WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Washington is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Washington include physical property, like furniture, home appliances, and motor vehicles.
The purchase of prescription medicine, groceries and gasoline are tax-exempt.
Some services in Washington are subject to sales tax. For a detailed list of taxable services view this page from the Washington Department of Revenue website.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Washington requires businesses to collect sales tax on the sale of digital goods or services.
HOW TO REGISTER FOR WASHINGTON SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Purpose of application
- Ownership structure
- Business name
- Owners & spouses
- Business info including location, business activities, bank name, etc.
- Employment/Elective Coverage
Register for a Seller's Permit online through the Washington Department of Revenue
Expiration: Business Licensing Service will send you a renewal notice 45 days before the license expires.
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Everett, Washington. Since books are taxable in the state of Washington, Mary charges her customers a flat-rate sales tax of 9.2000% on all sales. This includes Washington’s state sales tax rate of 6.500%, and Everett’s sales tax rate of 2.7000%.
The state of Washington follows what is known as a destination-based sales tax policy. This means that long-distance sales within Washington are taxed according to the address of the [if origin=seller; if destination=buyer]. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Spokane, Washington. A customer living in Tacoma finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 6.500% state tax rate for Washington, plus 3.1000% for Tacoma’s city tax rate. At a total sales tax rate of 9.600%, the total cost is $383.60 ($33.60 sales tax).
Washington businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your Washington seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
Recommended: Hiring a business accountant can help your business file tax returns as well as issue payroll and manage bookkeeping. Schedule a consultation with a business accountant today to save thousands of dollars on your taxes.
How to File
Washington requires businesses to file sales tax returns and submit sales tax payments online.
Download the Resale Certificate through the Washington Department of Revenue. Present the certificate to the seller at the time of purchase.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects. The state of Washington will ask for an estimate of expected sales tax when you obtain your Seller's Permit, and will assign you a filing frequency. If and when you cross into a certain threshold of sales tax collected, the State will alert you about what bracket you belong in.
Note: Washington requires you to file a sales tax return even if you have no sales tax to report.
All sales tax return deadlines fall on either the 25th or the last day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day. Below is a list of this year’s filing deadlines.
For a complete list of deadlines, check out the 2020 Tax Filing Calendar
Annual filing: January 31, 2020
- Q1 (Jan. - Mar.): Due April 30
- Q2 (April - June): Due July 31
- Q3 (July - Sept.): Due October 31
- Q4 (Oct. - Dec.): Due January 31
Monthly filing: The 30th of the following month, or the next business day, e.g. April 30th for the month of March, or May 31st for the month of April.
Penalties for Late Filing
Washington charges a late filing penalty of 9% for the first month, 19% for the second, and a maximum of 29% for the third month, and all time thereafter.