgets were loaded on a vessel.
However, XY Hauling may take a deduction for the gross income
for hauls from the staging area to the dock. The widgets were loaded on the
vessel in their original form with no additional processing. The haul also did
not originate or terminate within the corporate city limits of the same city or
town. All the conditions were met for XY Hauling to claim the deduction.
(d)
Interstate
transportation of persons or property. Income received from transporting
persons or property by motor transportation equipment where either the origin
or destination of the haul is outside the state of Washington is deductible.
The interstate movement originates or terminates at the point where the
transport obligation of the interstate carrier begins or ends. See WAC
458-20-193D for additional
information on interstate activities. Transportation provided within the state
prior to the point of origin of the interstate movement or subsequent to the
point of destination within this state is wholly intrastate and not deductible.
Example 5. Airport B Shuttle provides
transportation to and from the airport for persons departing or arriving from
destinations that may or may not be out of state. This service is not
incidental to any interstate movement and thus gross income is taxable under
either motor or urban transportation.
(e)
Interstate transportation of
commodities. Income received from the transportation of commodities from
points of origin in this state to final destination outside this state, or from
points of origin outside this state to final destination in this state are
deductible under
RCW
82.16.050 where the carrier grants to the
shipper the privilege of stopping the shipment in transit at some point in this
state for the purpose of storing, manufacturing, milling, or other processing,
and thereafter forwards the same commodity, or its equivalent, in the same or
converted form, under a through freight rate from point of origin to final
destination.
(f)
Transportation of agricultural commodities. Certain income
received from the transportation of agricultural commodities can be deducted
when the commodities do not include manufactured substances or articles. For
the income to be deducted, the commodities must be transported from points of
origin in the state to interim storage facilities in this state for
transshipment, without intervening transportation, to an export elevator,
wharf, dock, or ship side on tidewater or its navigable tributaries to be
forwarded, without intervening transportation, by vessel, in their original
form, to interstate or foreign destinations. If agricultural commodities are
transshipped from interim storage facilities in this state to storage
facilities at a port on tidewater or its navigable tributaries, the same
agricultural commodity dealer must operate both the interim storage facilities
and the storage facilities at the port.
RCW
82.16.050.
(i) The deduction under this subsection is
available only when the person claiming the deduction obtains a completed
"Certificate of Agricultural Commodity Shipped to Interstate and Foreign
Destinations" from the agricultural commodity dealer operating the interim
storage facilities.
(ii) A blank
certificate can be found on the department's website at dor.wa.gov. The form
may also be obtained by contacting the department's telephone information
center at 360-705-6705, or by writing the department at:
Taxpayer Information and Education
Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478
(8)
Exemption for income from persons
with special transportation needs.
RCW
82.16.047 provides an exemption from PUT for
amounts received for providing commuter share riding or ride sharing for
persons with special transportation needs in accordance with
RCW
46.74.010. Transportation must be provided by
a public social service agency or a private, nonprofit transportation provider
as defined in
RCW
81.66.010.
(9)
Business activities other than
hauling. Persons engaged in the business of motor or urban
transportation may also receive income from other business activities. The tax
consequences of this income is generally based on whether or not these services
are performed as a part of or are incidental to the hauling activity, or are
services where the taxpayer does not haul the shipment.
(a)
Handling and other services that
are a part of or incidental to the hauling activity. When a person
performs activities such as packing, crating, loading or unloading of goods
that the person is hauling for the customer, those services are considered to
be performed as a part of the hauling activity, or are services incidental to
the haul itself. The gross income from those services is taxed in the same
manner as the hauling activity, e.g., motor or urban transportation.
Example 6. Mary hires Luke's Packing & Hauling
Co. (Luke's) to load, haul, and unload her belongings at a local storage
facility just a couple of miles down the street from the city apartment she is
vacating. Luke's will report the gross income from Mary under the urban
transportation PUT classification.
(b)
Handling and other services that
are not a part of or incidental to the hauling activity.
(i) If a person engaged in hauling activities
packs, crates, loads, or unloads goods that the person is not also hauling for
the customer, the gross income from these activities will generally be subject
to service and other activities B&O tax.
Example 7. James hires Luke's Packing &
Hauling (Luke's) to wrap, pack, and crate his belongings in preparation for
long-term storage. Luke's will not be hauling James' belongings as Haul and
Storage Inc. has been hired to pick up the belongings and put them in their
storage facility. Luke's will report the gross income for wrapping, packing,
and crating James' belongings under the service and other activities B&O
tax classification.
(ii) A
person engaged in hauling activities may also perform services that are not a
part of or are separate from the hauling activity. The gross income from these
activities is not subject to the motor or urban transportation PUT, but is
instead subject to tax based on the nature of the activity and other provisions
of the law.
Example 8. Affordable Hauling and Storage
(Affordable) hauls products for hire and also operates a warehouse. Big
Manufacturing Company (Big) hires Affordable to pick-up and deliver products to
and from Affordable's warehouse for long-term storage. Affordable charges Big
for the hauling services as they occur and also separately invoices Big a
monthly fee for storing the products. The income from the hauling services is
subject to the motor transportation or urban transportation PUT classification,
as the case may be. The monthly storage charges are subject to the warehousing
B&O tax classification. See WAC
458-20-182 for an explanation of
the tax-reporting responsibilities of warehouse businesses.
(c)
Sales, leases, or
rentals of tangible personal property by motor carriers. Persons engaged
in either motor or urban transportation may also sell, lease, or rent tangible
personal property, such as forklifts or trailers. Gross income from the sale,
lease, or rental of tangible personal property without an operator to a
consumer, is subject to retailing B&O and retail sales taxes, unless a
specific exemption applies. If the sale is a sale for resale, the sale is
subject to the wholesaling B&O tax classification. For information
regarding the tax reporting responsibilities of persons that lease or rent
tangible personal property see WAC
458-20-211.
If the sale, lease, or rental of the property qualifies for one
of the retail sales tax exemptions for equipment used in interstate commerce
provided by
RCW
82.08.0262 or
82.08.0263 (e.g., as may be the
case with a trailer used in interstate commerce), the retailing of interstate
transportation equipment B&O tax classification applies. Refer to WAC
458-20-174 for information on
limited exemptions that may apply to motor carriers operating in interstate or
foreign commerce.
(10)
Purchases of tangible personal
property. Persons engaged in the business of motor or urban
transportation must pay retail sales tax to their vendors when purchasing motor
vehicles, trailers, parts, equipment, tools, supplies, and other tangible
personal property for use in conducting their business. Refer to WAC
458-20-174 for limited exemptions
that may apply to motor carriers operating in interstate or foreign
commerce.
(11)
Purchases made
for rental or lease to others. Persons buying motor vehicles, trailers
and similar equipment solely for the purpose of renting or leasing the same
without an operator are making purchases for resale. The seller must obtain a
copy of the buyer's reseller permit from the buyer to document the wholesale
nature of any sale as provided in WAC
458-20-102 Reseller
permits.
Statutory Authority:
RCW
82.32.300. WSR 83-07-033 (Order ET 83-16),
§ 458-20-180, filed 3/15/83; Order ET 70-3, § 458-20-180 (Rule 180),
filed 5/29/70, effective 7/1/70.