SC&H Group Blog: "Expertise Beyond the Numbers"

State & Local Tax Updates: California Real Property for New Construction; Georgia Sales and Use Tax; and New Hampshire Credits and Incentives

Through its content-sharing partnership with Thomson Reuters Checkpoint, SC&H Group’s State and Local Tax practice has compiled the following round up of actionable state tax news.

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California Real Property — Intercounty disaster relief.
The California State Board of Equalization (SBE) has sent a letter to county assessors updating the list of counties with ordinances implementing the disaster relief intercounty base year value transfer provisions of Cal. Rev. & Tax. Cd. § 69.3 (Proposition 171) to include Sonoma County, effective December 13, 2012. The other nine counties with such ordinances are Contra Costa, Los Angeles, Modoc, Orange, San Francisco, Santa Clara, Solano, Sutter, and Ventura. ( California State Board of Equalization Letter to Assessors 2014/040, 08/28/2014 .)

California Real Property — New construction—portion of a structure.
The California State Board of Equalization (SBE) has sent a letter to county assessors as a follow-up to the adoption of a new section for the Assessor’s Handbook: Section 410, Assessment of Newly Constructed Property (see State & Local Taxes Weekly , Vol. 25, No. 22, 06/02/2014). In connection with the adoption of AH 410, there was considerable discussion regarding the assessment of new construction associated with a portion of an existing structure, and whether these assessments were permitted under California statutes and regulations. It was further suggested that these types of assessments would begin for routine kitchen or bathroom remodels as a result of the text in AH 410 and its adoption as a guide to county assessors. This suggestion is inaccurate. Generally, remodeling activity consists of replacing or substituting an item that is fundamentally the same type or utility for an item that is exhausted, worn out, or inadequate. Replacements made under these circumstances are considered normal maintenance that do not make the improvement, or a portion thereof, substantially equivalent to new and are not considered assessable new construction. The adoption of AH 410 has provided county assessors and others interested in the assessment of property in California with a good reference document. The text regarding the assessment of a portion of an existing structure is merely a reiteration of a 36-year old provision of Rule 463 and does not alter how SBE staff will view the new construction decisions made by county assessors. ( California State Board of Equalization Letter to Assessors 2014/039, 08/28/2014 .)

Georgia Sales And Use Tax — Responsible person penalty.
A member of a member-managed limited liability company (LLC) was found to be a “responsible person” and thus liable under the responsible person penalty under Ga. Code Ann. § 48-2-52 for the LLC’s delinquent sales and use taxes. The member owned 50% of the company; had the power to act for and bind the LLC; had the duty to collect, account for, and pay over taxes; was responsible for filing the LLC’s annual registration and online sales tax returns and payments; and had the authority to write checks and to chose which creditors of the LLC would be paid and in what amounts. The member, despite knowledge that the LLC was delinquent in the remittance of sales taxes collected from its customers, did not remit the payments to the Department of Revenue but continued to pay other creditors instead. He was a responsible person within the meaning of the statute who willfully failed to perform a duty to pay over taxes, and so was personally liable for the unpaid sales and use taxes of the LLC. (Thomas M. Herring v. Commr., Ga. Dept. of Rev., Ga. Tax Tribunal, Dkt. No. 1407352, 08/27/2014.)

Georgia Sales And Use Tax — Exemption for foreign diplomats.
The Georgia Department of Revenue has issued guidance relating to tax exemption privileges for foreign diplomats assigned to the United States. In general, the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations, ratified by the United States under Article VI of the Constitution, provide tax exemption privileges for foreign diplomats, consular officers, and staff members on assignment in the United States. Only those foreign countries granting reciprocal privileges to American Embassies and personnel are entitled to tax exemption. Exemptions extend to various taxes including sales and use, occupancy, food, airline, gas, and utility tax. (Ga. DOR Policy Bulletin SUT-2014-02, 08/29/2014.)

Georgia Sales And Use Tax — Taxation of Internet access charges.
The Georgia Department of Revenue has issued guidance relating to the expiration of the federal moratorium on the taxation of internet access charges. Georgia law does not provide for the imposition of state or local sales tax on charges for internet access. Furthermore, the Georgia General Assembly is prohibited by the Internet Tax Freedom Act (ITFA) from imposing a tax on internet access charges. ITFA is a federal law that imposes a moratorium on the taxation of charges for internet access. ITFA defines “internet access” as: (1) a service that enables users to connect to the internet to access content, information, or other services offered over the internet; (2) telecommunications purchased, used, or sold to provide such service or to enable users to access content, information, or other services offered over the internet; and (3) services incidental to the provision of such services to users. Unless extended by Congress, the moratorium will expire on November 1, 2014. Currently, Georgia law does not impose a tax on charges for internet access. (Ga. DOR Policy Bulletin SUT-2014-01, 08/29/2014.)

Nebraska Sales Tax Rates — Changes to local sales and use tax rates.
Nebraska Tax Commissioner Kim Conroy has issued a press release announcing changes to several local sales and use tax rates that are effective on October 1, 2014. Fairfield will impose a new local sales and use tax of 1%. Atkinson will increase its local sales and use tax to 1.5%. Hickman will impose a new local sales and use tax of 1.5%. La Vista will increase its local sales and use tax to 2%. The press release also reminds Nebraska taxpayers that local sales and use tax receipts are reported to the Department along with state sales and use tax receipts. If sales tax is not collected on a taxable sale by the retailer at the time of purchase, the buyer is responsible for paying the appropriate use tax directly to the Department. ( Changes to Local Sales and Use Tax Rates, Nebraska Tax Commissioner Kim Conroy, 08/29/2014.)

Nebraska Sales And Use Tax — Changes to local sales and use tax rates.
Nebraska Tax Commissioner Kim Conroy has issued a press release announcing changes to several local sales and use tax rates that are effective on October 1, 2014. Fairfield will impose a new local sales and use tax of 1%. Atkinson will increase its local sales and use tax to 1.5%. Hickman will impose a new local sales and use tax of 1.5%. La Vista will increase its local sales and use tax to 2%. The press release also reminds Nebraska taxpayers that local sales and use tax receipts are reported to the Department along with state sales and use tax receipts. If sales tax is not collected on a taxable sale by the retailer at the time of purchase, the buyer is responsible for paying the appropriate use tax directly to the Department. ( Changes to Local Sales and Use Tax Rates, Nebraska Tax Commissioner Kim Conroy, 08/29/2014.)

New Hampshire Corporate Income Tax — New Hampshire case declaring education credit program unconstitutional vacated.
A Superior Court’s decision that an education business credit program intended to fund scholarships for private and parochial schools violates the New Hampshire constitution’s Part II, Article 83 No-Aid Clause was reversed and remanded because the taxpayers failed to establish that they had standing to bring their constitutional claim. The personal injuries alleged by the taxpayers in this case are insufficient to establish standing. The taxpayers’ claim that the program will result in “net fiscal losses” to local governments does not articulate a personal injury. It “is the same, indistinguishable, generalized wrong allegedly suffered by the public at large.” Although some of the taxpayers have school-aged children or are public school teachers, at best, this establishes that those taxpayers have a special interest in education. Such a special interest, alone, does not constitute a “definite and concrete” injury sufficient to confer standing. Moreover, the claimed injury asserted—the loss of money to local school districts—is necessarily speculative. (Duncan v. The State of New Hampshire, N.H. S. Ct., Dkt. No. 2013-455, 08/28/2014, vacating and remanding N.H. Super. Ct. Strafford County, Dkt. No. 219-2012-CV-00121, 06/17/2013.)

New Hampshire Credits and Incentives — Case declaring education credit program unconstitutional vacated.
A Superior Court’s decision that an education business credit program intended to fund scholarships for private and parochial schools violates the New Hampshire constitution’s Part II, Article 83 No-Aid Clause was reversed and remanded because the taxpayers failed to establish that they had standing to bring their constitutional claim. The personal injuries alleged by the taxpayers in this case are insufficient to establish standing. The taxpayers’ claim that the program will result in “net fiscal losses” to local governments does not articulate a personal injury. It “is the same, indistinguishable, generalized wrong allegedly suffered by the public at large.” Although some of the taxpayers have school-aged children or are public school teachers, at best, this establishes that those taxpayers have a special interest in education. Such a special interest, alone, does not constitute a “definite and concrete” injury sufficient to confer standing. Moreover, the claimed injury asserted—the loss of money to local school districts—is necessarily speculative. (Duncan v. The State of New Hampshire, N.H. S. Ct., Dkt. No. 2013-455, 08/28/2014, vacating and remanding N.H. Super. Ct. Strafford County, Dkt. No. 219-2012-CV-00121, 06/17/2013.)

Ohio Personal Income Tax — Small business tax deduction notice.
The Ohio Department of Taxation has issued a notice summarizing the small business tax deduction. The small business deduction enables a business owner to deduct 50% of Ohio net business income from Ohio adjusted gross income (OAGI) that is reported on the Ohio personal income tax return. If the business has multiple owners, each is eligible to claim the deduction. The 50% deduction is available on up to $250,000 in business income, and capped at $125,000 for each investor or owner. The deduction cannot exceed the taxpayer’s OAGI. Owners of and investors in Ohio businesses structured as sole proprietorship pass-through entities (PTEs) qualify for this new tax cut. PTEs include partnerships, S corporations and limited liability companies. The deduction is first effective for income earned in taxable year 2013 and claimed on income tax returns filed in 2014. (Small Business Tax Deduction Notice, OH Dept. Tax., 08/01/2014.)

Ohio Sales And Use Tax — Ohio manufacturing operation exemption—caustic solution not eligible.
The Board of Tax Appeals determined that the caustic solution applied to a manufacturing run as part of a die’s prep for the next run, if there is a problem with the item being produced, or if there is a mechanical problem is not exempt from tax because it was used to prepare and maintain or repair the dies for use in manufacturing and was not necessary for the continuation of the manufacturing operation. The caustic was utilized when the dies were taken out of or removed from the manufacturing operation, i.e., when a manufacturing run was completed or a problem occurred causing the run to be stopped. Because the caustic was used when the manufacturing process had ceased, it was not used in the manufacturing process. As such, the taxpayer failed in its burden to provide competent and probative evidence in support of its position that it did not owe the assessed tax. (Perren v. Testa, Ohio BTA, Dkt. No. 2013-614, 08/29/2014.)

Pennsylvania Property Tax Rates — 2015 PURTA surtax rate.
The Pennsylvania Department of Revenue has published a Public Utility Realty Tax (PURTA) surcharge rate of zero mills effective for 2015. Therefore, no PURTA surcharge under Pa. Stat. Ann. § 8111-A(d) will be imposed for the taxable year beginning January 1, 2015. The surcharge, when imposed, is paid on each dollar of a utility’s gross receipts, other than gross receipts from mobile telecommunications services and telephone or telegraph messages transmitted in interstate commerce, as provided under Pa. Stat. Ann. § 8111-A(d) . (Notice, Public Utility Realty Tax Act Surcharge Rate for Tax Year Beginning January 1, 2015, Pa. Bull. Doc. No. 14-1852, Pa. Bull. Vol. 44, No. 35, 08/30/2014.)

Pennsylvania Real Property — 2015 PURTA surtax rate.
The Pennsylvania Department of Revenue has published a Public Utility Realty Tax (PURTA) surcharge rate of zero mills effective for 2015. Therefore, no PURTA surcharge under Pa. Stat. Ann. § 8111-A(d) will be imposed for the taxable year beginning January 1, 2015. The surcharge, when imposed, is paid on each dollar of a utility’s gross receipts, other than gross receipts from mobile telecommunications services and telephone or telegraph messages transmitted in interstate commerce, as provided under Pa. Stat. Ann. § 8111-A(d) . (Notice, Public Utility Realty Tax Act Surcharge Rate for Tax Year Beginning January 1, 2015, Pa. Bull. Doc. No. 14-1852, Pa. Bull. Vol. 44, No. 35, 08/30/2014.)

South Carolina Corporate Income Tax — South Carolina exceptional needs children scholarship—update.
The Department of Revenue has updated the amount of remaining credit available for under the Exceptional Needs Children Scholarship Credit and is at $7,475,273 (previously $7,779,850), as of August 26, 2014. The total amount credit which may be awarded statewide  cannot exceed $8 million. The credit is available for contributions made between July 1, 2014 through June 30, 2015 to nonprofit scholarship funding organizations. to provide grants for tuition, transportation, and textbooks to exceptional needs children enrolled  in eligible schools, provided the contribution is note designated for a specific child or school. The credit is non-refundable and cannot exceed 60% of a taxpayer’s total tax liability. Corporations may not transfer the credit unless all of the assets of the  corporation are conveyed in the same transaction. Taxpayers may apply for the credit using Form TC-57A. A listing of nonprofit scholarship funding organizations is available on the website of the Education Oversight Committee. (Exceptional Needs Children Scholarship Credit, S.C. Dept. of Rev., 08/27/2014.)

South Carolina Credits and Incentives — Exceptional needs children scholarship—update.
The Department of Revenue has updated the amount of remaining credit available for under the Exceptional Needs Children Scholarship Credit and is at $7,475,273 (previously $7,779,850), as of August 26, 2014. The total amount credit which may be awarded statewide  cannot exceed $8 million. The credit is available for contributions made between July 1, 2014 through June 30, 2015 to nonprofit scholarship funding organizations. to provide grants for tuition, transportation, and textbooks to exceptional needs children enrolled  in eligible schools, provided the contribution is note designated for a specific child or school. The credit is non-refundable and cannot exceed 60% of a taxpayer’s total tax liability. Corporations may not transfer the credit unless all of the assets of the  corporation are conveyed in the same transaction. Taxpayers may apply for the credit using Form TC-57A. A listing of nonprofit scholarship funding organizations is available on the website of the Education Oversight Committee. (Exceptional Needs Children Scholarship Credit, S.C. Dept. of Rev., 08/27/2014.)

South Carolina Personal Income Tax — Exceptional needs children scholarship—update.
The Department of Revenue has updated the amount of remaining credit available for under the Exceptional Needs Children Scholarship Credit and is at $7,475,273 (previously $7,779,850), as of August 26, 2014. The total amount credit which may be awarded statewide  cannot exceed $8 million. The credit is available for contributions made between July 1, 2014 through June 30, 2015 to nonprofit scholarship funding organizations. to provide grants for tuition, transportation, and textbooks to exceptional needs children enrolled  in eligible schools, provided the contribution is note designated for a specific child or school. The credit is non-refundable and cannot exceed 60% of a taxpayer’s total tax liability. Taxpayers may apply for the credit using Form TC-57A. A listing of nonprofit scholarship funding organizations is available on the website of the Education Oversight Committee. (Exceptional Needs Children Scholarship Credit, S.C. Dept. of Rev., 08/27/2014.)

Texas Sales And Use Tax — Motor vehicle sales tax—military personnel.
The Texas Comptroller of Public Accounts has adopted amendments to the motor vehicle sales tax regulations relating to U.S. and foreign military personnel stationed in Texas (34 Tex. Admin. Code § 3.68, effective 09/02/2014). The tax payment due date is changed from 20 county working days to 30 calendar days from the date of Texas sale or first use in Texas. A member of the U.S. military, of a reserve unit of the U.S. military, of the Texas National Guard or of the National Guard of another state who is on active military duty under an order of the president of the United States must pay motor vehicle sales or use tax as the purchaser of a motor vehicle no later than 60 calendar days (previously, “county working days”) after the date of sale or first use in Texas (previously, “after the date of receipt of the vehicle.”)

Texas Sales And Use Tax — Texas sales tax refund for telecommunication service providers.
The Texas Comptroller of Public Accounts has adopted new regulations relating to the annual refund program for providers of cable television, Internet access, or telecommunications services (34 Tex. Admin. Code § 3.345, effective 09/01/2014). The state sales tax refund request date under the program is September 2, 2014 for tax paid September 1, 2013, through December 31, 2013, on qualifying purchases made on or after September 1, 2013. For tax paid on or after January 1, 2014, on qualifying purchases made on or after September 1, 2013, the refund request date is March 31 of the year immediately following the calendar year in which the tax was paid (e.g., a refund request for taxes paid during calendar year 2014 on qualifying purchases made on or after September 1, 2013, is due by March 31, 2015). Each requestor must file the refund request electronically or in the format prescribed by the comptroller (i.e., the postmark date or its electronic equivalent on a refund request determines the filing date). No interest will be paid on refund requests, multiple refunds on the same items are not allowed, and requestors cannot seek a refund or credit under another provision of Chapter 151 of the Texas Tax Code for any item on which sales or use tax was paid and for which a refund was requested unless the refund request for the specific item was denied in full.

Washington Business And Occupations — Log processor.
The Washington Department of Revenue Appeals Division (Appeals Division) granted the taxpayer’s appeal, in part. The taxpayer, a processor of logs, argued that its activities should receive the preferential business and occupation tax rate applicable to manufacturers of timber products. The Appeals Division examined the taxpayer’s activities, which consisted of purchasing raw logs, grading the logs and cutting the logs into veneer blocks which were sold to veneer manufacturers and found that the taxpayer was creating a “new, different or useful product” and could therefore be considered a manufacturer. A portion of the taxpayer’s appeal related to a use tax assessment was denied because no evidence was submitted. ( Washington Tax Determination 14-0057, 02/18/2014, 33 WTD 429 .)

Washington Business And Occupations — Gratuities.
The Washington Department of Revenue Appeals Division (Appeals Division) denied the taxpayer’s appeal. The taxpayer, an operator of a music and dancing club, challenged the imposition of sales tax and business and occupation tax to gratuity amounts automatically included on customers’ checks. Although voluntary gratuities are not subject to tax, the Appeals Division determined that there was nothing on the bills issued to customers to indicate that the gratuities added were voluntary or suggested and that such amounts were therefore subject to tax. The taxpayer also challenged the imposition of business and occupation tax on amounts paid to a contractor for supervising a remodeling project, arguing that the contractor’s activities were consulting and not construction activities. Because the contractor was hired to ensure that the construction was completed properly, the Appeals Division determined that he was engaged in services rendered with respect to construction work. ( Washington Tax Determination 14-0108, 03/25/2014, 33 WTD 444 .)

Washington Business And Occupations — Nexus.
The Washington Department of Revenue Appeals Division (Appeals Division) denied the taxpayer’s appeal. The taxpayer, an apparel company located outside of Washington, asserted that its physical presence in Washington, which consisted solely of attendance at various trade shows, was insufficient to create nexus. The Appeals Division noted that nexus determinations are made by examining whether the taxpayer’s in-state activities are significantly associated with establishing or maintaining a market within the state and that Washington State does not provide an exemption for trade show attendance. Because the activities of the taxpayer’s representatives, which included making contact with buyers, displaying products, distributing catalogs and discussing its service model with potential customers, were associated with establishing and maintaining a market in Washington, the taxpayer was deemed to have nexus. ( Washington Tax Determination 14-0062, 02/20/2014, 33 WTD 439 .)

Washington Business And Occupations — Franchise fees.
The Washington Department of Revenue Appeals Division denied the taxpayer’s appeal. The taxpayer, a franchisor, sought to exclude from gross income amounts received from franchisees as part of a sales promotion program, arguing that such amounts were for cooperative advertising. There is a limited exclusion for amounts received for cooperative advertising under WAC 458-20-111 (dealing with advances and reimbursements), however, the allowance for cooperative advertising requires that amounts received be expended exclusively for advertising or sales promotion and must mention the name of the manufacturer or product trade name. In addition, proof of actual advertising and cost must be provided to the payor. Because the taxpayer’s operating agreement did not require the sales promotion fees to be spent only on advertising and the taxpayer was not required to provide proof of actual advertising, the exclusion did not apply. Further, the taxpayer used the fees to pay for its own national advertising program and was not acting as a conduit for the franchisees. ( Washington Tax Determination 13-0334, 11/07/2013, 33 WTD 414 .)

Washington Business And Occupations — Retail sales income properly characterized.
An administrative law judge (ALJ) has rejected a taxpayer’s contention that the Department of Revenue, in an audit of the taxpayer, had mischaracterized commission income for the tax periods in question as income from retail sales, assessing retail sales tax and the retailing B&O tax on these amounts. Taxpayer, a corporation, is a sales representative of a company (the Affiliate) specializing in the selling of school-related items such as rings, year-books, etc. The taxpayer made sales at a retail location, online, and at schools within its designated jurisdiction. The ALJ noted that the Audit Division had correctly relied on the taxpayer’s Form 1099s as providing the best evidence of the commission income received. The ALJ noted that, while the taxpayer asserted commission income in excess of that reflected on the Form 1099s, it had failed to provide source documentation to substantiate its characterization of the income at issue. ( Washington Tax Determination 14-0174, 06/02/2014, 33 WTD 452 , released 08/28/2014.)

Washington Business And Occupations — Apportionment formula—reliance on oral instructions.
The taxpayer operated an Internet marketing business that included web design, search engine optimization, research, and strategy. The taxpayer sold its services in and outside of the state, performed all services in-state, and did not pay taxes to any other state. In June 2011, the taxpayer amended its excise tax returns and requested a refund claiming that most of its sales were out of state, and that based on the new apportionment method effective June 1, 2010, as set forth in Rule 19402, it was due a refund of taxes paid on sales that should have been apportioned out of state. The Department of Revenue (DOR) granted the refund. Subsequently, the DOR’s performed an audit, and discovered that for the periods in which Rule 19402 was applicable, the taxpayer had incorrectly applied the apportionment formula. The taxpayer told the auditor that it had applied the formula per the instruction given over the telephone by a DOR representative. Based on the audit, the taxpayer’s apportionable income was recalculated, and an assessment was issued. The taxpayer appealed, arguing that the assessment should be waived because of his reliance on the representative’s instructions. The Appeals Division denied the appeal, finding that the assessment was properly calculated, and that the taxpayer had a right to rely on written but not oral instructions from the DOR. In addition, there was no record of the facts presented to the agent for his consideration, nor any instructions or information given by the agent, which may have been erroneous or incomplete. ( Washington Tax Determination 13-0397, 12/26/2013, 33 WTD 424 , released 08/28/2014.)

Washington Sales And Use Tax — Reusable drug infusion pumps and modules.
Sales of programmable drug infusion pumps are not exempt from retail sales tax because the pumps were reused as durable medical equipment, and not worn in or on the patients’ body as a prosthetic device. The infusion pumps were stationary pumps with software that were programmed program to dispense drug and saline solutions according to the physician’s prescription. After they were used to treat the patient, the accompanying tubing and catheters were discarded but the pumps were reprogrammed and used with other patients. The administrative law judge (ALJ) noted that although sales of disposable devices, such as syringes, tubing, and catheters, used or to be used to deliver drugs for human use pursuant to a prescription are exempt from sales tax, here, the taxpayer’s sales of the pumps and modules are not exempt because they were not disposable, but reused. Although the taxpayer contended that the pumps were exempt as prosthetic devices, the ALJ disagreed, finding that the infusion pumps were taxable as durable medical equipment because it could withstand repeated use, was used primarily and customarily for a medical purpose, was not useful to a person in absence of illness or injury, and were not worn on or in the body. As such, retail sales tax was properly assessed. ( Washington Tax Determination 13-0388, 12/17/2013, 33 WTD 419 .)

Washington Sales And Use Tax — Gratuities.
The Washington Department of Revenue Appeals Division (Appeals Division) denied the taxpayer’s appeal. The taxpayer, an operator of a music and dancing club, challenged the imposition of sales tax and business and occupation tax to gratuity amounts automatically included on customers’ checks. Although voluntary gratuities are not subject to tax, the Appeals Division determined that there was nothing on the bills issued to customers to indicate that the gratuities added were voluntary or suggested and that such amounts were therefore subject to tax. The taxpayer also challenged the imposition of business and occupation tax on amounts paid to a contractor for supervising a remodeling project, arguing that the contractor’s activities were consulting and not construction activities. Because the contractor was hired to ensure that the construction was completed properly, the Appeals Division determined that he was engaged in services rendered with respect to construction work. ( Washington Tax Determination 14-0108, 03/25/2014, 33 WTD 444 .)

Washington Sales And Use Tax — Food and beverages bought by hotel in Washington.
The Audit Division improperly assessed use tax on the purchase price of food and beverages that a hotel used to provide complementary meals to its guests. The Appeals Division rejected the hotel’s claim that the food and beverages were purchased for resale, so they were not subject to retail sales tax, and consequently not subject to use tax. Under Wash. Admin. Code § 458-20-166 , all purchases of tangible personal property for use in providing lodging and related services are retail sales. The hotel’s purchase of the foods and beverages are not purchases for resale because the hotel is a consumer of those items when it prepares and serves breakfasts and evening meals to its guest, which constitutes an intervening use by the hotel. Wash. Rev. Code § 82.08.0293 , however, exempts “food and food ingredients” (excludes alcoholic beverages, prepared food, and soft drinks) from retail sales tax. “Food and food ingredients” are exempt from use tax under Wash. Rev. Code § 82.12.0293 . Thus, the hotel’s purchase of food and food ingredients are exempt from both retail sales and use taxes. ( Washington Tax Determination 13-0234, 08/13/2013, 33 WTD 409 , released 08/28/2014.)

Washington Sales And Use Tax — Retail sales income properly characterized.
An administrative law judge (ALJ) has rejected a taxpayer’s contention that the Department of Revenue, in an audit of the taxpayer, had mischaracterized commission income for the tax periods in question as income from retail sales, assessing retail sales tax and the retailing B&O tax on these amounts. The taxpayer, a corporation, is a sales representative of a company (the Affiliate) specializing in the selling of school-related items such as rings, year-books, etc. The taxpayer made sales at a retail location, on-line, and at schools within its designated jurisdiction. The ALJ noted that the Audit Division had correctly relied on the taxpayer’s Form 1099s as providing the best evidence of the commission income received. The ALJ noted that, while the taxpayer asserted commission income in excess of that reflected on the Form 1099s, it had failed to provide source documentation to substantiate its characterization of the income at issue. The ALJ also held that late charges and additional postage costs for late orders charged by the taxpayer were in the nature of delivery charges and were appropriately characterized by the Audit Division as part of the selling price and subject to retail sales tax. Finally, the ALJ rejected the taxpayer’s contention that a portion of the retail sales tax assessed had been collected and remitted by the Affiliate. While the taxpayer provided invoices showing separately stated sales tax, what was lacking was substantiation that the itemized tax at issue was actually remitted to the Department. ( Washington Tax Determination 14-0174, 06/02/2014, 33 WTD 452 , released 08/28/2014.)

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