Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule discusses the business and occupation
(B&O), retail sales, use, and public utility tax applications to sales made
to and by the state of Washington and municipal corporations including, but not
limited to, counties, cities, towns, school districts, fire districts, and
other special districts.
(a)
Other
rules that may apply. Readers may also want to refer to other rules for
additional information, including the following:
(i) WAC
458-20-106
Casual or isolated sales-Business reorganizations.
(ii) WAC
458-20-118
Sale or rental of real estate, license to use real estate.
(iii) WAC
458-20-167
Educational institutions, school districts, student organizations, and private
schools.
(iv) WAC
458-20-168
Hospitals, nursing homes, assisted living facilities, adult family homes and
similar health care facilities.
(v)
WAC
458-20-179
Public utility tax.
(vi) WAC
458-20-180 Motor
carriers.
(vii) WAC
458-20-201
Interdepartmental charges.
(viii)
WAC
458-20-250
Solid waste collection tax.
(ix)
WAC
458-20-251
Sewerage collection and other related activities.
(b)
Examples. This rule includes
examples that identify a number of facts and then state a conclusion. These
examples should only be used as a general guide. The tax results of other
situations must be determined after a review of all the facts and
circumstances.
(2)
Definitions. For the purposes of this rule, the following
definitions apply:
(a)
"Enterprise
activity" means an activity financed and operated in a manner similar to
a private business enterprise. The term includes those activities which are
generally in competition with private business enterprises and which are over
fifty percent funded by user fees. The term does not include activities which
are exclusively governmental.
(b)
"Municipal corporations" means counties, cities, towns, school
districts, fire districts, and other special districts including, but not
limited to, park and recreation districts, water and sewer districts, and
library districts of the state of Washington.
(c)
"Public service business"
means any business subject to control by the state, or having the powers of
eminent domain, or any business declared by the legislature to be of a public
service nature, irrespective of whether the business has the powers of eminent
domain or the state exercises its control over the business. It includes, but
is not limited to, water distribution, light and power, public transportation,
and sewer collection.
(d)
"Subject to control by the state," as used in (c) of this
subsection, means control by the utilities and transportation commission or any
other state department required by law to regulate a business of a public
service nature as to rates charged or services rendered.
(e)
"User fee" as used in this
rule, means a charge imposed on individuals or entities to access facilities,
receive services, or participate in activities.
(3)
Application of the business and
occupation tax.
(a)
Sales to the
state of Washington and municipal corporations. Sellers are subject to
the B&O tax on sales to the state of Washington, its departments and
institutions, or to municipal corporations.
(b)
Sales by the state of
Washington. The state of Washington and its departments and institutions
are not subject to the provisions of the B&O tax under
RCW
82.04.030.
(c)
Sales by municipal
corporations.(i) Governmental
activities. Municipal corporations are not subject to the B&O tax on
amounts received from activities that are exclusively governmental under RCW
82.04.-419. Income from activities that are exclusively governmental include,
but are not limited to, license and permit fees; inspection fees; fees for
copies of public records, reports, and studies; pet adoption and license fees;
processing fees for fingerprinting and environmental impact statements; and
fees for on-street metered parking and on-street parking permits. Income
received from taxes, fines, penalties, and interest imposed on exclusively
governmental activities is also exempt from the B&O tax.
(ii) Interdepartmental charges. Charges
between departments of a particular municipal corporation are interdepartmental
charges and are not subject to the B&O tax.
(iii) Grant income. Municipal corporations
are exempt from the B&O tax on grants received from the state of
Washington, or the United States government under RCW 82.04.-418.
(iv) Public service business activities.
Municipal corporations engaging in public service business activities should
refer to the rules mentioned in subsection (1)(a) of this rule to determine
their B&O tax liability.
(v)
Enterprise activities. Municipal corporations receiving income, however
designated, from any enterprise activity for which a specific charge is made
are subject to the B&O tax.
(A) When
determining whether an activity is an enterprise activity, user fees received
from the activity must be measured against total costs attributable to
providing the activity, including direct and indirect overhead. This review
should be performed at the budget level for all activities included in the
budget, and on the fiscal or calendar year basis used by the entity in
maintaining its books of account.
Example 1. A city determines that its community
center, which is operated under a single budget, generated two hundred fifty
thousand dollars in user fees for the fiscal year. The total cost to operate
the facility was four hundred thousand dollars, which includes direct operating
costs, direct and indirect overhead, asset depreciation, and interest payments
for the retirement of bonds issued to fund the facility's construction. The
principal payments for the retirement of the bonds are not included because
these costs are a part of the asset depreciation costs. The facility's
operation is an enterprise activity because it is more than fifty percent
($250,000/ $400,000 = 63%) funded by user fees.
(B) An enterprise activity that is operated
as part of a governmental or nonenterprise activity is subject to the B&O
tax.
Example 2. A city owns a large community center
and three smaller neighborhood centers. The community center operates with its
own budget, and the three neighborhood centers operate under a single separate
budget. The community center and the neighborhood centers are operated as a
part of the overall parks and recreation department, which is not more than
fifty percent funded by user fees.
Each budget must be independently reviewed to determine whether
these facilities are operated as enterprise activities. The operation of the
community center is an enterprise activity only if the user fees account for
more than fifty percent of the community center's operating budget. The total
user fees generated by the three neighborhood centers are compared to the total
costs of operating the three centers to determine whether they, as a whole, are
an enterprise activity. Had each neighborhood center operated under individual
budgets, the user fees generated by each neighborhood center would be compared
to the costs of operating that center.
(4)
Business and occupation
tax classifications for enterprise activities.
(a) Municipal corporations engaging in
enterprise activities are subject to the B&O tax as follows:
(i)
Service and other activities
tax. Amounts received from, but not limited to, event admission fees for
concerts and exhibits, admission charges to a zoo or wildlife park, fees
charged for the use of lockers at a facility not considered an "athletic or
fitness facility" as defined in
RCW
82.04.050, charges for moorage (less than
thirty days), and the granting of a license to use real property are subject to
the service and other activities B&O tax under
RCW
82.04.290(2).
(ii)
Extracting tax. The
extracting of natural products for sale or for commercial use is subject to the
extracting B&O tax under
RCW
82.04.230. The measure of tax is the value of
products. (See WAC
458-20-135
on extracting.) Counties and cities are not, however, subject to the extracting
B&O tax on the cost of labor and services performed in the mining, sorting,
crushing, screening, washing, hauling, and stockpiling of sand, gravel, or rock
taken from a pit or quarry owned by or leased to the county or city when these
products are either stockpiled for placement or are placed on a street, road,
place, or highway of the county or city by the county or city itself. In
addition, the extracting B&O tax does not apply to the cost of or charges
for such labor and services if the sand, gravel, or rock is sold by the county
or city to another county or city at actual cost for placement on a publicly
owned street, road, place, or highway under
RCW
82.04.415.
(iii)
Manufacturing tax. The
manufacturing of products for sale or for commercial use is subject to the
manufacturing B&O tax under
RCW
82.04.240. The measure of tax is the value of
products. (See WAC
458-20-136
on manufacturing.) The manufacturing B&O tax does not apply to the value of
materials printed by counties, cities, towns, school districts, educational
districts, or library or library district facilities solely for their own use
under RCW
82.04.600.
(iv)
Wholesaling tax. The
wholesaling B&O tax applies to the gross proceeds received from sales or
rentals of tangible personal property to persons who resell the same without
intervening use under
RCW
82.04.270. The wholesaling tax does not,
however, apply to casual sales. Sellers must obtain a reseller permit from
their customer to document the wholesale nature of any sale as provided in WAC
458-20-102
(Reseller permits).
(v)
Retailing tax. Amounts received from, but not limited to, user
fees for off-street parking and garages, charges for the sale or rental of
tangible personal property to consumers, fees for providing recreational
services and activities, charges for operating an athletic or fitness facility,
and other retail services and activities as provided in
RCW
82.04.050, are taxable under the retailing
B&O tax under RCW 82.04.-250. The retailing B&O tax does not, however,
apply to casual sales.
(b) Persons selling products that they have
extracted or manufactured must report, unless exempt by law, under both the
"production" (extracting and/or manufacturing) and "selling" (wholesaling or
retailing) classifications of the B&O tax, and claim a tax credit under the
multiple activities tax credit system. See WAC
458-20-19301
on multiple activities tax credits.
(5)
Application of the retail sales
tax.
(a)
Sales to the state of
Washington and municipal corporations. The retail sales tax applies to
retail sales made to the state of Washington, including its departments and
institutions, and to municipal corporations unless a specific exemption
applies.
(b)
Sales by the
state of Washington and municipal corporations. The state of Washington,
including its departments and institutions, and all municipal corporations must
collect retail sales tax on all retail sales of tangible personal property or
retail services unless a specific exemption applies. Retail sales tax must be
collected and remitted even if the sale is exempt from the retailing B&O
tax.
Example 3. A city police department must collect
retail sales tax on casual sales of unclaimed property to consumers, even
though this activity is not subject to the B&O tax because these sales are
considered casual sales.
Example 4. A city owns and operates a zoo. One
budget is maintained for the care and maintenance of the wildlife and
facilities, and a separate budget is maintained for the gift shop and
concessions. The wildlife and facilities budget is less than fifty percent
funded by admission fees, while the gift shop and concessions budget is almost
entirely funded by the proceeds from sales. The admission fees are not subject
to the B&O tax, but the income from the gift shop and concession sales are
subject to the retailing B&O tax and the city must collect retail sales
tax. In this example, had the entire zoo been operated under a single budget
and less than fifty percent of the budget was funded by user fees, then no part
of the zoo would be considered an enterprise activity. If the zoo is not an
enterprise activity, then B&O tax would not apply to the admission fees,
the gift shop sales, or the concession sales. However, retail sales tax must
still be collected on the gift shop and concession sales.
(c)
Sales between the state of
Washington and a municipal corporation. Sales between a department or
institution of the state and a municipal corporation are retail sales and are
subject to the retail sales tax.
Example 5. State Agency sells office equipment to
County. State Agency is making a retail sale and must collect and remit retail
sales tax upon the amount charged, even though the B&O tax does not apply
to this sale. The amount of retail sales tax must be separately itemized on the
sales invoice under
RCW
82.08.050. State Agency may claim a tax paid
at source deduction for any retail sales or use tax previously paid on the
purchase of the office equipment provided there was no intervening use of the
office equipment by State Agency. If intervening use occurred, State Agency may
not claim the tax paid at source deduction, as described in WAC
458-20-102
(Reseller permits), for any retail sales or use tax it previously paid when
purchasing the office equipment.
(d)
Sales between municipal
corporations. Sales between municipal corporations are retail sales
subject to the retail sales tax.
(e)
Sales between departments or
institutions of the state of Washington. Departments or institutions of
the state of Washington are not considered sellers when making sales to other
departments or institutions of the state because the state is considered to be
a single entity under
RCW
82.08.010(2). Therefore, the
"selling" department or institution is not required to collect the retail sales
tax on these sales.
All departments or institutions of the state of Washington are,
however, considered "consumers" under
RCW
82.08.010(3). A department
or institution of the state purchasing tangible personal property from another
department or institution is required to remit to the department of revenue the
retail sales or use tax upon that purchase, unless it can document that the
"selling" institution previously paid retail sales or use tax on that
item.
(6)
Retail sales tax exemptions. The retail sales tax does not apply
to the following:
(a) Sales to city or county
housing authorities created under the provisions of the Washington housing
authorities law, chapter 35.82 RCW. However, prime contractors and
subcontractors working for city or county housing authorities should refer to
WAC
458-20-17001
(Government contracting-Construction, installations, or improvements to
government real property) to determine their tax liability.
(b) Charges to the state of Washington and
municipal corporations for that portion of the selling price of contracts for
watershed protection or flood control which is reimbursed by the United States
government according to the provisions of the Watershed Protection and Flood
Prevention Act, Public Law
566, as amended, under
RCW
82.08.0271.
(c) Sales of an entire or complete integral
section of operating property of a publicly or privately owned public utility
to the state of Washington or to a municipal corporation for use in conducting
any public service business, except a tugboat business, under
RCW
82.08.0256.
(d) Sales of or charges made for labor and
services in the mining, sorting, crushing, screening, washing, hauling, and
stockpiling of sand, gravel, or rock taken from a pit or quarry owned or leased
to a county or city, when the materials are either stockpiled in the pit or
quarry, placed on the public road by the county or city itself, or sold at cost
to another county or city for use on public roads under RCW
82.08.-0275.
(e) Sales to one
municipal corporation by another municipal corporation directly or indirectly
arising out of, or resulting from, the annexation, merger, or incorporation of
any part of the territory of one municipal corporation by another under
RCW
82.08.0278.
(f) Sales to one municipal corporation by
another municipal corporation according to the terms of a contractual
consolidation under which the taxpayers that originally paid a sales or use tax
continue to benefit from the use of the personal property.
(g) Sales to the state of Washington or a
municipal corporation of ferry vessels and component parts thereof, and charges
for labor and services in respect to construction or improvement of such
vessels under
RCW
82.08.0285.
(h) Sales to the United States. Sales to
federal employees, however, are subject to the retail sales tax even if the
federal employee will be reimbursed for the cost by the federal government.
(See WAC
458-20-190
on sales to the United States.)
(i)
Charges for physical fitness classes, such as aerobics classes, provided by
local governments under
RCW
82.08.0291. For more information on charges
for physical fitness classes provided by local governments, refer to the
department's website at dor.wa.gov.
(7)
Application of the use tax.
(a) The state of Washington, including its
departments and institutions, and municipal corporations are required to pay
the use tax directly to the department of revenue if the retail sales tax was
not paid on the value of the item or service at the time of purchase. Refer to
WAC
458-20-178
(Use tax and the use of tangible personal property) for more
information.
(b) Purchases of
cigarette stamps, vehicle license plates, license plate tabs,
disability decals, or other items to evidence payment of a license, tax, or fee
are purchases for consumption by the state or municipal corporation and subject
to the retail sales or use tax.
(c)
If the state of Washington or its departments and institutions purchase
tangible personal property or retail services to resell to any other department
or institution of the state of Washington, or to consume as an ingredient or
component part in manufacturing or producing for use, a new article for resale
to any other department or institution of the state of Washington, the
transaction is a retail purchase and subject to retail sales or use
tax.
(d) The state of Washington or
a municipal corporation that produces or manufactures products for commercial
or industrial use are required to remit use tax upon the value of those
products under
RCW
82.12.020, unless a specific use tax
exemption applies. This value must correspond as nearly as possible to the
gross proceeds from retail sales of similar products. (See WAC
458-20-112 and
458-20-134
on value of products and commercial or industrial use, respectively.)
Example 6. A municipal corporation that operates a
print shop and produces forms or other documents for its own use must remit use
tax upon the value of those products, even though a B&O tax exemption is
provided by RCW 82.04.-600. The value of the products subject to use tax may be
reduced by any retail sales tax previously paid on materials, such as paper or
ink, which are incorporated into the manufactured product.
(i) Counties and cities are not subject to
use tax on the cost of labor and services in the mining, sorting, crushing,
screening, washing, hauling, and stockpiling of sand, gravel, and rock taken
from a pit or quarry owned or leased to a county or city when the materials are
for use on public roads under
RCW
82.12.0269.
(ii) If a department or institution of the
state of Washington manufactures or produces tangible personal property for use
or resale to any other department or institution of the state, use tax must be
remitted on the value of that article even though the state is not subject to
the B&O tax.
Example 7. State Agency manufactures office
furniture to resell to other departments or institutions of the state of
Washington. State Agency sometimes uses office furniture it has manufactured
for its own offices. Use tax is due on the office furniture sold to the other
departments or institutions, and on the office furniture State Agency puts to
its own use. The taxable value of the office furniture sold to the other
departments or institutions is the selling price. The taxable value for the
office furniture State Agency puts to its own use is the selling price at which
State Agency sells comparable furniture to other departments or institutions.
When computing and remitting use tax upon the value of manufactured furniture,
State Agency may reduce the value by any retail sales or use taxes it
previously remitted on materials incorporated into that furniture. A department
or institution purchasing office furniture from State Agency must remit use tax
on the value of that furniture, unless it can document that State Agency paid
use tax upon the appropriate value of the furniture. (See also subsection
(5)(e) of this rule.)
(e) A use tax exemption applies to the use by
the state or local governments of donated personal property under
RCW
82.12.02595. The donor, however, remains
liable for the retail sales or use tax on the donated property.
(f) A use tax exemption applies to the use of
personal property of one municipal corporation by another municipal corporation
directly or indirectly arising out of, or resulting from, the annexation,
merger, or incorporation of any part of the territory of one municipal
corporation by another.
(g) A use
tax exemption applies to the use of the personal property of one municipal
corporation by another municipal corporation according to the terms of a
contractual consolidation under which the taxpayers that originally paid a
sales or use tax continue to benefit from the use of the personal
property.
(8)
Application of the public utility tax.
(a) Persons receiving income subject to the
public utility tax may not claim a deduction for amounts received as
compensation for services rendered to the state of Washington, its departments
and institutions, or to municipal corporations thereof.
(b) The public utility tax does not apply to
income received by the state of Washington or its departments and institutions
from providing public utility services.
(c) Municipal corporations operating public
service businesses should refer to the rules mentioned in subsection (1)(a) of
this rule to determine their public utility tax liability.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
chapters
82.04,
82.08,
82.12 and
82.32 RCW. 10-06-070, §
458-20-189, filed 2/25/10, effective 3/28/10. Statutory Authority:
RCW
82.32.300. 95-24-104, § 458-20-189,
filed 12/6/95, effective 1/6/96; 86-18-069 (Order 86-16), § 458-20-189,
filed 9/3/86; 85-22-041 (Order 85-6), § 458-20-189, filed 11/1/85;
85-04-016 (Order 85-1), § 458-20-189, filed 1/29/85; 83-07-033 (Order ET
83-16), § 458-20-189, filed 3/15/83; Order ET 70-3, § 458-20-189
(Rule 189), filed 5/29/70, effective
7/1/70.