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A manufacturer that was granted a community empowerment zone (CEZ) deferral of Washington sales tax was liable for the deferred taxes because it failed to hire the number of employees required by the program. Under Washington’s CEZ program, an applicant must hire at least one qualified employment position for each $750,000 of investment and the persons hired must be residents of a CEZ where the project is located. In this case, three of the four individuals the taxpayer was required to hire were not actually employed by the taxpayer but were employed by an independent contractor. Additionally, there is no authority that would allow the taxpayer to prorate the amount of CEZ deferral based upon the one qualified employment position it hired. As a result, all deferred taxes are immediately due for the taxpayer. (Determination No. 16-0074, Washington Department of Revenue, December 1, 2016)

(01/19/2017)

A contractor was subject to the 50% evasion penalty because it collected sales tax from customers but failed to remit it to the Washington Department of Revenue. The evasion penalty is imposed when a taxpayer knows a tax is due but tries to escape detection through deceit, fraud or other intentional wrongdoing. The taxpayer knew the tax was due since it billed and collected the sales tax pursuant to its invoices. The taxpayer then altered its QuickBooks records from "sales tax due" to "material costs." The taxpayer used the collected sales tax for its own business purposes as it admitted to retaining the sales tax to meet payroll obligations. The taxpayer reported the sales that is adjusted as wholesale sales on its periodic sales tax returns.  The Audit Division assessed the evasion penalty based on the fact that the pattern of invoice modification shown in the “Audit Trail Report” is clear evidence of an intent to evade. While the taxpayer may have initially billed many customers retail sales tax, the taxpayer explains it “modified” invoices in QuickBooks by removing the sales tax charges to “correct legitimate errors” based on new or updated information.  After being notified of the audit, the taxpayer further modified some of the invoices by changing the customer name from that of a home owner consumer to that of a contractor for whom the taxpayer had a reseller's permit.  The taxpayer argues those name changes were also proper. Because the modifications were so extensive, the Audit Division did not accept reseller permits for some contractors where the invoices were significantly modified.  Though the taxpayer did not submit evidence that its actions were due to honest mistake or lack of knowledge, the case was remanded to adjust the assessment where the taxpayer has shown that a transaction was a wholesale sale and it did not collect sales tax on the sale. The evasion penalty was upheld on all transactions where a valid adjustment was not documented. (Determination No. 16-0066, Washington Department of Revenue, December 1, 2016)

(01/03/2017)

A distributor was found liable for business and occupation (B&O) tax on “national” and drop-shipped sales because it failed to show that its activities in Washington are not associated with its ability to establish and maintain a market in-state. "National sales" were delivered to Washington, though the taxpayer’s customer placed the order outside of Washington. Drop-shipped sales were delivered into Washington to a third party at the request of the taxpayer’s customer.The taxpayer argued that the sales weren’t associated with its in-state activities since its Washington office was not used to complete the sales. However, in order for the revenue to be exempt from the B&O tax, a taxpayer must show a complete absence of connection between a local office and the sales in question to satisfy its burden. The taxpayer’s employees in Washington solicited and received orders, provided market intelligence to the corporate office, and met with sales teams. As a result, there was sufficient nexus between the taxpayer’s in-state activities and the state to impose B&O tax.Additionally, the plain language of the state’s tax law does not preclude the imposition of B&O tax on the drop-shipped sales. The pertinent rule (Rule 193) states that in order for B&O tax to be imposed on sales that originate from outside the state, the seller must have nexus and the goods must be received by the purchaser in Washington. The definition of "received" includes the physical possession or exercise of dominion over the goods by the purchaser or its agent. Since the taxpayer’s buyer designated its customer to receive the goods, the customer qualified as its agent.(Avent, Inc. v. Department of Revenue, Washington Supreme Court, No. 92080-0, November 23, 2016)

(12/04/2016)

The Washington Department of Revenue (DOR) has issued a notice reminding taxpayers that Washington state law does not permit the DOR to provide direct sales tax refunds to consumers in the context of class action settlements. In regards to the litigation In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation, which has been finalized by the order of the U.S. District Court in the Northern District of California, consumers should contact class counsel or the Federal Trade Commission. For more information on the settlement, click here. (Tax Topics, Washington Department of Revenue, September 22, 2016)

(12/04/2016)

On August 25, 2016, House Judiciary Committee Chairman Robert Goodlatte released a discussion draft of the Online Sales Simplification Act of 2016. The legislation would implement a “hybrid origin” approach for remote sales. Under the legislation, states could impose sales tax on remote sales if the origin state participates in a clearinghouse.In this case, the tax is based on the origin state’s baseand taxability rules. The rate would be the origin state rate, unless the destination state participates. In that case, the rate used would be a single state-wide rate determined by each participating destination state. A remote seller would only remit sales tax to its origin state for all remote sales. Only the origin state would be able to audit a seller for remote sales. Non-participating states would not be able to receive distributions from the clearinghouse. Sellers would be required to provide reporting for remotes sales into participating states to the Clearinghouse so it can distribute the tax to the destination state. We will continue to monitor activity and update when the official bill is introduced.  (Discussion draft of Online Sales Simplification Act of 2016)

(09/08/2016)

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