Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule
discusses the business and occupation (B&O) tax exemptions for certain
wholesale sales of new motor vehicles between new car dealers. The rule also
discusses the B&O tax exemption for accommodation sales and clarifies the
applicability of the accommodation sale exemption to exchanges of fungible
products, such as gasoline and oil.
(2)
Wholesale sales of new motor
vehicles by new car dealers. Effective July 1, 2001,
RCW
82.04.422 provides a B&O tax exemption
for wholesale sales of new motor vehicles by new car dealers to other new car
dealers. This exemption does not apply to amounts derived by a manufacturer,
distributor, or factory branch as defined in
chapter
46.70 RCW.
New car dealers will in most cases find the statutory
requirements of this exemption to be less restrictive than those of the
accommodation sales exemption discussed in subsection (3) of this rule. Unlike
the exemption for accommodations sales, there is no restriction on the amount
that the selling dealer can charge the buying dealer, nor is there any
requirement that the sale be made to fill an existing order from a customer.
While these circumstances may be present in a particular transaction, there is
no need to use or rely upon the B&O tax exemption for accommodation sales
when the requirements for the exemption for wholesale sales between new car
dealers are met. The exemption for wholesale sales of new motor vehicles
between new car dealers provided by
RCW
82.04.422 is subject to the following
conditions.
(a)
New motor
vehicle. The property sold must be a new motor vehicle. For the purposes
of this rule, "new motor vehicle" means every motor vehicle that is
self-propelled and is required to be registered and titled under
Title
46 RCW, has not been previously
titled to a retail purchaser, and is not a "used motor vehicle" as defined
under RCW
46.04.660.
RCW
46.70.011. Examples of motor vehicles include
passenger cars, trucks, motorcycles, and motor homes.
(b)
Wholesale sale between new car
dealers selling the same make of new motor vehicles. The sale must be a
wholesale sale and must occur between new car dealers selling the same make of
vehicle. For purposes of determining whether the exemption applies to
transactions involving trades, the trade of each new motor vehicle is
considered a separate sale.
(i)
Example
1. A new car dealer sells a new light pick-up truck, Make A, to another
new car dealer. The purchasing dealer also sells new Make A passenger vehicles.
This sale qualifies for the exemption.
(ii)
Example 2. New Car Dealer
ABC and New Car Dealer XYZ both sell new motor vehicles by Make A and Make X.
New Car Dealer ABC sells Make A passenger vehicle to Dealer XYZ. Dealer XYZ
sells Make X passenger vehicle to Dealer ABC. Both dealers regularly engage in
the business of selling both new motor vehicle makes. Both sales qualify for
the exemption.
(iii) Example
3. A new car dealer sells a new passenger vehicle, Make X, to another
new car dealer. The purchasing dealer is not regularly engaged in the business
of selling new Make X vehicles. This sale does not qualify for the
exemption.
(iv)
Example
4. New Car Dealer DEF sells new motor vehicles by Make A and Make X. New
Car Dealer LMN sells new motor vehicles by Make A and Make Y. New Car Dealer
DEF sells Make A passenger truck to New Car Dealer LMN. New Car Dealer LMN
sells Make Y passenger truck to New Car Dealer DEF. Both dealers regularly
engage in the business of selling Make A new motor vehicles while only New Car
Dealer DEF engages in the business of selling Make Y. The sale of new motor
vehicle Make A by Dealer DEF qualifies for the exemption while the sale of Make
Y by Dealer LMN does not.
(c)
Documentation. A person
claiming the B&O tax exemption under
RCW
82.04.422 for a wholesale sale of a new motor
vehicle must maintain sufficient documentation to verify the exemption. The
documentation should identify:
(i) The buyer's
name and address;
(ii) The seller's
name and address;
(iii) The buyer's
UBI/tax registration number;
(iv)
The make, model, and serial number of the motor vehicle;
(v) The date of purchase;
(vi) That the buyer and seller both regularly
engage in making sales of the same make of new motor vehicle; and
(vii) The buyer's signature and
title.
(3)
Accommodation sales.RCW 82.04.425
provides a B&O tax exemption for wholesale sales of tangible personal
property by persons who regularly engage in making sales of the type of
property so sold to other persons who similarly engage in the business of
selling such property.
The following conditions must be satisfied for the exemption to
apply.
(a)
Amount paid by buyer
may not exceed amount paid by seller. The amount the buyer pays to the
seller may not exceed the amount the seller paid to the seller's vendor in the
acquisition of the property. Thus, a seller who manufactured the property sold
cannot claim the exemption because the property has not been acquired from a
vendor.
(i)
Expenses associated with
preparing property for sale. A seller may add reasonable expenses for
preparing the property for sale, such as actual freight or delivery costs
incurred by the seller and billed as such to the buyer. Questions concerning
whether the exemption is available when other costs are included should be
submitted to the department for determination at:
Department of Revenue
Taxpayer Services
P.O. Box 47478
Olympia, WA 98504-7478
(ii)
What is the effect of holdbacks or
discounts on amount paid? The amount paid by the seller may not be
reduced by the amount of any manufacturer's holdbacks or discounts received
after an article has been sold to adjust inventory levels even though the
seller may retain such holdbacks or discounts.
For the following examples, presume an equipment dealer
receives two tractors from the manufacturer on June 1st. The manufacturer's
sales invoice indicates an invoice price of $16,600 and a holdback of $500 for
each tractor. The dealer is entitled to receive the holdback on July 1st,
thirty days after being billed for the tractors by the manufacturer.
(A)
Example 1. The equipment
dealer sells one of the tractors to another equipment dealer on June 10th. The
amount paid by the selling dealer in the acquisition of the vehicle is
$16,600.
(B)
Example
2. The equipment dealer sells the other tractor to another equipment
dealer on July 18th. The amount paid by the selling dealer in the acquisition
of the vehicle is $16,100.
(b)
Sale is an accommodation to fill an
existing order. The sale must occur as an accommodation to allow the
buyer to fill a bona fide existing order of a customer or occur within fourteen
days to reimburse in-kind a previous accommodation sale by the buyer to the
seller. A bona fide existing order is present if there is a commitment by the
buyer's customer to purchase the property. The buyer must retain records
demonstrating the customer's commitment to purchase, such as a written
agreement or deposit.
For example, Recreational Vehicle Dealer A purchases a
fifth-wheel trailer from Recreational Vehicle Dealer B as an accommodation. Ten
days later, Dealer A sells a travel trailer to Dealer B as reimbursement
in-kind of the previous accommodation sale. For Dealer A to claim the B&O
tax exemption for the sale of the travel trailer to Dealer B, Dealer A must
keep sufficient records to document a bona fide existing customer order for the
fifth-wheel trailer purchased from Dealer B.
(c)
Documentation. A person
claiming the exemption for an accommodation sale must maintain sufficient
documentation to verify the exemption. In addition to the documentation noted
above establishing, where pertinent, the existence of a bona fide existing
customer order, this documentation must include:
(i) The buyer's name and address;
(ii) The seller's name and address;
(iii) The buyer's UBI/tax registration
number;
(iv) Description of the
property purchased, including make, model, and serial numbers as
appropriate;
(v) The date of
purchase and the purchase price;
(vi) A statement by the buyer as to whether
the purchase is to fill a bona fide existing order or to reimburse a previous
in-kind accommodation sale, including information identifying the previous
accommodation sale; and
(vii) The
buyer's signature and title.
(4)
Exchanges of fungible
products. Persons engaged in the selling and distributing of fungible
products often enter into exchange agreements. An exchange is a sale regardless
of whether it results in a profit because a transfer of the ownership of, title
to, or possession of property for valuable consideration occurs.
RCW
82.04.040. Exchanges are subject to the
B&O tax unless otherwise exempt by law.
(a)
What is a fungible product?
Fungible products are products that lose their physical identity to the point
that they cannot be distinguished from like-kind items when commingled.
Examples of fungible products include gasoline, bulk oil products, grains,
logs, wood chips, fruits, and vegetables.
(b)
What is an exchange? Under
typical exchange agreements, a person is required to furnish products to
another person selling and distributing the same products, sometimes receiving
payment in-kind or with a substitute product at a later date. Exchange
agreements may require the person to arrange for direct delivery from his or
her vendor to the third party distributor. In some cases, actual title and/or
possession of the product may pass directly from the vendor to the third-party
distributor.
Persons exchanging fungible products often do so on a regular
and continuing basis to cover shortages occurring because of a lack of storage
or production facilities, and/or to effect savings in transportation costs.
Exchanges may be carried as loans on the books of account (in which case the
exchanges are often referred to as "intercompany loans"). Products acquired via
an exchange may or may not be carried as regular inventory on the books of
account.
(c)
May an
exchange of fungible products qualify as an accommodation sale? The fact
that the product sold is a fungible product does not preclude a claim that the
sale is exempt as an accommodation sale. However, such a claim will be
recognized only if the statutory requirements of
RCW
82.04.425 are met.
Statutory Authority:
RCW
82.32.300 and
82.01.060(2).
04-17-025, § 458-20-208, filed 8/9/04, effective 9/9/04. Statutory
Authority:
RCW
82.32.300,
82.01.060(2), and
34.05.230. 03-07-066, §
458-20-208, filed 3/17/03, effective 4/17/03; Order ET 70-3, § 458-20-208
(Rule 208), filed 5/29/70, effective
7/1/70.