Washington State Sales Tax Exemptions

Washington State updates numerous sales tax exemptions.

Washington State Governor Jay Inslee has given his signature to a tax preferences bill. Read on for highlights.

Tax-free dancing

My favorite section of the new law begins:

“It is the intent of part VIII of this act to provide a sales tax exemption for cover charges to patrons at establishments that provide the opportunity to dance.” 

Under Washington State law, amusement and recreation services are subject to sales tax. However, part VIII of the new legislation clarifies:

“Until July 1, 2017, amusement and recreation services do not include the opportunity to dance provided by the establishment in exchange for a cover charge.”

“Cover charge” and “opportunity to dance” are further defined, with no surprises.

The goal is to “ensure proper tax reporting” by businesses who “provide the opportunity to dance…. ” If you think it’s unfair, be comforted; the legislature “intends to review the tax preference and its actual fiscal impact on state revenues” in the future.

A special notice on this topic has been issued by the Washington Department of Revenue.

Tax-free earth-friendly power

Part XV exempts sales of machinery and equipment used “directly in generating electricity using fuel cells, wind, sun, biomass energy, tidal or wave energy, geothermal resources, anaerobic digestion, technology that coverts otherwise lost energy from exhaust, or landfill gas as the principal source of power…

Charges for labor and service involved in the installation of such machinery and equipment are also eligible for an exemption “only if the purchaser develops with such machinery, equipment and labor a facility capable of generating not less than one thousand watts of electricity.”

This is an extension of a sales tax exemption that was previously set to expire June 30, 2013. It is now set to expire on January 1, 2020. It should be noted that it is only a partial exemption: “equal to seventy-five percent of the state and local sales tax paid.”

Part XVI strives to “incentivize electricity generation from solar energy… by exempting machinery, equipment, and labor and service charges from the retail sales and use tax to increase affordability for Washington residents.” This exemption was set to expire June 30 of this year, and is now extended to June 30, 2018. If you are in the solar energy field, be sure to read this section thoroughly.

Tax-free flavor

Part V provides a sales and use tax exemption “for specific items used in the cooking process that impart flavor and are therefore similar to an ingredient added to a final product that is sold to the consumer.” This is a temporary exemption that is set to expire July 1, 2017.

Buyers must provide valid exemption certificates to sellers, or “a seller may capture the relevant data elements as allowed under the streamlined sales and use tax agreement.”

Tax-free mint

Unless you are a grower of mint, you may not have devoted much thought to the types of fuel used by growers of mint to harvest the mint. You need not worry, as Washington State lawmakers are thinking about it for you.

It turns out that mint-growers tend to use diesel fuel to distill mint, and “on-farm diesel fuel is currently exempt from sales and use tax.” To encourage to transition to cleaner burning fuel (such as propane and natural gas), part XIII exempts “sales to farmers of propane or natural gas used exclusively to distill mint on a farm.” This new exemption is set to expire July 1, 2017.

Tax-free fund-raising

Part XIV provides “use tax relief for individuals who support charitable activities by purchasing or winning articles of personal property from a nonprofit organization or library when the personal property is sales tax exempt.” The exemption is capped, and applies only to articles of personal property valued at $10,000 or less. It is set to expire July 1, 2017.

Tax-free financial information 

Part VII ensures that a defunct 2007 sales and use tax exemption for “electronically delivered standard financial information” is reinstated. There should be “minimal” fiscal impact, and the legislature intends to “reevaluate the exemption in three years to ensure that actual fiscal impact on state revenues” is what the legislature expects.

This section clarifies that the “tax imposed by RCW 82.08.020 does not apply to sales of standard financial information to qualifying international investment management companies,” no matter how that information is stored (tangibly or electronically).

Furthermore, a seller making tax-exempt sales must receive a valid exemption certificate from the buyer, or the seller “may capture the relevant data elements as allowed under the streamlined sales and use tax agreement.”

Buyers who have claimed an exemption for purchases of standard financial information “with an aggregate total selling price in excess of fifteen million dollars…” may not apply further sales tax exemptions ‘to standard financial information.” However, sellers are not required to ensure a buyer’s compliance with that fifteen million dollar cap.

Enough already

Finally, part XVII of the bill clarifies that the legislature must “state the legislative purpose for [a] new tax preference.” In addition, “every new tax preference expires on the first day of the calendar year that is subsequent to the calendar year that is ten years from the effective date of the tax preference,” unless otherwise specified.

How do you keep track of sales tax exemptions? Automation makes it a cinch.

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