WAC 458-20-193
Inbound and outbound interstate sales of
tangible personal property. (1) Introduction. This section
explains Washington's B&O tax and retail sales tax
applications to interstate sales of tangible personal
property. It covers the outbound sales of goods originating
in this state to persons outside this state and of inbound
sales of goods originating outside this state to persons in
this state. This section does not include import and export
transactions.
(2) Definitions: For purposes of this section the
following terms mean:
(a) "State of origin" means the state or place where a
shipment of tangible personal property (goods) originates.
(b) "State of destination" means the state or place where
the purchaser/consignee or its agent receives a shipment of
goods.
(c) "Delivery" means the act of transferring possession
of tangible personal property. It includes among others the
transfer of goods from consignor to freight forwarder or
for-hire carrier, from freight forwarder to for-hire carrier,
one for-hire carrier to another, or for-hire carrier to
consignee.
(d) "Receipt" or "received" means the purchaser or its
agent first either taking physical possession of the goods or
having dominion and control over them.
(e) "Agent" means a person authorized to receive goods
with the power to inspect and accept or reject them.
(f) "Nexus" means the activity carried on by the seller
in Washington which is significantly associated with the
seller's ability to establish or maintain a market for its
products in Washington.
(3) Outbound sales. Washington state does not assess its
taxes on sales of goods which originate in Washington if
receipt of the goods occurs outside Washington.
(a) Where tangible personal property is located in
Washington at the time of sale and is received by the
purchaser or its agent in this state, or the purchaser or its
agent exercises ownership over the goods inconsistent with the
seller's continued dominion over the goods, the sale is
subject to tax under the retailing or wholesaling
classification. The tax applies even though the purchaser or
its agent intends to and thereafter does transport or send the
property out-of-state for use or resale there, or for use in
conducting interstate or foreign commerce. It is immaterial
that the contract of sale or contract to sell is negotiated
and executed outside the state or that the purchaser resides
outside the state.
(b) Where the seller delivers the goods to the purchaser
who receives them at a point outside Washington neither
retailing nor wholesaling business tax is applicable. This
exemption applies even in cases where the shipment is arranged
through a for-hire carrier or freight consolidator or freight
forwarder acting on behalf of either the seller or purchaser. It also applies whether the shipment is arranged on a "freight
prepaid" or a "freight collect" basis. The shipment may be
made by the seller's own transportation equipment or by a
carrier for-hire. For purposes of this section, a for-hire
carrier's signature does not constitute receipt upon obtaining
the goods for shipment unless the carrier is acting as the
purchaser's agent and has express written authority from the
purchaser to accept or reject the goods with the right of
inspection.
(4) Proof of exempt outbound sales.
(a) If either a for-hire carrier or the seller itself
carries the goods for receipt at a point outside Washington,
the seller is required to retain in its records documentary
proof of the sales and delivery transaction and that the
purchaser in fact received the goods outside the state in
order to prove the sale is tax exempt. Acceptable proofs,
among others, will be:
(i) The contract or agreement of sale, if any, And
(ii) If shipped by a for-hire carrier, a waybill, bill of
lading or other contract of carriage indicating the seller has
delivered the goods to the for-hire carrier for transport to
the purchaser or the purchaser's agent at a point outside the
state with the seller shown on the contract of carriage as the
consignor (or other designation of the person sending the
goods) and the purchaser or its agent as consignee (or other
designation of the person to whom the goods are being sent);
or
(iii) If sent by the seller's own transportation
equipment, a trip-sheet signed by the person making delivery
for the seller and showing:
The seller's name and address,
The purchaser's name and address,
The place of delivery, if different from purchaser's
address,
The time of delivery to the purchaser together with the
signature of the purchaser or its agent acknowledging receipt
of the goods at the place designated outside the state of
Washington.
(b) Delivery of the goods to a freight consolidator,
freight forwarder or for-hire carrier merely utilized to
arrange for and/or transport the goods is not receipt of the
goods by the purchaser or its agent unless the consolidator,
forwarder or for-hire carrier has express written authority to
accept or reject the goods for the purchaser with the right of
inspection. See also WAC 458-20-174, 458-20-17401,
458-20-175, 458-20-176, 458-20-177, 458-20-238 and 458-20-239
for certain statutory exemptions.
(5) Other B&O taxes - Outbound and inbound sales.
(a) Extracting, manufacturing. Persons engaged in these
activities in Washington and who transfer or make delivery of
such produced articles for receipt at points outside the state
are subject to business tax under the extracting or
manufacturing classification and are not subject to tax under
the retailing or wholesaling classification. See also WAC 458-20-135 and 458-20-136. The activities taxed occur
entirely within the state, are inherently local, and are
conducted prior to the commercial journey. The tax is
measured by the value of products as determined by the selling
price in the case of articles on which the seller performs no
further manufacturing after transfer out of Washington. It is
immaterial that the value so determined includes an additional
increment of value because the sale occurs outside the state. If the seller performs additional manufacturing on the article
after transferring the article out-of-state, the value should
be measured under the principles contained in WAC 458-20-112.
(b) Extracting or processing for hire, printing and
publishing, repair or alteration of property for others. These activities when performed in Washington are also
inherently local and the gross income or total charge for work
performed is subject to business tax, since the operating
incidence of the tax is upon the business activity performed
in this state. No deduction is permitted even though the
articles produced, imprinted, repaired or altered are
delivered to persons outside the state. It is immaterial that
the customers are located outside the state, that the work was
negotiated or contracted for outside the state, or that the
property was shipped in from outside the state for such work.
(c) Construction, repair. Construction or repair of
buildings or other structures, public road construction and
similar contracts performed in this state are inherently local
business activities subject to B&O tax in this state. This is
so even though materials involved may have been delivered from
outside this state or the contracts may have been negotiated
outside this state. It is immaterial that the work may be
performed in this state by foreign sellers who performed
preliminary services outside this state.
(d) Renting or leasing of tangible personal property. Lessors who rent or lease tangible personal property for use
in this state are subject to B&O tax upon their gross proceeds
from such rentals for periods of use in this state. Proration
of tax liability based on the degree of use in Washington of
leased property is required.
It is immaterial that possession of the property leased
may have passed to the lessee outside the state or that the
lease agreement may have been consummated outside the state. Lessors will not be subject to B&O tax if all of the following
conditions are present:
(i) The equipment is not located in Washington at the
time the lessee first takes possession of the leased property;
and
(ii) The lessor has no reason to know that the equipment
will be used by the lessee in Washington; and
(iii) The lease agreement does not require the lessee to
notify the lessor of subsequent movement of the property into
Washington and the lessor has no reason to know that the
equipment may have been moved to Washington.
(6) Retail sales tax - Outbound sales. The retail sales
tax generally applies to all retail sales made within this
state. The legal incidence of the tax is upon the purchaser,
but the seller is obligated to collect and remit the tax to
the state. The retail sales tax applies to all sales to
consumers of goods located in the state when goods are
received in Washington by the purchaser or its agent,
irrespective of the fact that the purchaser may use the
property elsewhere. However, as indicated in subsection
(4)(b), delivery of the goods to a freight consolidator,
freight forwarder or for-hire carrier arranged either by the
seller or the purchaser, merely utilized to arrange for and/or
transport the goods out-of-state is not receipt of the goods
by the purchaser or its agent in this state, unless the
consolidator, forwarder or for-hire carrier has express
written authority to accept or reject the goods for the
purchaser with the right of inspection.
(a) The retail sales tax does not apply when the seller
delivers the goods to the purchaser who receives them at a
point outside the state, or delivers the same to a for-hire
carrier consigned to the purchaser outside the state. This
exemption applies even in cases where the shipment is arranged
through a for-hire carrier or freight consolidator or freight
forwarder acting on behalf of either the seller or the
purchaser. It also applies regardless of whether the shipment
is arranged on a "freight prepaid" or a "freight collect"
basis and regardless of who bears the risk of loss. The
seller must retain proof of exemption as outlined in
subsection (4), above.
(b) RCW 82.08.0273 provides an exemption from the retail
sales tax to certain nonresidents of Washington for purchases
of tangible personal property for use outside this state when
the nonresident purchaser provides proper documentation to the
seller. This statutory exemption is available only to
residents of states and possessions or Province of Canada
other than Washington when the jurisdiction does not impose a
retail sales tax of three percent or more. These sales are
subject to B&O tax.
(c) A statutory exemption (RCW 82.08.0269) is allowed for
sales of goods for use in states, territories and possessions
of the United States which are not contiguous to any other
state (Alaska, Hawaii, etc.), but only when, as a necessary
incident to the contract of sale, the seller delivers the
property to the purchaser or its designated agent at the usual
receiving terminal of the for-hire carrier selected to
transport the goods, under such circumstance that it is
reasonably certain that the goods will be transported directly
to a destination in such noncontiguous states, territories and
possessions. As proof of exemption, the seller must retain
the following as part of its sales records:
(i) A certification of the purchaser that the goods will
not be used in the state of Washington and are intended for
use in the specified noncontiguous state, territory or
possession.
(ii) Written instructions signed by the purchaser
directing delivery of the goods to a dock, depot, warehouse,
airport or other receiving terminal for transportation of the
goods to their place of ultimate use. Where the purchaser is
also the carrier, delivery may be to a warehouse receiving
terminal or other facility maintained by the purchaser when
the circumstances are such that it is reasonably certain that
the goods will be transported directly to their place of
ultimate use.
(iii) A dock receipt, memorandum bill of lading, trip
sheet, cargo manifest or other document evidencing actual
delivery to such dock, depot, warehouse, freight consolidator
or forwarder, or receiving terminal.
(iv) The requirements of (i) and (ii) above may be
complied with through the use of a blanket exemption
certificate as follows:
(v) There is no business and occupation tax deduction of
the gross proceeds of sales of goods for use in noncontiguous
states unless the goods are received outside Washington.
(d) See WAC 458-20-173 for explanation of sales tax
exemption in respect to charges for labor and materials in the
repair, cleaning or altering of tangible personal property for
nonresidents when the repaired property is delivered to the
purchaser at an out-of-state point.
(7) Inbound sales. Washington does not assert B&O tax on
sales of goods which originate outside this state unless the
goods are received by the purchaser in this state and the
seller has nexus. There must be both the receipt of the goods
in Washington by the purchaser and the seller must have nexus
for the B&O tax to apply to a particular sale. The B&O tax
will not apply if one of these elements is missing.
(a) Delivery of the goods to a freight consolidator,
freight forwarder or for-hire carrier located outside this
state merely utilized to arrange for and/or transport the
goods into this state is not receipt of the goods by the
purchaser or its agent unless the consolidator, forwarder or
for-hire carrier has express written authority to accept or
reject the goods for the purchaser with the right of
inspection.
(b) When the sales documents indicate the goods are to be
shipped to a buyer in Washington, but the seller delivers the
goods to the buyer at a location outside this state, the
seller may use the proofs of exempt sales contained in
subsection 4 to establish the fact of delivery outside
Washington.
(c) If a seller carries on significant activity in this
state and conducts no other business in the state except the
business of making sales, this person has the distinct burden
of establishing that the instate activities are not
significantly associated in any way with the sales into this
state. Once nexus has been established, it will continue
throughout the statutory period of RCW 82.32.050 (up to five
years), notwithstanding that the instate activity which
created the nexus ceased. Persons taxable under the service
B&O tax classification should refer to WAC 458-20-194. The
following activities are examples of sufficient nexus in
Washington for the B&O tax to apply:
(i) The goods are located in Washington at the time of
sale and the goods are received by the customer or its agent
in this state.
(ii) The seller has a branch office, local outlet or
other place of business in this state which is utilized in any
way, such as in receiving the order, franchise or credit
investigation, or distribution of the goods.
(iii) The order for the goods is solicited in this state
by an agent or other representative of the seller.
(iv) The delivery of the goods is made by a local outlet
or from a local stock of goods of the seller in this state.
(v) The out-of-state seller, either directly or by an
agent or other representative, performs significant services
in relation to establishment or maintenance of sales into the
state, even though the seller may not have formal sales
offices in Washington or the agent or representative may not
be formally characterized as a "salesperson."
(vi) The out-of-state seller, either directly or by an
agent or other representative in this state, installs its
products in this state as a condition of the sale.
(8) Retail sales tax - Inbound sales. Persons engaged in
selling activities in this state are required to be registered
with the department of revenue. Sellers who are not required
to be registered may voluntarily register for the collection
and reporting of the use tax. The retail sales tax must be
collected and reported in every case where the retailing B&O
tax is due as outlined in subsection 7. If the seller is not
required to collect retail sales tax on a particular sale
because the transaction is disassociated from the instate
activity, it must collect the use tax from the buyer.
(9) Use tax - Inbound sales. The following sets forth
the conditions under which out-of-state sellers are required
to collect and remit the use tax on goods received by
customers in this state. A seller is required to pay or
collect and remit the tax imposed by chapter 82.12 RCW if
within this state it directly or by any agent or other
representative:
(a) Has or utilizes any office, distribution house, sales
house, warehouse, service enterprise or other place of
business; or
(b) Maintains any inventory or stock of goods for sale;
or
(c) Regularly solicits orders whether or not such orders
are accepted in this state; or
(d) Regularly engages in the delivery of property in this
state other than by for-hire carrier or U.S. mail; or
(e) Regularly engages in any activity in connection with
the leasing or servicing of property located within this
state.
(i) The use tax is imposed upon the use, including
storage preparatory to use in this state, of all tangible
personal property acquired for any use or consumption in this
state unless specifically exempt by statute. The out-of-state
seller may have nexus to require the collection of use tax
without personal contact with the customer if the seller has
an extensive, continuous, and intentional solicitation and
exploitation of Washington's consumer market. (See WAC 458-20-221).
(ii) Every person who engages in this state in the
business of acting as an independent selling agent for
unregistered principals, and who receives compensation by
reason of sales of tangible personal property of such
principals for use in this state, is required to collect the
use tax from purchasers, and remit the same to the department
of revenue, in the manner and to the extent set forth in WAC 458-20-221.
(10) Examples - Outbound sales. The following examples
show how the provisions of this section relating to interstate
sales of tangible personal property will apply when the goods
originate in Washington (outbound sales). The examples
presume the seller has retained the proper proof documents and
that the seller did not manufacture the items being sold.
(a) Company A is located in Washington. It sells machine
parts at retail and wholesale. Company B is located in
California and it purchases machine parts from Company A. Company A carries the parts to California in its own vehicle
to make delivery. It is immaterial whether the goods are
received at either the purchaser's out-of-state location or at
any other place outside Washington state. The sale is not
subject to Washington's B&O tax or its retail sales tax
because the buyer did not receive the goods in Washington. Washington treats the transaction as a tax exempt interstate
sale. California may impose its taxing jurisdiction on this
sale.
(b) Company A, above, ships the parts by a for-hire
carrier to Company B in California. Company B has not
previously received the parts in Washington directly or
through a receiving agent. It is immaterial whether the goods
are received at either Company B's out-of-state location or
any other place outside Washington state. It is immaterial
whether the shipment is freight prepaid or freight collect. Again, Washington treats the transaction as an exempt
interstate sale.
(c) Company B, above, has its employees or agents pick up
the parts at Company A's Washington plant and transports them
out of Washington. The sale is fully taxable under
Washington's B&O tax and, if the parts are not purchased for
resale by Company B, Washington's retail sales tax also
applies.
(d) Company B, above, hires a carrier to transport the
parts from Washington. Company B authorizes the carrier, or
another agent, to inspect and accept the parts and, if
necessary, to hold them temporarily for consolidation with
other goods being shipped out of Washington. This sale is
taxable under Washington's B&O tax and, if the parts are not
purchased for resale by Company B, Washington's retail sales
tax also applies.
(e) Washington will not tax the transactions in the above
examples (a) and (b) if Company A mails the parts to Company B
rather than using its own vehicles or a for-hire carrier for
out-of-state receipt. By contrast, Washington will tax the
transactions in the above examples (c) and (d) if for some
reason Company B or its agent mails the parts to an
out-of-state location after receiving them in Washington. The
B&O tax applies to the latter two examples and if the parts
are not purchased for resale by Company B then retail sales
tax will also apply.
(f) Buyer C who is located in Alaska purchases parts for
its own use in Alaska from Seller D who is located in
Washington. Buyer C specifies to the seller that the parts
are to be delivered to the water carrier at a dock in Seattle.
The buyer has entered into a written contract for the carrier
to inspect the parts at the Seattle dock. The sale is subject
to the B&O tax because receipt took place in Washington. The
retail sales tax does not apply because of the specific
exemption at RCW 82.08.0269. This transaction would have been
exempt of the B&O tax if the buyer had taken no action to
receive the goods in Washington.
(11) Examples - Inbound sales. The following examples
show how the provisions of this section relating to interstate
sales of tangible personal property will apply when the goods
originate outside Washington (inbound sales). The examples
presume the seller has retained the proper proof documents.
(a) Company A is located in California. It sells machine
parts at retail and wholesale. Company B is located in
Washington and it purchases machine parts for its own use from
Company A. Company A uses its own vehicles to deliver the
machine parts to its customers in Washington for receipt in
this state. The sale is subject to the retail sales and B&O
tax if the seller has nexus, or use tax if nexus is not
present.
(b) Company A, above, ships the parts by a for-hire
carrier to Company B in Washington. The goods are not
accepted by Company B until the goods arrive in Washington. The sale is subject to the retail sales or use tax and is also
subject to the B&O tax if the seller has nexus in Washington. It is immaterial whether the shipment is freight prepaid or
freight collect.
(c) Company B, above, has its employees or agents pick up
the parts at Company A's California plant and transports them
into Washington. Company A is not required to collect sales
or use tax and is not liable for B&O tax on the sale of these
parts. Company B is liable for payment of use tax at the time
of first use of the parts in Washington.
(d) Company B, above, hires a carrier to transport the
parts from California. Company B authorizes the carrier, or
an agent, to inspect and accept the parts and, if necessary,
to hold them temporarily for consolidation with other goods
being shipped to Washington. The seller is not required to
collect retail sales or use tax and is not liable for the B&O
tax on these sales. Company B is subject to use tax on the
first use of the parts in Washington.
(e) Company B, above, instructs Company A to deliver the
machine parts to a freight consolidator selected by Company B.
The freight consolidator does not have authority to receive
the goods as agent for Company B. Receipt will not occur
until the parts are received by Company B in Washington. Company A is required to collect retail sales or use tax and
is liable for B&O tax if Company A has nexus for this sale. The mere delivery to a consolidator or for-hire carrier who is
not acting as the buyer's receiving agent is not receipt by
the buyer.
(f) Transactions in examples (11)(a) and (11)(b) will
also be taxable if Company A mails the parts to Company B for
receipt in Washington, rather than using its own vehicles or a
for-hire carrier. The tax will continue to apply even if
Company B for some reason sends the parts to a location
outside Washington after the parts were accepted in
Washington.
(g) Company W with its main office in Ohio has one
employee working from the employee's home located in
Washington. The taxpayer has no offices, inventory, or other
employees in Washington. The employee calls on potential
customers to promote the company's products and to solicit
sales. On June 30, 1990 the employee is terminated. After
this date the company no longer has an employee or agent
calling on customers in Washington or carries on any
activities in Washington which is significantly associated
with the seller's ability to establish or maintain a market
for its products in Washington. Washington customers who had
previously been contacted by the former employee continue to
purchase the products by placing orders by mail or telephone
directly with the out-of-state seller. The nexus which was
established by the employee's presence in Washington will be
presumed to continue through December 31, 1994 and subject to
B&O tax. Nexus will cease on December 31, 1994 if the seller
has not established any new nexus during this period. Company
W may disassociate and exclude from B&O tax sales to new
customers who had no contact with the former employee. The
burden of proof to disassociate is on the seller.
(h) Company X is located in Ohio and has no office,
employees, or other agents located in Washington or any other
contact which would create nexus. Company X receives by mail
an order from Company Y for parts which are to be shipped to a
Washington location. Company X purchases the parts from
Company Z who is located in Washington and requests that the
parts be drop shipped to Company Y. Since Company X has no
nexus in Washington, Company X is not subject to B&O tax or
required to collect retail sales tax. Company X has not taken
possession or dominion or control over the parts in
Washington. Company Z may accept a resale certificate (WAC 458-20-102A) for sales made before January 1, 2010, or a
Streamlined Sales and Use Tax Agreement Certificate of
Exemption or a Multistate Tax Commission Exemption Certificate
(WAC 458-20-102) for sales made on or after January 1, 2010,
from Company X which will bear the registration number issued
by the state of Ohio. Company Y is required to pay use tax on
the value of the parts. Even though resale certificates are
no longer used after December 31, 2009, they must be kept on
file by Company Z for five years from the date of last use or
December 31, 2014.
(i) Company ABC is located in Washington and purchases
goods from Company XYZ located in Ohio. Upon receiving the
order, Company XYZ ships the goods by a for-hire carrier to a
public warehouse in Washington. The goods will be considered
as having been received by Company ABC at the time Company ABC
is entitled to receive a warehouse receipt for the goods. Company XYZ will be subject to the B&O tax at that time if it
had nexus for this sale.
(j) P&S Department Stores has retail stores located in
Washington, Oregon, and in several other states. John Doe
goes to a P&S store in Portland, Oregon to purchase luggage. John Doe takes physical possession of the luggage at the store
and elects to finance the purchase using a credit card issued
to him by P&S. John Doe is a Washington resident and the
credit card billings are sent to him at his Washington
address. P&S does not have any responsibility for collection
of retail sales or use tax on this transaction because receipt
of the luggage by the customer occurred outside Washington.
(k) JET Company is located in the state of Kansas where
it manufactures specialty parts. One of JET's customers is
AIR who purchases these parts as components of the product
which AIR assembles in Washington. AIR has an employee at the
JET manufacturing site who reviews quality control of the
product during fabrication. He also inspects the product and
gives his approval for shipment to Washington. JET is not
subject to B&O tax on the sales to AIR. AIR receives the
parts in Kansas irrespective that JET may be shown as the
shipper on bills of lading or that some parts eventually may
be returned after shipment to Washington because of hidden
defects.