3. Class Outline
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About Department of Revenue
(DOR)
Taxpayer Rights and
Responsibilities
Business and Occupation
(B&O) Tax
Retail Sales Tax
Wholesaling
Reseller Permits
Tax Incentives
Use Tax
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Public Utility Taxes
Special Taxes and Fees
Spirit Taxes
Tax Return Payment and
Reporting
Helpful Hints
Record Keeping Requirements
Audit Process
Services and Resources
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5. Department of Revenue
• Legislature passes tax laws
• Department collects taxes in accordance with the law
Where it comes from
Where it goes
Human services: 53.7%
K-12 education: 32.9%
Taxes: 64.7%
Federal grants: 32.4%
Retail sales/use tax: 36.0%
Charges and misc. revenue: 2.3%
B&O tax: 12.0
Other business taxes: 3.0 Licenses, fees and permits: 0.6%
Property tax levy: 7.5
Real estate excise: 4.2
Tobacco taxes: 0.3
Liquor taxes: 0.6
All other taxes: 1.1
All others: 0.8%
Higher and other education: 8.0%
General government: 3.1%
Natural resources and recreation: 1.5%
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6. Department’s Mission
• Fairly and efficiently collect revenues
• Administer programs to fund public services
• Advocate sound tax policy
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7. Taxpayer Rights
• Timely, fair, and equitable treatment with dignity
and respect
• Accurate written information on reporting
instructions, appeal procedures, refund claims,
and reasons for assessment
• Confidentiality of financial and business
information
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8. Taxpayer Responsibilities
• Know your tax reporting obligations and seek
instructions when you are uncertain
• Keep accurate and complete business records
• File returns and pay your taxes in a timely manner
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9. Overview of B&O Tax
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Tax for act of engaging in business
Measured by gross income or gross proceeds of sales
30 classifications; some lines have multiple
classifications
• 12 different tax rates (from .138% to 1.93%)
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10. Retailing
Includes all sales to consumers of goods and retail services.
Examples of retail sales:
• Custom construction/repair
• Tanning
• Physical fitness services and Pilates
• Lawn maintenance, tree trimming
• Escrow services
• Rental equipment (bare rental or with operator)
• Extended warranties
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11. Wholesaling
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For reporting sales of products or
labor to persons who resell the
same without intervening use
The seller must receive and
retain a completed reseller permit
from the buyer
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12. Reseller Permits
• All sales of a retail nature will be classified as retail
sales unless a reseller permit is obtained
• For a single purchase or in blanket form
• Only recording the purchaser’s UBI number is not
sufficient
• When purchasing goods for resale, you must
provide the supplier with your reseller permit
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13. Manufacturing
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For the revenues of businesses that manufacture
products in Washington
• Tax is imposed on the local activity of
manufacturing
• Manufacturing is creating a new, different or more
useful product
• Gross income is reported under Manufacturing
and also the Retailing or Wholesaling
classifications
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14. Service & Other Activities
For the revenues of businesses that
provide personal and professional
services not otherwise classified
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Consulting services
Management services
Doctors
Lawyers
Beauticians
Tutors
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15. Gambling tax
(Effective 7/1/05)
The income from Gambling and Contests of Chance are
subject to B&O tax as follows, based on net gambling
income:
$50,000 or more per calendar year:
Report the gambling activities under the Gambling Games
of Chance B&O tax classification at the rate of 1.93% of
the net gambling income.
Less than $50,000 per calendar year:
Report the Service and Other Activities B&O tax
classification at the rate of 1.8% of the net gambling
income.
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16. Gambling tax
(continued)
Businesses are to report their gross
gambling income under column one
of the excise tax return and then
take a deduction in column two and
on the deduction sheet for Gambling
Prizes and Cash Payouts.
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17. B&O Tax Exemptions
Exempt income does not have to be reported
Examples:
• Certain fundraising activities for nonprofit and social
services organizations
• Sales or rental of real estate (more than 30 days)
• Process fresh fruits or vegetables when products
are sold at wholesale and transported out of state
(Effective 7/1/05)
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18. B&O Tax Deductions
Income should be reported then deducted on the tax return
Examples:
• Bad debts, depending on accounting basis:
Accrual basis
• Business reports to the IRS on an accrual or hybrid
basis
• Reports when customer is billed/invoiced
Cash basis:
• Business engaged in strictly cash and reports to
the Internal Revenue Service (IRS) on a cash
basis.
• Reports when cash is received. Examples:
• Supermarkets, Restaurants, Hair Salons
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19. B&O Tax Deductions
(continued)
Income should be reported then deducted on the tax return
Examples:
• Cash and trade discounts
• Interstate and foreign sales
• Returns and allowances
• Casual sales
• Tax in gross
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21. Retail Sales Tax
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Tax on the consumer
Tax on sale, rental, repair, or installation of
tangible personal property (includes labor)
Collected by the seller and held in trust for
the state
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22. Retail Sales Tax
(continued)
• Seller is liable for the sales tax even if they did
not collect it or collected it at the wrong rate
• Must be separately stated on the sales invoice
• State rate is 6.5%
• Local rates vary from .5% to 3.0%
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23. Retail Sales Tax
(continued)
Examples:
• Vehicles, furniture, clothing and appliances
• Some amusement and recreation activities such as
racquetball and golf
• Construction performed for consumers
• Parking, title insurance, escrow fees, landscaping,
auto repair, laundry and dry cleaning and extended
warranties
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24. Destination-Based Sales Tax
• Washington State is part of a national association
to streamline sales tax
• July 2008 we changed to destination-based sales
tax rates from origin based sales tax rates
• What does this mean to you…
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26. Place of Sale
Three Rules:
1. Tangible personal property
• Over the counter sales: store location
• Delivery: where customer receives goods
2. Labor, installation and construction
– where labor takes place
3. Rentals of goods:
• Single payment: where customer picks up goods
• Periodic payments:
First payment: where customer picks up goods
Subsequent payments: where goods are used
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27. Tax Rate Lookup Tool
Find the sales tax rate for any location in Washington.
Formats available online:
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Address Lookup
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City/County Map Lookup
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Longitude/Latitude Lookup
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Download Data
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Handheld devices
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App for iPhone
http://taxrates.dor.wa.gov
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29. Retail Sales Tax Deductions
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Bad debts
Interstate and foreign sales
Qualified nonresident sales
Sales to the U.S. government
Sales to Indians
Motor vehicle fuel sales
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30. Retail Sales Tax Deductions
(continued)
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Exempt food sales
Prescription drugs
Trade-in allowances
Sales of manufacturing machinery
Tax Paid at Source
Other
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31. Deductions
B&O Tax vs Sales Tax
B&O
RST
Cash and trade discounts
Interstate and foreign sales
Tax in gross
Returns and allowances
Bad debts
Casual sales
Sales to the U.S. government
Qualified nonresident sales
Trade-in allowance
Sales to Indians
Tax paid at source
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32. Public Utility Tax
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Tax on business for act of operating a
public service (“utility”) business
Similar to B&O tax, but on public service
businesses, such as:
• Water distribution
• Sewer facilities
• Power
• Gas distribution
• Motor transportation
• Trucking companies
• Taxi cabs
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33. Special Taxes and Fees
Reported on the tax return
Examples:
• Convention and trade center tax
• Special hotel/motel tax
• Tobacco products tax
• Refuse collection tax
• Hazardous substance tax
• Syrup tax
• Litter tax
• Tire fee
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34. Sales of Spirits
I-1183 requires:
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Private spirits retailer licensees to sell
spirits to the general public beginning
June 1, 2012
http://bls.dor.wa.gov/liquor.aspx to apply
for a spirits license
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35. Sales of Spirits
What taxes apply to sales of spirits?
Spirits Sales Tax (SST): This tax is based
on the selling price of spirits in their
original package.
• Spirits sales tax rate paid by the general
public: 20.5%
• Spirits sales tax rate paid by on-premises
retailers such as restaurants, bars, etc.,
on their purchases from distributors,
distillers, etc.: 13.7%
• No SST applies on sales to: other
distributors/wholesalers and Off-Premise
Licensees.
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36. Sales of Spirits
What taxes apply to sales of spirits?
Spirits Liter Tax (SLT): This tax is based
on the volume of the spirits being sold in
the original package.
• Spirits liter tax rate paid by the general
public: $3.7708 per liter
• Spirits liter tax rate paid by on-premises
retailers such as restaurants, bars, etc.,
on their purchases from distributors,
distillers, etc.: $2.4408 per liter
• No SST applies on sales to: other
distributors/wholesalers and Off-Premise
Licensees.
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37. Sales of Spirits
Spirit taxes are reported and paid on the
excise tax return.
Sales to Distributor/Wholesaler/Off-Premise
Licensee (grocery store): Wholesale
sales, no SST/SLT applies
Sales to On-Premise Licensees
(restaurants): Retailing B&O, Retail
Sales tax with deduction for Sales of
Spirits, Lower rate SST/SLT
Sales to General Public of spirits in original
container: Retailing B&O, Retail Sales
tax with deduction for Sales of Spirits,
Higher rate SST/SLT
Sales to General Public in a glass (served
at restaurant, bar): Retailing B&O, Retail
Sales
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38. Sales of Spirits
Tools available online:
• Spirits Tax Calculator
• Spirits License Purchase List
• “At a glance” implementation and rate
chart
• Q&A for Retailers
• List of acceptable documentation for
lower rate or exempt purchases
– www.dor.wa.gov
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39. Tax Incentives
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Aerospace Industry Manufacturers
Rural County B&O Tax Credit for New
Employees
Rural County Sales/Use Tax Deferral
High Technology B&O Tax Credit
High Technology Sales/Use Tax Deferral
Manufacturers Sales/Use Tax Exemption
Warehouse Distribution Centers Tax Incentives
See our web site at dor.wa.gov under “Quick clicks” for
more information on tax incentives
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40. Use Tax
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Companion to sales tax on goods acquired for
use in Washington
When sales tax is not paid, use tax is due
Generally, the buyer must pay directly to
Department of Revenue
Value is taxable amount, including delivery costs
Rates same as sales tax, based on location of
first use in Washington
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41. Use Tax Examples
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Purchases from out-of-state vendors
Furniture, fixtures and equipment that are
purchased with an existing business
Equipment used on construction jobs
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42. Use Tax
Exemptions, Credits & Exclusions
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Trade-ins
Credit for sales or use tax paid in another state
Donations to nonprofits
Personal effects of new residents
– Furniture/household goods
– Automobiles
– Clothing
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43. Recordkeeping Requirements
Records should be kept for a minimum of five years
these include:
• Copies of federal, state, and local tax returns
and workpapers
• General ledgers
• Sales journal
• Check register
• Sales invoices
• Purchase invoices
• Records as required by deductions
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44. Audit Process
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Routine procedure
Covers up to five year period (some exceptions)
Verifies:
– income by classification
– use taxes are paid
– deductions taken
• Other taxes reported on return
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45. Tax Return Frequency
New businesses are assigned one of the following
reporting frequencies:
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Monthly
Quarterly
Annual
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46. Tax Return Due Dates
Monthly
• Due the 25th of the month following the filing
period
Quarterly
• Due the last day of the month following the
filing period
Annual
• Due January 31 of each year
If the due date falls on a weekend or legal
holiday, the return is due the next business day.
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47. Penalties
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A return must be filed even if there is “no business
activity”
• Penalties:
• 5% filed after the due date
• 15% filed after the last day of the month
following the due date
• 25% filed after the last day of the second
month following the due date
• Filing extensions can be requested
• Penalties may be waived under limited
circumstances
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48. E-file: Electronic Filing
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Customize your tax return
Calculate taxes due and flag potential errors
to avoid costly mistakes
Choose one of several payment methods:
• Electronic Funds Transfer (EFT)
• E-check
• Credit card
• Paper check
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49. E-file
(continued)
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Save postage and the chance of your return
being lost or delayed in the mail
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File your return early and choose the date you
want your payment withdrawn (with EFT)
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It’s fast, free, convenient and secure
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Learn about the program on our web site at
dor.wa.gov
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50. Helpful Hints
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Set up separate bank accounts
• Personal
• Business: One for normal business
activities and one for taxes
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Returns are considered timely if postmarked
on or before the due date
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51. Helpful Hints
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Moving? Notify us of your new
address (physical and mailing)
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If you can’t pay, contact us
right away
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Any questions?
CALL 1-800-647-7706
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52. Additional Assistance
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12 local office locations
Washington State Department of Revenue
Taxpayer Information & Education Section
PO Box 47478
Olympia, WA 98504-7478
1-800-647-7706
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53. Web Site: dor.wa.gov
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Overview of Washington
taxes
Electronic filing (E-file)
Tax Rate Lookup Tool (GIS)
State business records
database
Unclaimed Property
database
Taxpedia
Search publications, rules
and laws
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