WAshington Sales / USE Tax
“Sales tax” is the general term used for an excise tax imposed on the sale of goods (and often on certain selected services) to consumers. Washington is among 45 out of the 50 U.S. states that impose a general statewide sales tax. Vendors are typically required to collect sales tax at the time of the sale and then periodically remit the collected tax to the state. “Use tax” is the term used for a tax imposed on the use of products or taxable services on which sales tax has not been paid. Sales and use tax are intended to be complementary; thus, sales and use taxes rates are typically the same in a given jurisdiction, and use tax is only due if sales tax was not paid at the time the property was acquired or the taxable services were rendered.
As an illustration, Company E, located in Washington, could choose to purchase a piece of equipment needed for its business from a local Washington vendor, in which case the vendor would charge sales tax and remit the tax to the state. In the alternative, Company E could purchase the same equipment from an Oregon vendor and take delivery in Oregon. Since Oregon is one of the five states that does not impose a sales tax, no sales tax would be paid to the vendor. However, if Company E then brings the equipment into Washington and uses it within the state, it will be required to pay use tax on the equipment at a rate equal to the applicable Washington sales tax rate. There is no real advantage to Company E to buy the equipment from the Oregon vendor rather than the Washington vendor, since it will end up paying Washington sales/use tax in either case.
Under Washington law, sales tax is imposed on each “retail sale” occurring in Washington unless a specific exemption applies. Retail sales include sales of tangible property (but not land or buildings) to consumers, as well as sales of computer software and digital products to the end user. Taxable “digital products” include digital goods (such as downloaded or streamed music, films and similar content), as well as digital automated services, which encompass a variety of services provided electronically to consumers. Other services subject to sales tax in Washington include most repairs or improvements to land, buildings and tangible goods, as well as physical fitness, amusement and recreation services, and automobile towing and parking services. Sales of extended warranties, rentals of tangible personal property, and the furnishing of lodging by a hotel, inn or similar establishment, are taxable retail sales in Washington as well.
Sales and use tax rates vary according to the specific location within the state where the sale or use occurs because local jurisdictions can impose their own sales and use taxes, above and beyond the state's tax. The range of sales tax rates in Washington is 7 percent to 9.5 percent, with taxes in most major urban areas in the state toward the higher end of this range.
Businesses operating in Washington should consider two primary questions regarding sales/use tax. First, they should determine whether they are required to collect and remit sales tax on the products or services they sell. Although sales tax is generally owed to the state in which the item in question is delivered to the customer, a business can only be required to collect sales tax in states where it has had some physical presence (which can either be that of its own personnel or property, or of third party representatives making sales or conducting other activities on the seller’s behalf). For example, assume Company F is based in Washington, markets its products solely by remote means such as internet and television advertising, and ships products to customers in other states via common carrier. Company F may not be required to collect sales tax in the states where its customers reside since it has no physical presence in those states. However, Company F’s customers may owe use tax to the state in which the items they purchase are used.
The second question a business with Washington operations should consider is whether it owes any use tax to the state. As discussed above, use tax is generally owed on items that were purchased without payment of sales tax (either because the seller did not have a taxable presence in the state, or because they were purchased in a jurisdiction that does not impose a sales tax), and the items will be used or consumed within Washington. If use tax is owed, it must be reported on the company’s Washington excise tax return for the period in which the item in question is first used within the state.
If a Washington business purchases and resells products without intervening use, or purchases materials or components that are incorporated into a product that it sells, the business should apply for a “reseller permit” from the Washington Department of Revenue. This permit authorizes the company to make such purchases without paying sales or use tax, and if taken in good faith, relieves the seller of the obligation to collect sales tax. Thus, the purchase is tax-free. However, the purchaser is still required to pay use tax on items purchased using its reseller permit if it later decides to use such items itself rather than holding them solely for resale.
Washington does offer several sales tax exemptions intended to benefit certain industries and types of activities. Machinery and equipment used by a manufacturer directly in the manufacturing process is exempt from sales and use tax. Most food and food ingredients are exempt, unless sold for immediate consumption by the purchaser. Sales tax exemptions favoring certain key industries, such as aerospace, semiconductors, farming, renewable energy and biofuels, are also available.
Although sales of real estate are not subject to Washington sales tax, Washington does impose a real estate excise tax (REET) on such sales. The REET is also imposed on the transfer of a controlling interest (at least 50 percent ownership) in a legal entity that holds Washington real property, even if the direct ownership of the property remains unchanged. REET is imposed at a significantly lower rate than sales/use tax (typically 1.53 percent to 1.78percent, depending on location), but can still result in a significant tax burden given property values in many locations in the state.
As an illustration, Company E, located in Washington, could choose to purchase a piece of equipment needed for its business from a local Washington vendor, in which case the vendor would charge sales tax and remit the tax to the state. In the alternative, Company E could purchase the same equipment from an Oregon vendor and take delivery in Oregon. Since Oregon is one of the five states that does not impose a sales tax, no sales tax would be paid to the vendor. However, if Company E then brings the equipment into Washington and uses it within the state, it will be required to pay use tax on the equipment at a rate equal to the applicable Washington sales tax rate. There is no real advantage to Company E to buy the equipment from the Oregon vendor rather than the Washington vendor, since it will end up paying Washington sales/use tax in either case.
Under Washington law, sales tax is imposed on each “retail sale” occurring in Washington unless a specific exemption applies. Retail sales include sales of tangible property (but not land or buildings) to consumers, as well as sales of computer software and digital products to the end user. Taxable “digital products” include digital goods (such as downloaded or streamed music, films and similar content), as well as digital automated services, which encompass a variety of services provided electronically to consumers. Other services subject to sales tax in Washington include most repairs or improvements to land, buildings and tangible goods, as well as physical fitness, amusement and recreation services, and automobile towing and parking services. Sales of extended warranties, rentals of tangible personal property, and the furnishing of lodging by a hotel, inn or similar establishment, are taxable retail sales in Washington as well.
Sales and use tax rates vary according to the specific location within the state where the sale or use occurs because local jurisdictions can impose their own sales and use taxes, above and beyond the state's tax. The range of sales tax rates in Washington is 7 percent to 9.5 percent, with taxes in most major urban areas in the state toward the higher end of this range.
Businesses operating in Washington should consider two primary questions regarding sales/use tax. First, they should determine whether they are required to collect and remit sales tax on the products or services they sell. Although sales tax is generally owed to the state in which the item in question is delivered to the customer, a business can only be required to collect sales tax in states where it has had some physical presence (which can either be that of its own personnel or property, or of third party representatives making sales or conducting other activities on the seller’s behalf). For example, assume Company F is based in Washington, markets its products solely by remote means such as internet and television advertising, and ships products to customers in other states via common carrier. Company F may not be required to collect sales tax in the states where its customers reside since it has no physical presence in those states. However, Company F’s customers may owe use tax to the state in which the items they purchase are used.
The second question a business with Washington operations should consider is whether it owes any use tax to the state. As discussed above, use tax is generally owed on items that were purchased without payment of sales tax (either because the seller did not have a taxable presence in the state, or because they were purchased in a jurisdiction that does not impose a sales tax), and the items will be used or consumed within Washington. If use tax is owed, it must be reported on the company’s Washington excise tax return for the period in which the item in question is first used within the state.
If a Washington business purchases and resells products without intervening use, or purchases materials or components that are incorporated into a product that it sells, the business should apply for a “reseller permit” from the Washington Department of Revenue. This permit authorizes the company to make such purchases without paying sales or use tax, and if taken in good faith, relieves the seller of the obligation to collect sales tax. Thus, the purchase is tax-free. However, the purchaser is still required to pay use tax on items purchased using its reseller permit if it later decides to use such items itself rather than holding them solely for resale.
Washington does offer several sales tax exemptions intended to benefit certain industries and types of activities. Machinery and equipment used by a manufacturer directly in the manufacturing process is exempt from sales and use tax. Most food and food ingredients are exempt, unless sold for immediate consumption by the purchaser. Sales tax exemptions favoring certain key industries, such as aerospace, semiconductors, farming, renewable energy and biofuels, are also available.
Although sales of real estate are not subject to Washington sales tax, Washington does impose a real estate excise tax (REET) on such sales. The REET is also imposed on the transfer of a controlling interest (at least 50 percent ownership) in a legal entity that holds Washington real property, even if the direct ownership of the property remains unchanged. REET is imposed at a significantly lower rate than sales/use tax (typically 1.53 percent to 1.78percent, depending on location), but can still result in a significant tax burden given property values in many locations in the state.