New Washington State Tax Developments

The 2005 legislature passed numerous bills that impact Washington’s business and occupation (B&O) and sales and use taxes. Following is a brief summary of some of the new legislation.

Alternative fuel autos – Sales tax and use tax exemptions will be available on the purchase of new autos that are exclusively powered by natural gas, propane, hydrogen, or electricity, and on new autos that use hybrid technology (electricity and gasoline) and get 40 miles or more per gallon. Effective January 1, 2009. The exemptions expire January 1, 2011.

B&O tax on gaming – There is a new B&O tax on gross income of businesses engaged in operating contests of chance (social card games, bingo, raffles, etc.) and taking horse racing wagers. The tax is imposed if the business has annual gross income of $50,000 or more. Proceeds will be used to fund education programs to reduce pathological gambling. Effective July 1, 2005.

Comprehensive cancer centers – A nonprofit comprehensive cancer center is exempt from B&O tax and from sales tax and use tax on purchases or use of medical supplies, chemicals, or materials that are used for research purposes. Effective July 1, 2006.

Direct mail delivery charges – B&O, sales, and use taxes do not apply to direct mail delivery charges if the postage/delivery charges are separately stated on the invoice to the customer. “Direct mail” means printed material delivered or distributed to a mass audience or to addressees on a mailing list provided by the purchaser when the cost of the items are not billed directly to the recipients. Effective May 17, 2005.

Extended warranties – The definition of “retail sale” is expanded to include the sale of an extended warranty to a consumer. An extended warranty is where, for a fee, a seller agrees to replace or repair tangible personal property that becomes defective during the period covered by the warranty. Effective July 1, 2005.

Fruit & vegetable processing – A B&O tax exemption is available to persons that manufacture fresh fruit and vegetables by canning, freezing, processing, or dehydrating and selling such products on a wholesale basis for transport out-of-state. Effective July 1, 2005.

High technology B&O tax credit – Starting in 2007, the rate of the credit will be based on the higher of the company’s average B&O tax rate or a fixed percentage that increases each year. The percentages are .75% for 2007, 1.0% for 2008, 1.25% for 2009, and 1.5% for 2010 and after. There were minor retroactive changes to the method used to calculate the high technology B&O tax. The annual survey must also now be filed electronically with the Department of Revenue. Effective retroactively to June 10, 2004.

More tax auditors - The Department of Revenue will receive funding for 14 new positions to augment its existing audit and tax enforcement efforts.

Self-service laundry – There is an exemption from sales tax and use tax charges for self-service laundry facilities, including laundry facilities situated in apartment complexes. The bill also modifies the B&O tax classification for revenues derived from self-service laundry from retailing to service and other activities. Effective July 1, 2005.

Tire fee – Tire retailers are required to collect a $1 fee for each retail sale of new replacement vehicle tires. Effective July 1, 2005, through June 30, 2010.

If you have any questions, please contact Darcy Kooiker, Director of State and Local Tax Services at dkooiker@bpcpa.com or 425.454.7990