For the latest news and updates on Washington state and local tax
February 2, 2024
Washington DOR Amends Sales, Excise Tax Regulations, Agricultural Sales, and Tax-Reporting Guidelines
Authored by: Katerine Velasquez and Bonnie Susmano, JD, MBA
The Washington Department of Revenue recently issued amended regulations taking effect February 24, 2024. The revised regulations include, but are not limited to:
- Extending the exemption expiration date for fruit and vegetable and dairy products businesses from July 1, 2025, to July 1, 2035.
- Provide explanations regarding the valuation of asphalt and aggregates used in road construction.
If you have questions about the updated regulations regarding Washington sales, use, and excise tax, please contact a member of the Withum SALT Team.
January 30, 2024
Washington State’s Capital Gains Tax – U.S. Supreme Court Declines to Hear the Appeal
Authored by: Katie Nguyen, CPA and Jessie Racioppi
In 2022, Washington State enacted a 7% tax on capital gains greater than $250,000 from the sale of stocks and bonds (not held in a qualified retirement account). Several taxpayers claimed that the State’s capital gains tax violated the Washington State Constitution, which prohibits individual income taxes. In March 2023, the Washington Supreme Court ruled 7-2 to uphold the tax related to the Washington State Constitution. Taxpayers opposing the tax then appealed the Washington State Supreme Court’s decision to the U.S. Supreme Court. On January 16, 2024, the U.S. Supreme Court denied the taxpayer’s petition for certiorari without an opinion. Therefore, the capital gains tax will remain a lawful tax in Washington State.
November 30, 2023
Washington Department of Revenue Considering Revising Sales and Excise Tax Rules
Authored by: Katie Nguyen, CPA and Leroy Solis, MBA
On November 16, 2023, the Department of Revenue proposed sales, use, and excise tax regulations related to practice and procedure. Specifically, the proposed regulations updates the Department’s tax return filing and payment processes as well as the Department’s rules around, penalties, extensions, interest, and stays of collection. The Department’s proposal include, but is not limited to:
- An e-file mandate (unless a waiver is received);
- An EFT payment mandate (unless a waiver is received);
- Establishes a due date for quarterly filers on the last day of the month following the quarter; and,
- Establishes an April 15 due date for annual filers.
Objections to the Department’s proposed regulations must be submitted in writing on or before January 22, 2024.
If you have questions about State and Local Tax practice and procedure issues, please reach out to a member of the Withum SALT Team.
November 17, 2023
Washington DOR Released Information for Excise, Property, and Sales Tax for Leasing Tangible Property
Authored by: Katerine Velasquez and Bonnie Susmano, JD, MBA
On November 1, 2023, the Washington Department of Revenue issued Sales and Use and Business and Occupation Tax guidance related to tangible personal property leases. Specifically, taxpayers who lease tangible personal property must pay retail sales tax on the total rental charge, which includes property tax charged by the lessor. Likewise, rent charges collected by the lessor are subject to the retailing business and occupation (B&O) tax. Property taxes paid by a lessee must be included in the amounts reported for both B&O tax and retail sales tax.
If you have Washington B&O Tax questions, please reach out to a member of the Withum SALT Team.
August 22, 2023
Washington State Taxpayers Challenging the State’s Capital Gains Tax Appeal to the US Supreme Court
Authored by: Katie Szymanski Nguyen, CPA and Leroy Solis, MBA
Washington State’s recently enacted 7.5% capital gains tax has been challenged in the US Supreme Court. The Washington Supreme Court previously held that the capital gains tax was an excise tax and not an income tax. On August 21, 2023, affected taxpayers petitioned the US Supreme Court for a writ of certiorari. The Petitioner’s argue that the capital gains tax is imposed on gains that occur outside the state and that Washington State is prohibited from imposing excise taxes on transactions that occur outside of Washington State.
It is expected that Washington State will argue that the US Supreme Court should deny the petition.
If you have questions about Washington State’s capital gains tax, please reach out to a member of the Withum SALT Team.
February 17, 2023
Washington’s Premium Pay for Food Delivery Workers Did Not Impose Tax on Groceries
Authored by: Katerine Velasquez and Bonnie Susmano, JD, MBA
On February 9, 2023, the Washington Supreme Court upheld the dismissal of the Taxpayer’s claim that the city of Seattle’s ordinance requiring premium pay for gig workers violated an initiative prohibiting local governments from collecting or imposing any tax, fee, or any other assessment on groceries. The Supreme Court dismissed the taxpayer’s claims by determining the following:
- All the money went to food delivery workers, and none went to the government;
- The ordinance’s purpose was to provide hazard pay for food delivery workers during COVID-19; and,
- As such, the premium pay requirement did not constitute a tax.
If you have questions about whether your business’ sales are subject to sales tax, please contact a member of the Withum SALT Team.
January 20, 2023
Washington Adopts Capital Gains Excise Tax Regulation
Authored by: Breea Boylan, MSA and George Gonzales, MST
Effective January 28, 2023, the Washington Department of Revenue adopted Wash. Rev. Code§ 458-20-300, providing information on filing and payment procedures for the new capital gains excise tax.
- Beginning January 1, 2022, an excise tax is imposed on sales or exchanges of long-term capital assets.
- A flat tax rate of 7% would apply to Washington residents’ net federal long-term capital gain per in excess of standard deduction and exemptions.
- A standard deduction of $250,000 is available for each individual and married couple (a married couple shares a single $250,000 standard deduction, or $125,000 for each spouse filing a separate return).
- The tax does not apply to corporations or other entities, but individuals to whom capital gains are allocated from pass-through entities such as partnerships and LLCs would be subject to tax on those allocated gains.
Please note that this tax has been challenged as unconstitutional pursuant to the Washington State Constitution.The enacted regulations will become moot if the Washington Supreme Court to determines the tax is unconstitutional. If you have questions about whether you are subject to the Washington State Capital Gains Tax, please reach out to a member of the Withum SALT Team.
December 9, 2022
Washington Increases the B&O Credit for Small Businesses
Authored by: Breea Boylan, MSA and Courtney Easterday, MSA
Beginning January 1, 2023, the Washington Department of Revenue will increase the business and occupation (B&O) tax credit for small businesses. The maximum credit increases:
- From $70 to $160 per month for small businesses that report 50% or more of their income under Service and Other Activities, Gambling Contests of Chance, For Profit Hospitals, and/or Scientific R&D; and
- From $35 to $55 per month for small businesses in all other B&O classifications.
The increased credit will automictically populate in the Department’s online filing system for small businesses.
If you have questions about Washington B&O Taxes, please contact a member of the Withum SALT Team.
November 22, 2022
Washington Allows Sales Tax Exemption for Machinery and Equipment Used in R&D
Authored by: Jessie Racioppi and Kevan Koopaei, CPA
On November 9, 2022, Washington issued a special note addressing the Board of Tax Appeals (BTA) July 25, 2022, decision allowing manufacturers a retail sales tax exemption for machinery and equipment purchases used in research and development. Previously, the BTA determined that manufacturers did not have to manufacture items for sale in order to qualify for the retail sales tax exemption on purchases of machinery and equipment. The machinery and equipment purchases must meet all other requirements to qualify. See the Washington State Legislature website for the specifications for qualifying machinery and equipment.
September 30, 2022
Sales and Use Tax Ruling for Washington State
Authored by: Breea Boylan, MSA and Kevan Koopaei, CPA
The Washington State Department of Revenue services ruled on September 21, 2022, that credit card processing fees are includable in the taxpayer’s gross receipts, and as such were subject to sales tax. In the instant case, the taxpayer was a seller of cannabis and cannabis related products.The taxpayer argued that the fee was not part of the sales price of the transaction.In ruling against the taxpayer, the Department found that debit card processing fees were subject to sales and use tax and as such the credit card processing fees should be similarly treated. If you have questions about whether your business is required to collect sales and use tax on transactions, please contact a member of the Withum SALT Team.
September 2, 2022
Washington DOR Releases Guidance on the Excise Taxability of Non-Fungible Tokens
Authored by: Brandon Vance and Bonnie Susmano, JD, MBA
On August 1, 2022, the Washington Department of Revenue (DOR) issued a draft excise tax advisory on non-fungible tokens (NFT) taxability. The draft advisory further defined five main subjects regarding NFTs. The advisory provided further analysis on legal definitions, NFT’s selling price, the arrangements for handling NFTs, sourcing the retail sales of NFTs, and sourcing and apportionment of income from the sale of the NFTs. This is the one of the first steps in the process to the Department issuing permanent guidance on the state tax treatment of NFTs. The stakeholders’ meeting is on October 20, 2022, and the comments on the draft are due December 30, 2022.
July 15, 2022
Sales Tax Deferral for Manufacturing and Research and Development Companies in Washington State
The Washington Department of Revenue has issued a special notice for manufacturing and research and development companies operating in counties with less than 650,000 people. Companies can apply for a sales tax deferral on qualified investment projects effective July 1, 2022, potentially allowing qualifying companies to construct facilities exempt from sales tax. The deferred sales tax does not need to be paid back unless the taxpayer fails to complete construction within five (5) years or the facility is used for non-qualified activities at any time during the deferral period. The Washington DOR has provided that:
- Until June 30, 2032, the certificate must be submitted before initiating construction or the purchase of machinery
- The tax deferral is limited to $400,000
- The certificate will be voided if no significant construction begins within two years of receiving it
May 20, 2022
Washington Rejects Taxpayer’s Appeal on How to Source Credit Card Services
On April 12, 2022, the Administrative Review and Hearings Division of the Washington Department of Revenue held that Callahan, T.R.O.’s sales are apportioned to the state for purposes of the Business and Occupation Tax (“B&O Tax”) when the end users’ respective billing addresses are in the state. In the instant case, Callahan, T.R.O. sells services to credit card issuers.Some of the issuer’s individual customers have a billing address in Washington. On audit, the Department of Revenue determined that the cardholders’ location should be where the benefit of the taxpayer’s services was received. This determination was upheld by the Department’s Administrative Review and Hearings Division.
April 1, 2022
Washington Governor Signs Law Amending B&O Tax Exemption on Amounts Received by Health Benefit Exchange
On March 17, 2022, Washington Governor Inslee signed a law permanently exempting health benefit exchanges from the Washington Business & Occupation excise tax (also known as Washington B&O). The B&O exemption for health benefit exchanges was previously set to expire on July 1, 2023.
March 18, 2022
Washington Business & Occupation Tax – State Sourced Sales
Washington’s Administrative Review and Hearings Division (ARHD) recently denied a taxpayer’s petition (No. 20-0128, 41) when challenging the established nexus for business and occupancy tax in the state. The taxpayer is an out-of-state wholesaler of tangible personal property who sells its goods to third-party wholesalers in Washington. After an audit of the taxpayer’s 2017-2018 financials, it was determined that the taxpayer had substantially surpassed the economic threshold of B&O and was given an assessment amount in 2019. The ARHD noted that although ownership of goods occurred at the out-of-state warehouse where a third-party common carrier picked up the goods, legal title to goods is not determinative of Washington sales. Since the customers took actual physical possession of the goods in Washington, the sales were properly sourced to Washington.
September 30, 2021
WA – Heavy Equipment Rental Tax
The Washington Department of Revenue informed taxpayers that there will be a new tax imposed on the retail rental of heavy equipment, starting January 1, 2022. The heavy equipment rental dealers in the state of Washington will be required to charge a 1.25% tax on the rental price of the heavy equipment. The rental tax will be collected, reported, and remitted by the heavy equipment dealer. Examples of the heavy equipment that qualify for the tax is: earthmoving equipment, self-propelled vehicles, portable power generating equipment, HVAC generating equipment, and equipment or vehicles not subject to the vehicle license fees.
September 16, 2021
WA – Capital Gains Tax to Take Effect Jan 2022
In early 2021, Washington passed a 7% tax on sale or exchange of long-term capital assets such as stocks, bonds, other investments, and tangible assets if profits exceed $250,000 annually. The tax applies only to individuals and can be liable for tax due to their ownership interest within an entity that sells capital assets. This only applies to gains allocated to Washington and takes effect on January 1, 2022 and the first payment due is on or before April 18, 2023. A few exemptions include real estate, assets held in retirement accounts, and assets used in trade. Deductions that apply are the standard deduction for $250,000 per individual, married or domestic partnership, long term capital gain, and charitable donations more than the $250,000 per year.
June 9, 2021
WA Adopts Marketplace Facilitator Rule for Sales Tax Purposes
Effective July 2, 2021, the Washington Department of Revenue has adopted Wash. Admin. Code§458-20-282, to provide guidance on the taxation of marketplace facilitators. The rule provides applicable definitions, examples of persons who are considered marketplace facilitators and discusses the tax collection responsibilities of facilitators. Liability relief, the provision of information to marketplace facilitators and audits are also discussed. For more information, please visit the Washington Department of Revenue website.
May 13, 2021
WA Enacts Capital Gains Tax
Washington State Governor Jay Inslee has signed legislation that imposes a tax on the sale or exchange of certain long-term capital assets by individuals at a rate of 7.0%.The first $250,000 of capital gains are excluded from the tax, which is adjusted annually for inflation. To avoid taxing the same sale or exchange under both the business and occupation tax (B&O) and capital gains tax, a credit is allowed against the B&O tax for any capital gains tax owed on the sale or exchange of the capital asset. There are several defined items that the capital gains tax does not apply to, including: real estate transferred by deed, real estate contract, judgment, or other lawful instruments that transfer title to real property; an interest in a privately held entity only to the extent that any long-term capital gain or loss from such sale or exchange is directly attributable to the real estate owned directly by such entity; assets held under a specified retirement/deferred compensation accounts; and more. For further information, please see L. 2021, S5096 (effective 07/25/2021 and operative beginning 01/01/2022).
May 7, 2021
WA State Governor Signs Into Law Capital Gains Tax
On May 4, 2021, a new law in Washington State was enacted that will institute a Capital Gains tax from the sale or exchange of stocks, bonds, and other assets. This new tax levy is effective beginning January 1, 2022.
A single tax rate of 7% would apply to all levels of such income that exceed the standard deduction of $250,000. The standard deduction of $250,000 is available for each individual and married couple, and spouses who file joint returns for federal purposes are required file the same for purposes of the Washington Capital Gains tax. There are some limited exceptions to the tax, which includes real estate, as well as interests in certain qualifying entities owning real estate. Also, a credit would be allowed against taxes due under the Washington Business and Occupation (“B&O”) tax if such transaction is subject to both tax regimes.
The tax not only applies to individuals who are considered domiciled tax residents, but also to individual owners of pass-through entities in which capital gains are allocated. The state’s Department of Revenue estimates the tax would apply to about 7,000 state residents a year and would raise about $445 million starting in fiscal year 2023. The new legislation is expected to face stiff legal challenges as the state constitution prohibits a graduated tax on income. Governor Inslee reportedly said, “Yes, I am confident that it is constitutional.”
Takeaway
As we have previously written about, as states and localities continue to face significant budget shortfalls, it is expected legislatures will continue putting forth new tax measures in order to balance budgets. Taxpayers may want to consider accelerating capital gains in 2021 to reduce potential state tax in 2022. If you would like to discuss how this tax may impact you, then contact Withum’s State and Local Tax Group for a deeper discussion.
March 29, 2021
WA DOR Issues Proposed Rule On Marketplace Facilitator Requirements
The State of Washington has imposed sales tax reporting and collection obligations on marketplace facilitators since October 1, 2018. The Washington DOR recently issued a draft, proposed regulation explaining marketplace facilitators’ tax collection and reporting requirements. It also includes guidance on sales information provided to marketplace sellers, liability relief, and audits. A public hearing on the draft regulation is scheduled to be held virtually on April 28, 2021. The DOR is also accepting written comments. The intended date of adopting the proposed regulation is May 24, 2021. See the draft proposed rule for additional details.
March 3, 2021
Update to Pandemic Relief Loans in Washington
The State of Washington is exempting the value of pandemic relief loans or grants received by businesses since February 29, 2020 from the business and occupation tax, public utility tax, and sales and use tax. Federal Paycheck Protection Program loans and Economic Injury Disaster Loans are among the types of assistance that qualify for the exemption if the loans are forgiven.
November 2020
The State of Washington Expands Voluntary Disclosure Program
The State of Washington has expanded their Voluntary Disclosure Program through November 30, 2020. Unregistered businesses that have not collected or remitted prior sales or use tax liabilities are encouraged to comply with Washington laws and voluntarily register to pay prior tax obligations and become compliant. The process requires a online application on the state department website.
To qualify for the full voluntary disclosure benefits businesses are required to meet all three of the following qualifications:
- Have never registered with the department or reported taxes
- Have not been contacted by the department for enforcement purposes such as audits, reporting, or compliance purposes
- Have not participated in evasion or misrepresentation in reporting tax liabilities
If a business is discovered through the departments normal investigation such as examination or audit procedures, the tax liabilities discovered can be subject to interest, penalties of 39% of the tax due, and a “look back” period of seven years plus the current year. Benefits to the voluntary disclosure program include up to 39% of potential penalties being waived, limited lookback period of four years, and summarized unreported liability in single tax assessment.
contact a member of Withum’s State and Local Tax Team.
July 2020
Washington State VDA Program is Temporarily Expanded
Washington State on a provisional basis has expanded the eligibly for its Voluntary Disclosure Agreement (VDA) program. The program is expanded to businesses whose most recent enforcement contact was prior to July 1, 2019. Further, the program is expanded for businesses that previously registered, as long it had closed its department registration account or was placed on “Active Non-Reporting” status prior to Jan. 1, 2020, including those that previously filed tax returns. This expanded eligibility is effective July 15 through November 30, 2020. Refer to the Department of Revenue’s guidance for additional details on the expanded program.
March 2020
Seattle’s Mayor Durkan Announces Provisions to Provide Immediate Relief for Those Impacted by COVID-19
To provide relief to small business owners and community stakeholders impacted by COVID-19, Mayor Durkan announced provisions to provide immediate relief. The provisions are as follows:
- Deferral of B&O Taxes: Effective immediately, the Department of Finance and Administrative Services (FAS) will defer business and occupation (B&O) tax collections for eligible business owners, allowing small business owners increased flexibility during a period of financial duress caused by the COVID-19 outbreak.
- Expansion of Small Business Stabilization Fund: OED is expanding its Small Business Stabilization Fund to support income-qualified microbusinesses.
- Assistance to Access SBA Loans: OED will provide direct technical assistance to local small businesses and nonprofits to ensure they can immediately access the Small Business Administration’s (SBA) federal loan program once it becomes available.
- Relief for Utility Payments: As announced earlier by Mayor Durkan, all SPU and SCL customers can set up deferred payment plans if their financial stability has been jeopardized by COVID-19.
New Small Business Recovery Task Force: The Mayor has appointed former Governor Gary Locke and former Council President Bruce Harrell to lead the COVID-19 Small Business Recovery Task Force, which will advise on long-term policy recommendations and provide technical assistance and outreach.
More on Taxes and the Coronavirus Pandemic.
Tax Penalty Relief Measures for Businesses Affected by Coronavirus
The Governor of Washington State announced that the Department of Revenue is implementing tax penalty relief measures for businesses affected by COVID-19. Emergency provisions have been put in place providing for a waiver of financial penalties, which a business may have incurred for filing their tax reports late or cannot pay their taxes on time due to the outbreak. Businesses can request an extension or penalty waiver by sending an email through their My DOR account or by calling the Department of Revenue’s customer service line. In addition, businesses can request to reschedule planned audits, extension of time to file a business license or registration renewal, or obtain an extension of an expiring resellers permit.
Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.
Contact Us
The State and Local Tax (SALT) laws vary from state to state and are constantly changing. Reach out to Withum’s SALT Team for guidance on how to navigate your state’s local tax laws.
