According to a Washington News Release, Washington state laws governing how businesses purchase goods and services for resale are changing in a big way next year.
Beginning Jan. 1, 2010, only businesses with a Department of Revenue-issued reseller permit can purchase items for resale without paying sales tax.
REASON FOR CHANGE
According to the Washington Department of Revenue (DOR), the legislatively mandated switch from the current resale certificate program is projected to recover up to $100 million annually in state and local sales tax revenue that is now lost when businesses buy items for their own use but don’t pay sales tax when due.
Examples of misuse of the self-issued resale certificates include a dentist buying a big screen TV for office or home use, a nonprofit corporation purchasing office equipment for its own use, and a janitorial firm buying cleaning supplies used in its business. Sales tax is due on all of these purchases because the materials aren’t being resold.
The Department estimates that 30 percent of registered businesses in Washington qualify for and will receive the new reseller permit. Businesses that do not report retail or wholesale sales generally will not be eligible for permits. Farmers will continue to be eligible to purchase certain materials such as feed and seed tax-free.
According to the Washington DOR, more than 155,000 businesses were mailed permits automatically this month. Another 330,000 were advised that they would not be sent a permit but could apply for one if they could demonstrate a legitimate business need. These include contractors, many of whom can qualify for permits depending on the nature of their work.
About 326,000 registered non-reporters, who don’t file tax returns and don’t collect sales tax, will not qualify for permits.
AFTER DECEMBER 31, 2009?
After Dec. 31, 2009, businesses that do not have a reseller permit will need to pay sales tax on products they purchase to resell, but can claim a deduction for sales tax paid at source on their state excise tax returns or seek a refund if they do resell them.
Businesses that have been issued permits must present copies to those businesses from which they buy items for resale. The sellers must keep the permits on file for five years and only make tax-free sales to businesses with permits.
If you have any questions on how this change impacts your business or your clients, please contact me at firstname.lastname@example.org.