Changes in Washington State Sales Tax Rules
Starting July 1, 2008, Washington retailers will be required to collect local sales tax based on the destination of the shipment or delivery - "destination-based” – rather than collecting based on the jurisdiction from which the product is shipped or delivered – “origin-based.” This only affects shipments and deliveries to locations within Washington State, and is a result of the passage of Substitute Senate Bill 5089 (“Streamlined Sales Tax”). Find out more details and resources relating to the new rules at the Washington Department of Revenue Website.
The Washington State Department of Revenue is providing assistance to retailers that includes a $1,000 tax credit to eligible small businesses (to offset any necessary changes to their accounting, point-of-sale, or other systems), or two years of sales tax automation and management services from a Certified Service Provider (CSP) – including SpeedTax. The credit will be available on the excise tax return, beginning with the July 2008 return.
Contact SpeedTax for more information about working with a Certified Service Provider to simplify the coding, calculation, filing and managing of sales tax for Washington state businesses.
Retailers are eligible if they meet all of the following requirements:
- Gross less than $500,000 in Washington sales annually;
- Receive at least five percent of their taxable sales income from deliveries; and
- Receive at least one percent of their taxable sales income from deliveries outside the jurisdiction where they collect the most sales tax.
If your business meets the above criteria, you need only document that you incurred expenses in implementing destination-based sourcing. Retailers that are eligible for the credit or free CSP will not be liable for penalties or interest if errors are made due to the destination-based sales tax change.
Why were these changes made?
The legislation is a step toward encouraging out-of-state sellers to collect sales tax on sales to Washington customers. In this way, SSUTA helps level the playing field for Washington’s “brick and mortar” businesses. Signing in this legislation clears the way for Washington to petition for membership in the national Streamlined Sales and Use Tax Agreement (SSUTA). Find out more about the Streamlined Sales Tax initiative at http://www.streamlinedsalestax.org/, or in the Washington State DOR’s Streamlined Sales and Use Tax Agreement questions and answers.
Registration in the SSUTA by individual retail businesses is entirely voluntary. This is true even after Washington becomes a full member state in the Agreement. There are benefits for retail businesses who register with the SSUTA, but volunteering is not required.
Washington State Sales Tax Rates
Washington has a 6.5% statewide sales tax. As of 31st October 2007, sales tax is not applied on most food items and prescription medications (not including over-the-counter medications). Individual counties, municipalities and regional transit authorities are entitled to collect a sales tax, which vary from 0.5% to 2.5%. Within King County, the King County Food & Beverage (KCF&B) tax adds an additional .5% to food and beverages purchased in bars, taverns and restaurants resulting in an effective tax rate of 9.5% (9.0% on all other items). Additionally, the sale or lease of motor vehicles for use on the road incur an additional 0.3% tax, rental of a car for less than 30 days has an additional state/local tax of 8.9%. When renting a car for less than 30 days in Seattle, the total sales tax is 18.6%. When purchasing an automobile, if you trade in a car, the state subtracts the price of the trade when calculating the sales tax to be paid on the automobile. (e.g., purchasing a $40,000 car and trading a $20,000 car, you would be taxed on the difference of $20,000 only, not the full amount of the new vehicle.)
When staying at hotel (60+ rooms capacity) in Seattle, the sales tax is 15.6%. Residents of Canada and US states or possessions (only US and Canadian locations having a sales tax of less than 3%, e.g., Oregon, Alaska & Alberta) are exempt from sales tax on purchases of tangible personal property for use outside the state. Stores at the border will inquire about residency and exempt qualified purchasers from the tax. Washington also has a Gross receipts tax called the Business and Occupations Tax (B&O).
Also, the seller of a house pays excise taxes on the full sale price. The amount of the tax varies by county. In King and Snohomish counties, it is up to 1.78%. For example, selling a house for $500K will cost you $8900 in taxes.
The lowest sales tax in Washington is 7.0% in most of Klickitat and Skamania Counties, while the highest sales tax in Washington is the aforementioned 9.5% tax on prepared food and beverages in King County.