July 1st, 2019 change to Point-of-sale WA State Sales Tax

Let me start by apologizing for the ungainly blog title, and then I’ll quote the summary of the change that will happen on July 1st as stated on the Washington State Dept of Revenue website:

Starting July 1, 2019, the retail sales tax exemption for certain nonresidents of Washington state, on purchases of tangible personal property, digital goods, and digital codes, will no longer be available at the point of sale. Instead, these consumers may request a refund from the Department of Revenue for the state portion of the sales tax they paid.”

The article goes on to say that this refund is only available for certain areas.

There’s a lot to unpack here, so let’s take it one step at a time.

Goods

Do you sell tangible goods, digital goods, or digital codes to non-Washington residents? If yes, then this blog post is for you!

If you don’t know, then let’s define tangible goods, digital goods, and digital codes.

Tangible goods

Tangible goods are goods that you can touch: cars, cucumbers, cutlery, crayons, all sorts of things. It gets a little tricky when you try to distinguish “tangible property” from “real property.” Real property is stuff that’s permanently fixed or attached to the land or a building (yes, this includes buildings themselves). This article from the Department of Revenue gets into the distinction between real and tangible property. Don’t let the word “personal” throw you; in this sense it’s very much business property that can be moved.

Still with us? In short, tangible goods are physical items that aren’t considered real estate.

Digital goods

But what are digital goods? Fortunately, the Dept of Revenue defines them for us right here!

Digital goods are data, facts, information, sounds, music, images, videos, or any combination of these, when transferred electronically. That is to say, the movie The Matrix is a physical good when it’s on DVD, but it’s a digital good when it’s downloaded or streamed. Streaming is playing a song or video online through a service like Youtube or Netflix.

What does this definition exclude? Internet access, computer software, a few specialized items that we won’t get into at this stage, and this:

“The representation of a personal or professional service primarily involving the application of human effort.”

What does that mean? Basically, services. For example, when you hire TL;DR Accounting to help you with your taxes or your books, it’s not considered a digital good because it’s primarily the human effort of our hard-working team of specialists.

Digital codes

A digital code is exactly what it sounds like — a code you find in an email, through paper mail, or even on a Mountain Dew bottle — that entitles you to a digital good. The important point to remember is this: if the digital code is for a good that qualifies for exemption, then the code also qualifies.

Non-Washington Residents

Why does the Dept of Revenue care so much about whether your customer is a Washington resident or not? Let’s break it down:

    • If your customer is a Washington State resident, then you charge sales tax at point-of-sale (POS) and then remit it to the Dept of Revenue on a regular basis (monthly, quarterly, or annually depending on your tax owed).
    • If your customer is not a resident of WA, then it used to be the case that customers of certain areas were exempt, that is, they didn’t have to pay the tax at all. This is changing very soon.
    • Starting next week, there will no longer be a point-of-sale exemption for your customers. Instead, customers from these areas can get a refund after the fact:
      • US States: Alaska, Colorado, Delaware, Montana, New Hampshire, Oregon
      • U.S. possessions: American Samoa
      • Canadian provinces/territories: Alberta, Northwest Territories, Nunavut, Yukon
    • That said, these individuals are ineligible for the refund (quoted from the website):
      • people in the military stationed in Washington
      • nonresident students attending schools in this state
      • any other nonresident temporarily living in Washington
      • Note on dual residents: If a dual resident is a resident of Washington State, they are not eligible for the refund.

 

 

Where Will the Customer Use Your Product?

We’ve talked about two requirements out of three so far: the type of good and the customer’s residence. The third requirement is that the product is used in one of the areas listed above. An illustrative example would be food at a restaurant. Since it’s generally for consumption on-site, it doesn’t qualify for this refund.

Marijuana Sales

As you might expect, marijuana is the exception. Marijuana sales are not eligible for this new refund.

Final Notes

  • Customers can begin applying for this refund starting January 1st, 2020, for purchases made during the second half of 2019.
  • They get only one refund request per year, it must be for more than $25.00 in taxes paid, and it must include receipts and proof of residency.
  • Per this Dept of Revenue advisory, “proof of residency” has these requirements:

The identification must be a valid driver’s license issued by the jurisdiction in which the out-of-state residency is claimed or a valid identification card issued by the out-of-state jurisdiction. The identification must (A) bear the photograph of the holder, (B) show the holder’s residential address, (C) identify the holder’s name, and (D) be issued for the purpose of establishing residency.

A Quick Review

That was a lot to unpack! Here’s what we’ve covered:

  • Starting July 1, 2019, non-Washington resident customers who buy tangible goods, digital goods, or digital codes will no longer be able to claim a point-of-sale tax exemption.
  • Customers (from eligible areas only) may instead apply for a refund.
  • Items must be used or consumed in these eligible areas and not in Washington.
  • While it is now up to the customer to apply for refunds, it can still help to be able to inform your customers on the refund process:
    • Once a year, a customer can apply for a refund of $25.00 or more for sales tax from the previous year. They must attach proof of residency.

 

TL;DR: If you are selling goods to customers across state lines you need to make some very quick changes. Contact us about the above!

 

Federal Taxes aren’t the only taxes?! B&O Explained.

At what point do I have to register my side business or freelance work?

A business registration is a simple form to license your business with the state. Various states require this at different asset or income levels. Washington State does not have an income tax, but it does have Business & Opponency(B&O) tax along with Personal Property taxes.

Step one is registering your business with the Department of Revenue(DOR). Yes, you need to register with the State of Washington, if any of the points apply to your business:

  • Your business is required to collect sales tax
  • Your gross income is $12,000 per year or more
  • Your business is required to pay taxes or fees to the DOR
  • You are a buyer or processor of specialty wood products

The common reason for registration is the $12,000 or more in gross income. If you are looking at this number and thinking that you have been over that for the last couple of years, you have some more work to do. (Get in touch with me and I can help you, or you can use the Voluntary Disclosure Program)

Registering your Business, it is a fast process online. When you are done they will send you an Unified Business Identification(UBI) number for your business. This number will be needed when you go to pay your different taxes.

The DOR will send you information on Washington B&O taxes in a nice booklet, though it is a bit long. I’ve provided the main gist of information here:

Washington B&O Tax is based on the classification of your business. The common ones are the following:

B&O Classification Tax Rate

Retailing:                                           .00471
Wholesaling:                                   .00484
Manufacturing:                              .00484
Services & Other Activities:    .015

There are also a few different credits that are available. One is a small business credit, which is based on how much B&O tax you owe. There are tables to calculate this, but if you are filing electronically it automatically calculates this. I do recommend electronically filing as it simplifies the process.

Example time: You are a service organization and made $50,000 of gross income this year. You are a small business and get the small business credit. The tax calculation is simple:
50,000 x .015 = $750

Based on the table the small business credit is $750, so you won’t owe any B&O tax for Washington State.

Now, let’s say your business grows to $100,000 in gross income. The new tax calc is:
100,000 x .015 = $1,500

Based on the table the small business credit is $150, so your tax is $1,350.

Washington Personal Property Tax (What does that even mean?)

Every year you fill out a form with your equipment and you pay a tax based on its value. An example of personal property would be that computer that you use in your business.  This is done with your county department of assessments. Click on the Assessor for your county, then find the eform online. The process isn’t hard but it does mean you need to keep track of your business assets. When you file this online, they will tell you how much you owe.

Seattle B&O Tax

The State isn’t the only one with B&O taxes – Seattle requires them as well. If you do business in Seattle, you must have a Seattle Business license and file the business license tax return, which is the B&O tax. You only have to pay tax if your gross revenue is $100,000 or more. It is another online filing, which should be pretty quick

Links are available to all of the online forms and tables in this post to make it easier to keep all of this information in one place.

TL;DR: You have to register your business and pay taxes at 3 levels: State, County, and City