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Welcome to the New Business Tax WorkshopPresented By: Melissa Sharp

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Workshop Objectives

• Provide information on major taxes in Washington

• Help you complete the excise tax return

• Provide helpful contacts and resources

• Answer your questions

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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

Class Outline

• 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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Ask questions at any time

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Department of Revenue

• Legislature passes tax laws• Department collects taxes in accordance with the law

Retail sales/use tax: 36.0%

B&O tax: 12.0

Other business taxes: 3.0

Property tax levy: 7.5

Real estate excise: 4.2

Tobacco taxes: 0.3

Liquor taxes: 0.6

All other taxes: 1.1

Taxes: 64.7%

Charges and misc. revenue: 2.3%

Federal grants: 32.4%

Licenses, fees and permits: 0.6% General government: 3.1%Higher and other education: 8.0%All others: 0.8%

Human services: 53.7%K-12 education: 32.9%

Natural resources and recreation: 1.5%

Where it comes from Where it goes

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Department’s Mission• Fairly and efficiently collect revenues• Administer programs to fund public services• Advocate sound tax policy

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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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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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Overview of B&O Tax• 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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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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• 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

Wholesaling

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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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Manufacturing• 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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Service & Other Activities

For the revenues of businesses that provide personal and professional services not otherwise classified

• Consulting services• Management services• Doctors• Lawyers• Beauticians• Tutors

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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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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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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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B&O Tax Deductions

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

Income should be reported then deducted on the tax return

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B&O Tax Deductions (continued)

Examples:• Cash and trade discounts• Interstate and foreign sales• Returns and allowances• Casual sales• Tax in gross

Income should be reported then deducted on the tax return

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B&O Tax Credits

• Small Business B&O Tax Credit• Multiple Activities Tax Credit (MATC)

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Retail Sales Tax• 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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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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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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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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Destination-Based Sales TaxHow it works…

ShippedCustomer Location

Picked up at the Store

Store Location

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Place of SaleThree 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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Tax Rate Lookup Tool

Find the sales tax rate for any location in Washington.

Formats available online:• Address Lookup• City/County Map Lookup• Longitude/Latitude Lookup• Download Data• Handheld devices• App for iPhone

http://taxrates.dor.wa.gov

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Destination-Based Sales Tax

For more information go to:www.destinationtax.dor.wa.gov

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Retail Sales Tax Deductions

• 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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Retail Sales Tax Deductions (continued)

• Exempt food sales• Prescription drugs• Trade-in allowances• Sales of manufacturing machinery• Tax Paid at Source• Other

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Deductions B&O Tax vs Sales Tax

B&O RST

Bad debts

Cash and trade discounts

Interstate and foreign sales

Tax in gross

Returns and allowances

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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Public Utility Tax• 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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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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Sales of Spirits

I-1183 requires:

• 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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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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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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Sales of SpiritsSpirit 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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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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Tax Incentives• 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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Use Tax• 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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Use Tax Examples

• 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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Use TaxExemptions, Credits & Exclusions

• 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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Recordkeeping RequirementsRecords should be kept for a minimum of five yearsthese 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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Audit Process• 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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Tax Return Frequency

New businesses are assigned one of the following

reporting frequencies:

• Monthly• Quarterly• Annual

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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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Penalties• 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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E-file: Electronic Filing

• 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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E-file (continued)

• Save postage and the chance of your return being lost or delayed in the mail

• File your return early and choose the date you want your payment withdrawn (with EFT)

• It’s fast, free, convenient and secure

• Learn about the program on our web site at dor.wa.gov

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Helpful Hints• Set up separate bank accounts

• Personal

• Business: One for normal business

activities and one for taxes

• Returns are considered timely if postmarked

on or before the due date

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• Moving? Notify us of your new

address (physical and mailing)

• If you can’t pay, contact us

right away

• Any questions?

CALL 1-800-647-7706

Helpful Hints

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Additional Assistance• 12 local office locations• Washington State Department of Revenue

Taxpayer Information & Education SectionPO Box 47478Olympia, WA 98504-7478

1-800-647-7706

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Web Site: dor.wa.gov

• 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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Thank You