(1)
Introduction. This rule
explains the application of the business and occupation (B&O) and retail
sales taxes to interstate sales of tangible personal property.
(a) The following rules may also be helpful:
(i) WAC
458-20-178
Use tax and the use of tangible personal property.
(ii) WAC
458-20-193C
Imports and exports-Sales of goods from or to persons in foreign
countries.
(iii) WAC
458-20-193D
Transportation, communication, public utility activities, or other services in
interstate or foreign commerce.
(iv) WAC
458-20-19401
Minimum nexus threshold for apportionable receipts.
(b) This rule contains 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 all situations must be determined
after a review of all the facts and circumstances.
(c)
Tangible personal property.
For purposes of this rule, the term "tangible personal property" means personal
property that can be seen, weighed, measured, felt, or touched or that is in
any other manner perceptible to the senses, but does not include steam,
electricity, or electrical energy. It includes prewritten computer software (as
such term is defined in
RCW
82.04.215) in tangible form. However, this
rule does not address electronically delivered prewritten computer software or
remote access software.
(2)
Scope of rule. In general,
Washington imposes its B&O and retail sales taxes on sales of tangible
personal property if the seller has nexus with Washington and the sale occurs
in Washington. This rule explains the applicable nexus and place of sale
requirements with respect to sales of tangible personal property. This rule
does not cover sales of intangibles or services and does not address the use
tax obligation of a purchaser of goods in Washington. For information on
payment responsibilities for use tax see WAC
458-20-178.
(3)
Organization of rule. This
rule is divided into three parts:
(a) Part I -
Nexus standards for sales of tangible personal property;
(b) Part II - Sourcing sales of tangible
personal property; and
(c) Part III
- Drop shipment sales.
Part I - Nexus Standards for Sales of Tangible Personal
Property
(101)
Introduction. A seller is
subject to the state's B&O tax and retail sales tax with respect to sales
of tangible personal property, if that seller has nexus. Washington applies
specific nexus standards and thresholds that are used to determine whether a
seller of tangible personal property has nexus. The nexus standards and
thresholds described in this rule pertain only to sellers of tangible personal
property. The remainder of Part 1 of this rule describes these nexus standards
and thresholds and how they apply in the context of Washington's wholesaling
and retailing B&O classifications and the retail sales tax.
(102)
Physical presence nexus
standard. A person who sells tangible personal property in a retail sale
is deemed to have nexus with Washington if the person has a physical presence
in this state, which need only be demonstrably more than the slightest
presence.
RCW
82.04.067(6). This standard
applies to retail sales both in the retail sales tax and retailing B&O tax
context.
(a)
Physical presence.
A person is physically present in this state if:
(i) The person has property in this
state;
(ii) The person has one or
more employees in this state;
(iii)
The person, either directly or through an agent or other representative,
engages in activities in this state that are significantly associated with the
person's ability to establish or maintain a market for its products in
Washington; or
(iv) The person is a
remote seller as defined in
RCW
82.08.052 and is unable to rebut the
substantial nexus presumption for remote sellers set out in
RCW
82.04.067(6)(c)(ii).
(b)
Property. A
person has property in this state if the person owns, leases, or otherwise has
a legal or beneficial interest in real or personal property in
Washington.
(c)
Employees. A person has employees in this state if the person is
required to report its employees for Washington unemployment insurance tax
purposes, or the facts and circumstances otherwise indicate that the person has
employees in the state.
(d)
In-state activities. Even if a person does not have property or
employees in Washington, the person is physically present in Washington when
the person, either directly or through an agent or other representative,
engages in activities in this state that are significantly associated with the
person's ability to establish or maintain a market for its products in
Washington. It is immaterial that the activities that establish nexus are not
significantly associated with a particular sale into this state.
For purposes of this rule, the term "agent or other
representative" includes an employee, independent contractor, commissioned
sales representative, or other person acting either at the direction of or on
behalf of another.
A person performing the following nonexclusive list of
activities, directly or through an agent or other representative, generally is
performing activities that are significantly associated with establishing or
maintaining a market for a person's products in this state:
(i) Soliciting sales of goods in
Washington;
(ii) Installing,
assembling, or repairing goods in Washington;
(iii) Constructing, installing, repairing, or
maintaining real property or tangible personal property in
Washington;
(iv) Delivering
products into Washington other than by mail or common carrier;
(v) Having an exhibit at a trade show to
maintain or establish a market for one's products in the state, except as
described in subsection (102)(f) of this rule;
(vi) An online seller having a
brick-and-mortar store in this state accepting returns on its behalf;
(vii) Performing activities designed to
establish or maintain customer relationships including, but not limited to:
(A) Meeting with customers in Washington to
gather or provide product or marketing information, evaluate customer needs, or
generate goodwill; or
(B) Being
available to provide services associated with the product sold (such as
warranty repairs, installation assistance or guidance, and training on the use
of the product), if the availability of such services is referenced by the
seller in its marketing materials, communications, or other information
accessible to customers.
(e)Remote sellers - Click-through
nexus. Effective September 1, 2015, a remote seller as defined in
RCW
82.08.052 is presumed to meet the physical
presence nexus standard described in this subsection for purposes of the retail
sales tax if the remote seller enters into an agreement with a resident of this
state under which the resident, for a commission or other consideration, refers
potential customers to the remote seller, whether by link on an internet web
site or otherwise, but only if the cumulative gross receipts from sales by the
remote seller to customers in this state who are referred to the remote seller
through such agreements exceeds ten thousand dollars during the preceding
calendar year. For more information related to the presumption and how to rebut
the presumption, see
RCW
82.08.052 and
82.04.067(6)(c)(ii).
(f)
Trade convention exception.
For the physical presence nexus standard described in this subsection, the
department may not make a determination of nexus based solely on the attendance
or participation of one or more representatives of a person at a single trade
convention per calendar year in Washington state in determining if such person
is physically present in this state for the purposes of establishing
substantial nexus with this state. This does not apply to persons making retail
sales at a trade convention in this state, including persons taking orders for
products or services where receipt will occur at a later time in Washington
state.
RCW
82.32.531.
Definitions. The following definitions apply only
to (f) of this subsection:
(i) "Not
marketed to the general public" means that the sponsor of a trade convention
limits its marketing efforts for the trade convention to its members and
specific invited guests of the sponsoring organization.
(ii) "Physically present in this state" and
"substantial nexus with this state" have the same meaning as provided in
RCW
82.04.067.
(iii) "Trade convention" means an exhibition
for a specific industry or profession, which is not marketed to the general
public, for the purposes of:
(A) Exhibiting,
demonstrating, and explaining services, products, or equipment to potential
customers; or
(B) The exchange of
information, ideas, and attitudes in regards to that industry or profession.
(103)Economic nexus thresholds.
RCW
82.04.067 establishes substantial nexus
thresholds that apply to persons who sell tangible personal property. For more
information on the economic nexus thresholds, see WAC
458-20-19401.
Application to retail sales. Effective July 1,
2017, for B&O tax purposes, a person making retail sales taxable under
RCW
82.04.250(1) or
82.04.257(1)
is deemed to have substantial nexus with Washington if the person's receipts
meet the economic nexus thresholds under
RCW
82.04.067(1)(c)(iii) and
(iv). The receipts threshold is met if the
person has more than two hundred sixty-seven thousand dollars of receipts (as
adjusted by
RCW
82.04.067(5)) from this
state or at least twenty-five percent of the person's total receipts are in
this state. For more information, see WAC
458-20-19401.
(104)
Application of standards and
thresholds to wholesale sales. The physical presence nexus standard
described in subsection (102) of this rule, applies to wholesale sales for
periods prior to September 1, 2015. Effective September 1, 2015, wholesale
sales taxable under
RCW
82.04.257(1) and
82.04.270 are
subject to the RCW 82.04.-067 (1) through (5) economic nexus thresholds.
Wholesaling activities not taxable under
RCW
82.04.257(1) and
82.04.270
remain subject to the physical presence nexus standard. For more information,
see WAC
458-20-19401.
(105)
Effect of having nexus.
(a)
Retail sales. A person that
makes retail sales of tangible personal property and meets either the physical
presence nexus standard or whose receipts meet the economic nexus thresholds
described in
RCW
82.04.067(1)(c)(iii) or (iv)
is subject to B&O tax on that person's retail sales received in the state.
In addition, a person that makes retail sales of tangible personal property and
meets the physical presence nexus standard, including as described in
subsection (102)(e) of this rule, is also responsible for collecting and
remitting retail sales tax on that person's sales of tangible personal property
sourced to Washington, unless a specific exemption applies.
(b)
Wholesale sales. A person
that makes wholesale sales of tangible personal property and has nexus with
Washington (as described in subsection (104) of this rule) is subject to
B&O tax on that person's wholesale sales sourced to Washington.
(106)
Trailing nexus.
Effective July 1, 2017, for B&O tax purposes, a person is deemed to have
substantial nexus with Washington for the current year if that person meets any
of the requirements in
RCW
82.04.067 in either the current or
immediately preceding calendar year. Thus, a person who stops the business
activity that created nexus in Washington continues to have nexus in the
calendar year following any calendar year in which the person met any of the
requirements in
RCW
82.04.067 (also known as "trailing nexus").
Prior to July 1, 2017,
RCW
82.04.220 provided that for B&O tax
purposes a person who stopped the business activity that created nexus in
Washington continued to have nexus for the remainder of that calendar year,
plus one additional calendar year.
The department of revenue applies the same trailing nexus
period for retail sales tax and other taxes reported on the excise tax
return.
(107)
Public
Law 86-272.Public Law
86-272 (15 U.S.C. Sec.
381 et. seq.) applies only
to taxes on or measured by net income. Washington's B&O tax is measured by
gross receipts. Consequently, Public Law
86-272 does not apply.
Part II - Sourcing Sales of Tangible Personal
Property
(201)
Introduction.
RCW
82.32.730 explains how to determine where a
sale of tangible personal property occurs based on "sourcing rules" established
under the streamlined sales and use tax agreement. Sourcing rules for the lease
or rental of tangible personal property are beyond the scope of this rule, as
are the sourcing rules for "direct mail," "advertising and promotional direct
mail," or "other direct mail" as such terms are defined in
RCW
82.32.730. See RCW 82.32.-730 for further
explanation of the sourcing rules for those particular transactions.
(202)
Receive and receipt.
(a)
Definition. "Receive" and
"receipt" mean the purchaser first either taking physical possession of, or
having dominion and control over, tangible personal property.
(b) Receipt by a shipping company.
(i) "Receive" and "receipt" do not include
possession by a shipping company on behalf of the purchaser, regardless of
whether the shipping company has the authority to accept and inspect the goods
on behalf of the purchaser.
(ii) A
"shipping company" for purposes of this rule means a separate legal entity that
ships, transports, or delivers tangible personal property on behalf of another,
such as a common carrier, contract carrier, or private carrier either
affiliated (e.g., an entity wholly owned by the seller or purchaser) or
unaffiliated (e.g., third-party carrier) with the seller or purchaser. A
shipping company is not a division or branch of a seller or purchaser that
carries out shipping duties for the seller or purchaser, respectively. Whether
an entity is a "shipping company" for purposes of this rule applies only to
sourcing sales of tangible personal property and does not apply to whether a
"shipping company" can create nexus for a seller.
(203)
Sourcing sales of
tangible personal property - In general. The following provisions in
this subsection apply to sourcing sales of most items of tangible personal
property.
(a)
Business location.
When tangible personal property is received by the purchaser at a business
location of the seller, the sale is sourced to that business location.
Example 1. Jane is an Idaho resident who purchases
tangible personal property at a retailer's physical store location in
Washington. Even though Jane takes the property back to Idaho for her use, the
sale is sourced to Washington because Jane received the property at the
seller's business location in Washington.
Example 2. Department Store has retail stores
located in Washington, Oregon, and in several other states. John, a Washington
resident, goes to Department Store's store in Portland, Oregon to purchase
luggage. John takes possession of the luggage at the store. Although Department
Store has nexus with Washington through its Washington store locations,
Department Store is not liable for B&O tax and does not have any
responsibility to collect Washington retail sales tax on this transaction
because the purchaser, John, took possession of the luggage at the seller's
business location outside of Washington.
Example 3. An out-of-state purchaser sends its own
trucks to Washington to receive goods at a Washington-based seller and to
immediately transport the goods to the purchaser's out-of-state location. The
sale occurs in Washington because the purchaser receives the goods in
Washington. The sale is subject to B&O and retail sales tax.
Example 4. The same purchaser in Example 3 uses a
wholly owned affiliated shipping company (a legal entity separate from the
purchaser) to pick up the goods in Washington and deliver them to the
purchaser's out-of-state location. Because "receive" and "receipt" do not
include possession by the shipping company, the purchaser receives the goods
when the goods arrive at the purchaser's out-of-state location and not when the
shipping company takes possession of the goods in Washington. The sale is not
subject to B&O tax or retail sales tax.
(b)
Place of receipt. If the
sourcing rule explained in (a) of this subsection does not apply, the sale is
sourced to the location where receipt by the purchaser or purchaser's donee,
designated as such by the purchaser, occurs, including the location indicated
by instructions for delivery to the purchaser or purchaser's donee, as known to
the seller.
(i) The term "purchaser" includes
the purchaser's agent or designee.
(ii) The term "purchaser's donee" means a
person to whom the purchaser directs shipment of goods in a gratuitous transfer
(e.g., a gift recipient).
(iii)
Commercial law delivery terms, and the Uniform Commercial Code's provisions
defining sale or where risk of loss passes, do not determine where the place of
receipt occurs.
(iv) The seller
must retain in its records documents used in the ordinary course of the
seller's business to show how the seller knows the location of where the
purchaser or purchaser's donee received the goods. Acceptable proof includes,
but is not limited to, the following documents:
(A) Instructions for delivery to the seller
indicating where the purchaser wants the goods delivered, provided on a sales
contract, sales invoice, or any other document used in the seller's ordinary
course of business showing the instructions for delivery;
(B) If shipped by a shipping company, a
waybill, bill of lading or other contract of carriage indicating where delivery
occurs; or
(C) If shipped by the
seller using the seller's own transportation equipment, a trip-sheet signed by
the person making delivery for the seller and showing:
* The seller's name and address;
* The purchaser's name and address;
* The place of delivery, if different from the purchaser's
address; and
* The time of delivery to the purchaser together with the
signature of the purchaser or its agent acknowledging receipt of the goods at
the place designated by the purchaser.
Example 5. John buys luggage from a Department
Store that has nexus with Washington (as in Example 2), but has the store ship
the luggage to John in Washington. Department Store has nexus with Washington,
and receipt of the luggage by John occurred in Washington. Department Store
owes Washington retailing B&O tax and must collect Washington retail sales
tax on this sale.
Example 6. Parts Store is located in Washington.
It sells machine parts at retail and wholesale. Parts Collector is located in
California and buys machine parts from Parts Store. Parts Store ships the parts
directly to Parts Collector in California, and Parts Collector takes possession
of the machine parts in California. The sale is not subject to B&O or
retail sales taxes in this state because Parts Collector did not receive the
parts in Washington.
Example 7. An out-of-state seller with nexus in
Washington uses a third-party shipping company to ship goods to a customer
located in Washington. The seller first delivers the goods to the shipping
company outside Washington using its own transportation equipment. Even though
the shipping company took possession of the goods outside of Washington,
possession by the shipping company is not receipt by the purchaser for
Washington tax purposes. The sale is subject to B&O and retail sales tax in
this state because the purchaser has taken possession of the goods in
Washington.
Example 8. A Washington purchaser's affiliated
shipping company arranges to pick up goods from an out-of-state seller at its
out-of-state location, and deliver those goods to the Washington purchaser's
Yakima facility. The affiliated shipping company has the authority to accept
and inspect the goods prior to transport on behalf of the buyer. When the
affiliated shipping company takes possession of the goods out-of-state, the
Washington purchaser has not received the goods out-of-state. Possession by a
shipping company on behalf of a purchaser is not receipt for purposes of this
rule, regardless of whether the shipping company has the authority to accept
and inspect the goods on behalf of the buyer. Receipt occurs when the buyer
takes possession of the goods in Washington. The sale is subject to B&O and
retail sales tax in this state.
Example 9. An instate seller arranges for shipping
its goods to an out-of-state purchaser by first delivering its goods to a
Washington-based shipping company at its Washington location for further
transport to the out-of-state customer's location. Possession of the goods by
the shipping company in Washington is not receipt by the purchaser for
Washington tax purposes, and the sale is not subject to B&O and retail
sales tax in Washington.
Example 10. An out-of-state manufacturer/seller of
a bulk good with nexus in Washington sells the good to a Washington-based
purchaser in the business of selling small quantities of the good under its own
label in its own packaging. The purchaser directs the seller to deliver the
goods to a third-party packaging plant located out-of-state for repackaging of
the goods in the purchaser's own packaging. The purchaser then has a
third-party shipping company pick up the goods at the packaging plant. The
Washington purchaser takes constructive possession of the goods outside of
Washington because it has exercised dominion and control over the goods by
having them repackaged at an out-of-state packaging facility before shipment to
Washington. The sale is not subject to B&O and retail sales tax in this
state because the purchaser received the goods outside of Washington.
Example 11. Company ABC is located in Washington
and purchases goods from Company XYZ located in Ohio. Company ABC directs
Company XYZ to ship the goods by a for-hire carrier to a commercial storage
warehouse in Washington. The goods will be considered as having been received
by Company ABC when the goods are delivered at the commercial storage
warehouse. Assuming Company XYZ has nexus, Company XYZ is subject to B&O
tax and must collect retail sales tax on the sale.
(c)
Other sourcing
rules. There may be unique situations where the sourcing rules provided
in (a) and (b) of this subsection do not apply. In those cases, please refer to
the provisions of
RCW
82.32.730(1)(c) through (e).
(204)
Sourcing
sales of certain types of property.
(a)
Sales of commercial aircraft parts. As more particularly provided
in
RCW
82.04.627, the sale of certain parts to the
manufacturer of a commercial airplane in Washington is deemed to take place at
the site of the final testing or inspection.
(b)
Sales of motor vehicles,
watercraft, airplanes, manufactured homes, etc. Sales of the following
types of property are sourced to the location at or from which the property is
delivered in accordance with
RCW
82.32.730(7)(a) through (c):
Watercraft; modular, manufactured, or mobile homes; and motor vehicles,
trailers, semi-trailers, or aircraft that do not qualify as "transportation
equipment" as defined in
RCW
82.32.730. See WAC
458-20-145(2)(b)
for further information regarding the sourcing of these sales.
(c)
Sales of flowers and related goods
by florists. Sales by a "florist" are subject to a special origin
sourcing rule. For specific information concerning "florist sales," who
qualifies as a "florist," and the related sourcing rules, see
RCW
82.32.730(7)(d) and (9)(e)
and WAC
458-20-158.
Part III - Drop Shipments
(301)
Introduction. A
drop shipment generally involves two separate sales. A person (the seller)
contracts to sell tangible personal property to a customer. The seller then
contracts to purchase that property from a wholesaler and instructs that
wholesaler to deliver the property directly to the seller's customer. The place
of receipt in a drop shipment transaction is where the property is delivered
(i.e., the seller's customer's location). Below is a diagram of a basic drop
shipment transaction:
Click
here to view image
The following subsections discuss the taxability of drop
shipments in Washington when:
(a) The
seller and wholesaler do not have nexus;
(b) The seller has nexus and the wholesaler
does not;
(c) The wholesaler has
nexus and the seller does not; and
(d) The seller and wholesaler both have
nexus. In each of the following scenarios, the customer receives the property
in Washington and the sale is sourced to Washington. Further, in each of the
following scenarios, a reseller permit or other approved exemption certificate
has been acquired to document any wholesale sales in Washington. For
information about reseller permits issued by the department, see WAC
458-20-102.
(302)
Seller and wholesaler
do not have nexus. Where the seller and the wholesaler do not have nexus
with Washington, sales of tangible personal property by the seller to the
customer and the wholesaler to the seller are not subject to B&O tax. In
addition, neither the seller nor the wholesaler is required to collect retail
sales tax on the sale.
(303)
Seller has nexus but wholesaler does not. Where the seller has
nexus with Washington but the wholesaler does not have nexus with Washington,
the wholesaler's sale of tangible personal property to the seller is not
subject to B&O tax and the wholesaler is not required to collect retail
sales tax on the sale. The sale by the seller to the customer is subject to
wholesaling or retailing B&O tax, as the case may be. The seller must
collect retail sales tax from the customer unless specifically exempt by
law.
(304)
Wholesaler has
nexus but seller does not. Where the wholesaler has nexus with
Washington but the seller does not have nexus with Washington, wholesaling
B&O tax applies to the sale of tangible personal property by the wholesaler
to the seller for shipment to the seller's customer. The sale from the seller
to its Washington customer is not subject to B&O tax, and the seller is not
required to collect retail sales tax on the sale.
Example 12. Seller is located in Ohio and does not
have nexus with Washington. Seller receives an order from Customer, located in
Washington, for parts that are to be shipped to Customer in Washington for its
own use as a consumer. Seller buys the parts from Wholesaler, which has nexus
with Washington, and requests that the parts be shipped directly to Customer.
Seller is not subject to B&O tax and is not required to collect retail
sales tax on its sale to Customer because Seller does not have nexus with
Washington. The sale by Wholesaler to Seller is subject to wholesaling B&O
tax because Wholesaler has nexus with Washington and Customer receives the
parts (i.e., the parts are delivered to Customer) in
Washington.
(305)
Seller and wholesaler have nexus with Washington. Where the seller
and wholesaler have nexus with Washington, wholesaling B&O tax applies to
the wholesaler's sale of tangible personal property to the seller. The sale
from the seller to the customer is subject to wholesaling or retailing B&O
tax as the case may be. The seller must collect retail sales tax from the
customer unless the sale is specifically exempt by law.
