Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. Federal law prohibits states from directly imposing
taxes on the United States. Persons doing business with the United States,
however, are subject to the taxes imposed by the state of Washington, unless
specifically exempt. This rule explains the tax reporting responsibilities of
persons making sales to the United States and to foreign governments. The rule
also explains the tax reporting responsibilities of persons engaging in
business activities within federal reservations and cleaning up radioactive
waste and other by-products of weapons production for the United States.
(a)
Other rules that may be
relevant.
(i) WAC
458-20-17001 Government
contracting-Construction, installations, or improvements to government real
property.
(ii) 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.
(iii) WAC
458-20-178 Use tax and the use of
tangible personal property.
(iv)
WAC 458-20-186 Tax on
cigarettes.
(b)
Examples. This rule provides examples that 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 the facts and circumstances.
(2)
"United States" defined.
(a) For the purposes of this rule, the term
"United States" means the federal government, including the executive,
legislative, and judicial branches, its departments, and federal entities
exempt from state or local taxation by specific federal statutory exemption.
The mere fact that an entity is a federal entity, such as an
instrumentality or a federal corporation, does not mean that the entity is
immune from tax. The taxability of a federal entity and whether the entity is
required to collect and remit retail sales/use tax depends on the benefits and
immunities conferred on it by Congress. Thus, to determine the current taxable
status of federal entities, the relevant portion of the federal law should be
examined.
(b) "United
States" does not include entities associated with but not a part of the United
States, such as the National Guard (an instrumentality of the state of
Washington). Nor does it include entities contracting with the United States
government to administer its programs.
(3)
Prohibition against taxing the
United States. The state of Washington is prohibited from imposing taxes
directly on the United States.
(a) This
prohibition applies to taxes imposed for the privilege of engaging in business
such as business and occupation (B&O) (chapter 82.04 RCW) and public
utility (chapter 82.16 RCW) taxes.
It also applies to taxes imposed on a buyer or user of goods or
services including, but not limited to, the:
(i) State and local retail sales and car
rental taxes (chapters 82.08 and 82.14 RCW);
(ii) State and local use tax (chapters 82.12
and 82.14 RCW);
(iii) Solid waste
collection tax (chapter 82.18 RCW); and
(iv) Local government taxes such as the
special hotel/motel (chapter 67.28 RCW) and convention and trade center
(chapter 67.40 RCW) taxes.
(b) The state is also prohibited from
requiring the United States to collect taxes imposed on the buyer (e.g., the
retail sales tax) as an agent for the state. However, buyers must pay use tax
on retail purchases from the United States, unless specifically exempt by
law.
(c) In addition, federal law
exempts certain nongovernmental entities from state taxes (for which Congress
has given specific federal statutory tax exemptions). These specific federal
statutory exemptions may not be absolute and may be limited to specific
activities of an entity.
(d) The
American Red Cross is an instrumentality of the United States. As a federal
corporation providing aid and relief, it is exempt from retail sales, use, and
B&O taxes under state law.
RCW
82.08.0258,
82.12.0259, and
82.04.380.
The Red Cross provides some victims of natural disasters
assistance by check, voucher, and/or direct deposits to the individuals'
personal bank accounts. Assistance may also be provided with "client assistance
cards" that may be used by the recipients at locations where bankcards are
accepted or at automated teller machines (ATM). The retail sales tax treatment
of purchases made using these payment methods is:
(i) Electronic funds transfers and checks.
Purchases made by an individual using funds that have been transferred into the
individual's bank account or received in the form of a check are subject to
retail sales tax in the same manner as any other purchase made by that
individual, unless specifically exempt by law.
(ii) Vouchers. A voucher is a certificate
issued by the Red Cross to an individual that may be exchanged for a specific
good or service. As the goods and services will be paid for directly by the Red
Cross, the sales are not subject to retail sales tax. A vendor who accepts a
voucher will send it and/or other proof of sale to the Red Cross, which will
then send a check to the vendor to pay for the purchase.
(iii) Client assistance cards. Sales to
individuals who use client assistance cards issued by the Red Cross, or who pay
with cash withdrawn from an ATM using the card, are subject to retail sales
tax, unless otherwise exempt from tax. These sales are not direct sales to the
federal government or one of its instrumentalities.
(e) The Federal Emergency Management
Administration (FEMA) is an agency of the federal government. As a federal
corporation providing aid and relief, it is exempt from retail sales, use, and
B&O taxes under state law.
RCW
82.08.0258,
82.12.0259, and
82.04.380.
FEMA provides some victims of natural disasters assistance by
check, voucher, and/or direct deposits to the individuals' personal bank
accounts. Assistance may also be provided with emergency debit cards that can
be used by the recipients at locations where bankcards are accepted or at ATMs.
The retail sales tax treatment of purchases made using these payment methods
is:
(i) Electronic funds transfer and
checks. Sales are subject to retail sales tax as described in (d)(i) of this
subsection.
(ii) Vouchers. Sales
are not subject to retail sales tax. As with the Red Cross, the goods and
services will be paid for directly by FE-MA. See (d)(ii) of this
subsection.
(iii) Emergency debit
cards. As with the Red Cross, "client assistance cards" purchases made with
these cards, or with cash withdrawn from an ATM using these cards, are subject
to retail sales tax. See (d)(iii) of this subsection.
(4)
Persons doing business
with the United States. Persons selling goods or services to the United
States are subject to taxes imposed on the seller, such as the B&O and
public utility taxes, unless a specific tax exemption applies. Persons
receiving income from contracting with the United States government to
administer its programs, either in whole or in part, are also subject to tax,
unless a specific tax exemption applies.
(a)
Certain invoiced amounts not included in gross income. Persons who
contract with the United States may, for federal accounting purposes, be
contractually required to invoice goods or services provided to the United
States by third parties. The purpose of the invoices is to match the
expenditures with the appropriate category of congressional funding. Amounts
received under such invoices should be excluded from the person's gross income
when reporting on the excise tax return if all of the following conditions are
met with respect to the goods or services:
(i)
The third party directly invoices the United States;
(ii) The United States directly pays the
third party; and
(iii) The person
has no liability, either primarily or secondarily, for making payment to the
third party or for remitting payment to the third party.
(b)
Tax obligation with respect to the
use of tangible personal property. Persons performing services for the
United States are also subject to the retail sales or use tax on property they
use or consume when performing services for the United States, unless
specifically exempt.
(i)
Manufacturing
articles for commercial or industrial use. In the case of products
manufactured or produced by the person using the products as a consumer, the
measure of the use tax is generally the value of the products as explained in
WAC 458-20-112. If the articles
manufactured or produced by the user are used in the manufacture or production
of products sold or to be sold to the department of defense of the United
States, the value of articles used is the value of the ingredients of such
articles. The manufacturing B&O tax also applies to the value of articles
manufactured for commercial or industrial use.
(ii)
Use of government provided
property. When articles or goods used are acquired by bailment, the
measure of the use tax to the bailee is the reasonable rental with the value to
be determined as nearly as possible according to the rental price at the place
of use of similar products of like quality and character. For more information
on leases or rentals of tangible personal property see WAC
458-20-211. Thus, if a person has
a contract to provide services for the United States and uses government
supplied tangible personal property to perform the services, the person must
pay use tax on the fair market rental value of the government supplied tangible
personal property.
Persons who incorporate government provided articles into
construction projects or improvements made to real property of or for the
United States should refer to WAC
458-20-17001 for more specific
tax-reporting information.
(c)
Exemption for certain machinery and
equipment. Manufacturers or processors for hire may be eligible for the
retail sales or use tax exemption provided by
RCW
82.08.02565 and
82.12.02565 on machinery and
equipment used directly in a manufacturing or research and development
operation. For information on the sales and use tax exemptions see WAC
458-20-13601.
(5)
Documenting exempt sales
to the United States. Only sales made directly to the United States are
exempt from retail sales tax or other tax imposed on the buyer. To be entitled
to the exemption, the purchase must be paid for using a qualified U.S.
government credit card, a check from the United States payable to the seller, a
United States voucher, or by electronic funds transfer made by the United
States.
Sales to employees or representatives of the United States are
subject to tax, even though the United States may reimburse the employee or
representative for all or a part of the expense. Purchases by any other person,
whether with federal funds or through a reimbursement arrangement, are subject
to tax unless specifically exempt by law.
(a)
Documenting tax-exempt
sales. Sellers must document the tax-exempt nature of sales made to the
United States by keeping a copy of the United States credit card receipt, a
copy of the check from the United States, a copy of the federal government
voucher, or a copy of documentation clearly indicating payment was made by the
United States through electronic funds transfer. For information on how to
determine whether purchases made with a U.S. government credit card are exempt
from retail sales tax, refer to the department's website at
dor.wa.gov.
(b)
Payment made
by government contracted credit card. Various United States government
contracted credit cards are used to make payment for purchases of goods and
services by or for the United States government. Sole responsibility for
payment of these purchases may rest with the United States government or with
the employee. The United States government's system of issuing government
contracted credit cards is subject to change. For specific information about
determining when payment is the direct responsibility of the United States
government or the employee, contact the department's taxpayer services division
at:
Taxpayer Services
Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478
or call the department's telephone information center at
360-705-6705 or visit the department's website at dor.wa.gov.
(6)
Doing business on
federal reservations. The state of Washington has jurisdiction and
authority to levy and collect taxes from persons residing within, or with
respect to business transactions conducted on, federal reservations.
4 U.S.C. §§
105-110. The term "federal reservation," as
used in this rule, means any land or premises within the exterior boundaries of
the state of Washington that are held or acquired by and for the use of the
United States, its departments, institutions or entities. This means that a
concessionaire operating within a federal reservation under a grant or permit
issued by the United States or by a department or entity of the United States
is taxable to the same extent as any private operator engaging in a similar
business outside a federal reservation and without specific authority from the
United States.
(a)
Sales tax collection
requirements. Persons making retail sales to members of the armed forces
or others residing within or conducting business on federal reservations are
required to collect and remit retail sales tax from the buyer.
(b)
Cigarette tax stamps.
Washington cigarette tax stamps must generally be affixed to all cigarettes
sold to persons residing within or conducting business on federal reservations.
However, such stamps need not be affixed to cigarettes sold to the United
States or any of its entities including voluntary organizations of military
personnel authorized by the Secretary of Defense or the Secretary of the Navy
or by the United States or any of its entities to authorized purchasers, for
use on such reservation. For additional information on cigarette stamps, rates,
and refunds see WAC
458-20-186.
(7)
Sales made to authorized purchasers
of the United States. As explained in subsection (3)(b) of this rule,
while sales by the United States are exempt of retail sales tax the purchaser
is generally responsible for remitting use tax directly to the department.
Federal law prohibits the imposition of use tax on tangible personal property
sold to authorized purchasers by the United States, its entities, or voluntary
unincorporated organization of armed forces personnel.
4 U.S.C. §
107(a).
(a)
Who is an "authorized
purchaser"? A person is an "authorized purchaser" only with respect to
purchases he or she is permitted to make from commissaries, ships' stores, or
voluntary unincorporated organizations of personnel of any branch of the armed
forces of the United States, under regulations promulgated by the departmental
secretary having jurisdiction over such branch.
4 U.S.C. §
107(b).
(b)
What is a "voluntary unincorporated
organization"? "Voluntary unincorporated organizations" are those
organizations comprised of armed forces personnel operated under regulations
promulgated by the departmental secretary having jurisdiction over such branch.
Examples of voluntary unincorporated organizations are post flying clubs,
officers or noncommissioned officers open messes, and recreation
associations.
(8)
Purchases by persons using federal funds. Retail sales or use tax
applies to retail purchases made by any buyer, other than the United States,
including the state of Washington and all of its political subdivisions,
irrespective of whether or not the buyer uses or is reimbursed with federal
funds, unless the purchase is specifically exempt by law.
(9)
Cleaning up radioactive waste and
other by-products of weapons production and nuclear research and
development.
RCW
82.04.263 provides a preferential tax rate
for the gross income derived from cleaning up for the United States, or its
instrumentalities, radioactive waste and other by-products of weapons
production and nuclear research and development. This tax rate applies whether
the person performing these activities is a general contractor or
subcontractor.
(a)
What activities are
entitled to the preferential tax rate? Only those activities that meet
the definition of "cleaning up radioactive waste and other by-products of
weapons production and nuclear research and development" are entitled to the
preferential tax rate.
The statute defines "cleaning up radioactive waste and other
by-products of weapons production and nuclear research and development" to
mean:
(i) The handling, storing,
treating, immobilizing, stabilizing, or disposing of radioactive waste,
radioactive tank waste and capsules, nonradioactive hazardous solid and liquid
wastes, or spent nuclear fuel;
(ii)
Conditioning of spent nuclear fuel;
(iii) Removing contamination in soils and
groundwater;
(iv) Decontaminating
and decommissioning of facilities; and
(v) Services supporting the performance of
cleanup. A service supports the performance of cleanup if it:
(A) Is within the scope of work under a
clean-up contract with the United Stated Department of Energy; or
(B) Assists in the accomplishment of a
requirement of a clean-up project undertaken by the United States Department of
Energy under a subcontract entered into with the prime contractor or another
subcontractor in furtherance of a clean-up contract between the United States
Department of Energy and a prime contractor.
(b)
When does a service not assist in
the accomplishment of a requirement of a clean-up project? Subject to
specific exceptions provided by law, a service does not assist in the
accomplishment of a clean-up project when the same services are routinely
provided to businesses not engaged in clean-up activities.
The following exceptions are always deemed to contribute to the
accomplishment of a requirement of a clean-up project undertaken by the United
States Department of Energy:
* Information technology and computer support services;
* Services rendered in respect to infrastructure; and
* Security, safety, and health services.
(c)
Guideline examples. The
following examples are to be used as a guideline when determining whether a
service is "routinely provided to businesses not engaged in clean-up
activities."
(i)
Accounting
services. The classification does not apply to general accounting
services but does apply to performance audits performed for persons cleaning up
radioactive waste.
(ii)
Legal
services. The classification does not apply to general legal services
but does apply to those legal services that assist in the accomplishment of a
requirement of a clean-up project undertaken by the United States Department of
Energy. Thus, legal services provided to contest any local, state, or federal
tax liability or to defend a company against worker's compensation claim
arising from a worksite injury do not qualify for the classification. However,
legal services related to the resolution of contractual dispute between the
parties to a clean-up contract between the United States Department of Energy
and a prime contractor do qualify.
(iii)
General office janitorial.
General office janitorial services do not qualify for the radioactive waste
clean-up classification, but the specialized cleaning of equipment exposed to
radioactive waste does qualify.
(d)
Clean-up examples.
(i) Company C is a land excavation contractor
that contracts with Prime Contractor to dig trenches where waste will be
reburied after processing. Company C's contract for digging trenches qualifies
for the preferential tax rate under
RCW
82.04.263 because the activity of digging
trenches is one of the physical acts of cleaning up.
(ii) Company D contracts with Company C from
the previous example to provide payroll and accounting services. Company D's
activity does not qualify for the preferential tax rate under
RCW
82.04.263 because the activity of general
accounting is not an activity involving the physical act of cleaning up, nor is
it a service supporting the performance of cleanup as defined in (a)(v) of this
subsection.
(iii) Company E is an
environmental engineering company that contracts with Prime Contractor to
develop a plan on how best to decontaminate the soil at a tank farm and will
monitor the cleanup/decontamination as it progresses. Company E's activities
qualify for the preferential tax rate under
RCW
82.04.263 because the activities are services
supporting the performance of cleanup.
(iv) Company F is a security company that
contracts with Prime Contractor to provide overall security to the federal
reservation, including providing security at clean-up sites. Security services
at clean-up sites are services that support the performance of
cleanup.
(e)
Taxability of tangible personal property used or consumed in cleaning up
radioactive waste and other by-products of weapons production and nuclear
research and development. Persons cleaning up radioactive waste and
other by-products of weapons production and nuclear research and development
for the United States, or its instrumentalities, are consumers of any property
they use or consume when performing these services.
RCW
82.04.190. Therefore, tangible personal
property used or consumed in the cleanup is subject to retail sales or use tax.
If the seller does not collect retail sales tax on a retail sale, the buyer is
required to pay the retail sales tax (commonly referred to as "deferred sales
tax") or use tax directly to the department, unless specifically exempt by law.
The "excise tax return" does not have a separate line for reporting deferred
sales tax. Consequently, deferred sales tax liability should be reported on the
use tax line of the buyer's excise tax return. For detailed information on the
use tax, see WAC
458-20-178.
(10)
Sales to foreign governments or
foreign diplomats. Purchases by foreign governments are not subject to
retail sales tax. Documentation, such as purchase orders and receipts, must be
maintained by the seller to verify the exempt nature of the sale. Purchases by
foreign diplomats are generally not subject to retail sales tax if a valid
Diplomatic Tax Exemption Card issued by the United States Department of State
is used. For specific information concerning the taxability of sales of goods
and services to foreign missions and diplomats, contact the department's
taxpayer services division at:
Taxpayer Services
Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478
or call the department's telephone information center at
360-705-6705 or visit the department's website at dor.wa.gov.
Statutory Authority:
RCW
82.32.300 and
82.01.060(2).
10-10-030, § 458-20-190, filed 4/26/10, effective 5/27/10. Statutory
Authority:
RCW
82.32.300,
82.01.060(1), and
34.05.230. 05-03-002, §
458-20-190, filed 1/5/05, effective 2/5/05. Statutory Authority:
RCW
82.32.300. 83-07-033 (Order ET 83-16), §
458-20-190, filed 3/15/83; Order ET 75-1, § 458-20-190, filed 5/2/75;
Order ET 70-3, § 458-20-190 (Rule 190), filed 5/29/70, effective
7/1/70.