United States

Perishable meat processors eligible for favorable Washington B&O rate

INSIGHT ARTICLE  | 

Certain food manufacturers and distributors doing business in Washington may qualify for a lower Business and Occupation Tax (B&O) rate. Many companies are unaware that the state provides a preferential rate to persons engaged within Washington in slaughtering, breaking and/or processing perishable meat products and/or selling these products at wholesale. This preferential tax rate is currently .138%, which is a reduction from the Wholesaling and Manufacturing rates of .484%. Further, businesses that have already paid the higher B&O tax rate on their products may qualify for a refund. Businesses that manufacture products within the state of Washington that contain perishable meat, as well as businesses that sell products at wholesale into Washington that contain perishable meat, likely qualify.

Examples of products that may qualify for the lower tax rate—and possible refunds—include canned food containing meat (e.g., chili or soup containing meat products), frozen pizza, frozen stir-fry with chicken, hot dogs, beef jerky, and pet foods containing meat.

Background

Washington law provides a preferential B&O tax rate on every person engaging within the state in the business of slaughtering, breaking, and/or processing perishable meat products and/or selling these products at wholesale, commonly referred to as the “slaughter/breaking” B&O tax classification.

On Jan. 13, 2005, the Washington Supreme Court ruled in favor of a taxpayer that produced canned chili in the state. During the manufacturing process, the taxpayer converted perishable meat to a nonperishable finished product as the canned chili maintained an indefinite shelf life. Although the state argued that the resulting canned chili was no longer “perishable” for purposes of the lower rate, the court concluded that the taxpayer’s manufacturing process was “processing perishable meat products” subject to the preferential slaughter/breaking tax rate. The result of the decision allowed many more food processors to be eligible for the lower rate.

Takeaways

The following are types of activities that qualify for the slaughter/breaking tax rate:

  • Food processors located in Washington who process perishable meat
  • Food Processors who process perishable meat outside Washington and then sell the finished product at wholesale within Washington
  • Non Processors (distributors) who sell perishable meat products at wholesale in Washington.  Their sales of nonperishable meat products do not qualify

Some examples of the types of products that would qualify for a processor and/or a non-processor of perishable meats (seafood does not qualify):

Product

Processor

Non-processor

Canned Meat (with an expiration date)

Yes

Yes

Canned Chicken Noodle Soup (no expiration date)

Yes

No

Frozen Pepperoni Pizza

Yes

Yes

Frozen Stir Fry with Chicken

Yes

Yes

Hot Dogs

Yes

Yes

Beef Jerky

Yes

Yes

Canned Beef & Gravy Dog Food (no expiration date)

Yes

No

Dry Dog Food containing meat

Yes

No

 

Taxpayers that may be eligible for the exemption should consult their Washington state and local tax advisers with questions on obtaining the preferential tax rate and filing refund claims for past periods.

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