Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. The event
triggering a leasehold excise tax liability is the use by a private person or
entity of publicly owned, tax-exempt property or property of a community center
which is exempt from property tax.
Where a lessee is also a tax-exempt government entity, the tax
will apply against a private sublessee, even though no contractual arrangement
exists between the sublessee and the lessor.
(2)
Lessor's responsibility to collect
and remit tax. The lessor is responsible for collecting and remitting
the leasehold excise tax from its private lessees. If the lessor collects the
leasehold excise tax but fails to remit it to the department, the lessor is
liable for the tax.
(a) Where the lessor has
attempted to collect the tax, but has received neither contract rent nor
leasehold excise tax from the lessee, the department will proceed directly
against the lessee for payment of the tax and the lessee shall be solely liable
for the tax, provided, the lessor notifies the department in writing when the
lessor is unable to collect rent and/or taxes, and the amount of the leasehold
excise tax arrearage is $1000 or greater. If the lessor fails to notify the
department, the department may, in its discretion, look to the lessor for
payment of the tax.
(b) If, upon
examining all of the facts and circumstances, the department determines that
the lessor in good faith believed the lessee to be exempt from all or part of
the leasehold excise tax, the department will look to the lessor for assistance
in collection of the tax due, but will not hold the lessor personally liable
for payment of such tax. To satisfy the requirement of "good faith" the lessor
must have acted with reasonable diligence and prudence to determine whether the
leasehold excise tax was due from the lessee.
(3) The following examples, while not
exhaustive, illustrate some of the circumstances in which a lessor may or may
not be held liable for the leasehold excise tax. These examples should be used
only as a general guide. The status of each situation must be determined after
a review of all of the facts and circumstances.
(a) Doug has been newly hired in the
accounting department at City Port and is assigned the responsibility for its
rental accounts. He is unaware of the leasehold excise tax laws and fails to
bill new tenants for the leasehold excise tax. In this situation, City Port
does not avoid possible liability for the tax. Accounting errors and lack of
knowledge regarding City Port's responsibility to collect and remit the
leasehold excise tax do not qualify as reasonable diligence and
prudence.
(b) Sybil rents an
apartment in a building owned by State University but she is not a student of
the University and the building is not used for student housing. She pays $900
per month in rent. The terms of the lease require her to give at least thirty
days' notice of intent to vacate. In the month of March, she fails to pay her
rent, and State University serves her with a notice to pay or quit the
premises. On April 1, she sends a check to State University for $20l6 (two
months' rent, plus leasehold excise tax). The bank does not honor the check,
and Sybil abandons the premises in mid-April without notice. When State
University discovers that she has left, it timely notifies the department of
the unpaid rent and leasehold excise tax. State University has acted with
reasonable prudence and diligence and will not be held liable for the unpaid
leasehold excise tax. In serving Sybil with a notice to pay or quit when she
first defaulted, State University attempted to mitigate the amount of rent and
taxes which were unpaid, and it complied with all other requirements regarding
its duty to report the arrearages to the department.
(c) Sonata City owns several houses on
property which may be used in the future for office buildings, a fire station,
or perhaps a park, depending on its future needs. The city leases the houses on
six-month terms, mainly to students who attend the local college. Over the past
four years that the city has rented the properties, it has not collected
leasehold excise tax from the tenants, because city officials believed the
property to be exempt since they planned someday to use the property for a
public purpose. Following an audit, it is determined that there is no definite
plan for destruction of the houses nor any funds allocated for construction of
public buildings on the site. Further, the houses were not rented on a
month-to-month basis. Therefore, leasehold excise tax is due. Most of the prior
tenants have left the area, and there is no convenient way for the city to
collect the unpaid leasehold tax. Sonata City is liable for the tax because
although its managers did not believe the tax was due, the lack of knowledge
regarding the city's responsibility to collect and remit the leasehold excise
tax does not qualify as reasonable diligence and prudence. Sonata City had a
duty to make a good faith effort to determine its obligations under the
applicable leasehold excise tax statutes and rules.
Statutory Authority:
RCW
82.29A.140. 10-18-034, § 458-29A-500,
filed 8/25/10, effective 9/25/10; 99-20-053, § 458-29A-500, filed 10/1/99,
effective 11/1/99.