(1)
Introduction. This rule explains Washington's B&O tax, retail
sales tax, and use tax to the sale or use of dunnage.
(a) The term "dunnage" means any material
used for the purpose of protecting or holding in place cargo or freight during
transportation by any carrier of property, and which is not an integral part of
the carrier itself. Dunnage includes, but is not limited to, wood blocks,
stakes, separating strips, timber, double decks, false floors, door shields,
bulkheads, and other bracing. Dunnage generally does not remain with the cargo
that is being transported and will not be delivered to the person who will
ultimately receive the cargo. On the other hand, packing materials are
generally part of the total package containing the cargo and are ultimately
delivered to the customer as part of the cargo or merchandise.
(b) Persons selling dunnage to air, rail, or
water carriers operating in interstate or foreign commerce should also refer to
WAC
458-20-175. Persons selling or
purchasing packing materials should refer to 458-20-115 (Sales of packing
materials and containers).
(2)
Business and occupation tax.
The B&O tax applies as follows to sales of dunnage.
(a)
Wholesaling. The wholesaling
tax applies to the gross proceeds derived from sales of dunnage to persons who
resell the dunnage, without intervening use.
(b)
Retailing of interstate
transportation equipment. This B&O tax classification applies to
sales of dunnage to air, rail, and water carriers. These sales are exempt from
retail sales tax because of the provisions of
RCW
82.08.0261.
(c)
Retailing. The retailing tax
applies to sales of dunnage to motor carriers and all other
consumers.
(3)
Retail sales tax. The retail sales tax generally applies to the
sale of dunnage to consumers. This includes situations in which the purchaser
may initially use the materials for dunnage and then resell the materials after
they have served that purpose.
RCW
82.08.0261 does provide a retail sales tax
exemption for sales of tangible personal property, including dunnage, to air,
rail, and water carriers operating in interstate or foreign commerce. To
substantiate a claim for this exemption, the seller must retain as part of its
records the completed exemption certificate(s) prescribed by WAC
458-20-175. However, air, rail,
and water carriers are subject to use tax on dunnage used in Washington. (See
below.)
(4)
Deferred sales or
use tax. If the seller fails to collect the appropriate retail sales
tax, the purchaser is required to pay the deferred sales or use tax directly to
the department.
(a) Air, rail, and water
carriers engaged in interstate or foreign commerce should note that while the
purchase of dunnage may qualify for the retail sales tax exemption provided by
RCW
82.08.0261, the subsequent use in Washington
of that dunnage is subject to use tax. These carriers should refer to WAC
458-20-175 to determine any
potential use tax liability.
(b)
Persons who manufacture the materials they will use for dunnage, such as lumber
manufacturers, are subject to use tax on the value of the dunnage and are also
subject to the manufacturing B&O tax. These persons should refer to WAC
458-20-136 and WAC
458-20-112.
(5)
Examples. The following
examples identify a number of facts and then state a conclusion. These examples
should be used only as a general guide. The tax status of each situation must
be determined after a review of all facts and circumstances. Unless stated
otherwise, these examples presume both seller and purchaser are located in
Washington.
(a) BCD, Inc. provides stevedoring
services within the State of Washington. BCD routinely acquires lumber for use
in securing cargo within the holds of ships during transport. While this lumber
may be bolted or nailed to the ship, it is removed at the destination port when
the cargo is off-loaded. BCD provides the lumber as a part of its overall
stevedoring services, and does not make retail sales of the lumber to its
customers.
BCD Inc. must pay retail sales tax when purchasing all such
lumber. The lumber is used as dunnage and does not become an integral part of
the ship, despite being bolted or nailed to the ship. If BCD has not paid
retail sales tax on the acquisition of the lumber, it must remit the deferred
sales or use tax directly to the department.
(b) D Company sells lumber and wood blocks to
FG Engineering. FG is a manufacturer of equipment parts and uses the lumber and
wood blocks as dunnage for the transportation of parts by rail to Montana. The
lumber and wood blocks are salvaged and sold by FG after the transportation of
the parts is completed.
The sale of the lumber and wood blocks to FG Engineering is a
sale at retail, notwithstanding FG resells the dunnage materials in Montana.
The use of the lumber and wood blocks as dunnage by FG Engineering is
considered use as a consumer. D Company must collect and remit the retail sales
tax, and report the gross proceeds of the sale under the retailing B&O tax
classification.
(c) RB
Lumber manufactures lumber in Washington which it ships by rail to customers in
other states. RB Lumber takes irregular sized and other low quality lumber and
uses it as dunnage in loading rail cars. Arrangements have been made with the
rail carrier for the dunnage to be given away as firewood at the destination.
RB Lumber is subject to manufacturing B&O tax and also use
tax on the value of the dunnage. If there is a comparable retail selling price
for these materials, the value will be determined on that basis. If there is no
comparable selling price, the value may be determined on the basis of cost of
production as provided in WAC
458-20-112.
(d) KMB, Inc. sells lumber for use as dunnage
to Western Rail, a common carrier operating by rail in multiple states. Some of
the lumber will be first used in Washington and some will be transported to
other states without intervening use for use in those states as dunnage.
Western Rail may purchase the dunnage without payment of retail sales tax by
giving the seller an exemption certificate as explained in WAC
458-20-175.
KMB, Inc. must report this sale under the retailing of
interstate equipment B&O tax classification since Western Rail has claimed
exemption for payment of the retail sales tax under
RCW
82.08.0261. The seller must retain copies of
the exemption certificates for five years. Western Rail must report use tax on
the dunnage which is used in Washington.
