Understand how Washington exempts imports from B & O tax
INSIGHT ARTICLE |
Washington State’s robust economy is undoubtedly supported by strong import and export activity through its vibrant port cities. Seattle and Tacoma are home to some of the busiest ports in the country. As can be expected with such economic activity, state taxes play a signficant role.
The Washington tax code broadly imposes a Business and Occupation (B&O) tax on the sale of goods and services within the state. Businesess importing goods must be aware that the Washington tax law addresses the taxation of goods while in import commerce through language found in Revised Code of Washington Section (RCW) 82.04.610 and Washington Administrative Code Section 458-20-193C. Accordingly, if your business has a presence in Washington, or imports goods into the state, understanding and properly applying the tax law is essential to ensure you are paying the appropriate amount of tax due.
Understanding the tax law also means being aware of common mistakes. For example, importers commonly pay B&O tax in error on goods imported and delivered directly to customers in Washington State. This type of tax reporting error could result from not adapting past accounting reports to reflect the distinction between sales of goods made in interstate commerce versus those made in import commerce, while such goods are still in the import process. If tax was paid in error, importers may qualify for a tax refund of $4,840 for every million dollars of tax paid erroneously, or .00484 percent. The refund opportunity applies to all qualified importers, regardless of size, and no matter the foreign country from which the goods originate.
Below are two common scenarios where importers may have overpaid the B&O tax.
Scenario: Foreign importer, Washington retailer
Alpha Company sells a router to an independant retail store in Tacoma, Washington. Alpha imports the router from China through the Port of Tacoma and delivers it directly to the retailer’s international distribution warehouse located in Olympia, Washington.
Alpha’s records may reflect the router sale as a sale with a Washington destination. If Alpha reported and paid Washington wholesaling B&O tax on the transaction, it may have paid such tax in error if Alpha can demonstrate that it imported the router directly from China to the retailer’s international distribution warehouse.
In this scenario, Alpha may not have made a distinction for Washington B&O reporting purposes between goods sold in interstate commerce delivered to the independent retailer in Washington and goods sold in import commerce delivered to the same buyer and destination point. Alpha must be able to demonstrate it sold the goods in question to the retailer prior to or during the import transportation process.
Scenario: Domestic manufacturer, Washington distributor
A California company imports clothing manufactured in Indonesia through the Port of Long Beach, California. The California company sells the clothing in question to an independent clothing retailer while the goods are being transported by ship between Indonesia and California. The California importer delivers the clothing directly to the clothing retailer’s Washington distribution warehouse located in Seattle. The California importer would not owe Washington B&O tax on the sale in question, assuming it meets the requirements of RCW 82.04.610.
The same provisions of RCW 82.04.610 would apply to goods imported from a foreign point of origin through a California port into Washington as would apply to goods imported through a port located in Washington. If a container is unloaded from a ship at the Port of Long Beach, and then immediately loaded onto a railcar and shipped directly to the Washington customer, the sale is not subject to Washington B&O tax.
The State of Washington has provided statutory and regulatory guidance on the application of the B&O tax to import activity. Washington importers that may have incorrectly paid the tax should remember that the statutory refund period covers all tax paid in the last four calendar years, plus the current year. Refunds for the earliest year must be filed by December 31st of the current year in order to stop the statute of limitations from expiring. Businesses with questions about the application of B&O tax to import activity should contact their tax advisors with questions.