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, 458-20-175, 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:
(i) Has or utilizes any office, distribution house, sales
house, warehouse, service enterprise or other place of business;
or
(ii) Maintains any inventory or stock of goods for sale; or
(iii) Regularly solicits orders whether or not such orders
are accepted in this state; or
(iv) Regularly engages in the delivery of property in this
state other than by for-hire carrier or U.S. mail; or
(v) Regularly engages in any activity in connection with the
leasing or servicing of property located within this state.
(a) 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).
(b) 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 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.
(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.