The Washington Department of Revenue Administrative Review and Hearings Division has ruled against a for-profit college’s appeal of their Business and Occupation tax assessment on the basis that the college did not meet the state definition of an educational institution. The Department disallowed deductions taken by the college on tuition payments after an audit defined their program as a degree granting private vocational school, rather than as an educational institution qualifying for the deduction. On further review, the Administrative Review and Hearings Division determined that the for-profit college’s offering of general educational courses only met the minimum standard for degree granting institutions, and that all programs offered by the school were focused on preparing students for specific vocations and professions rather than for general education. The Department also considered the accreditations the school had received and rejected the taxpayer’s argument that private vocational schools were institutions with specific accreditations that it did not have. Because private vocational schools are excluded from the definition of educational institutions, the Department determined that the college did not qualify for the definition and assessed Business and Occupation tax on the income from the tuition payments.
When it comes to how businesses define products and services, it’s always important to consider whether they qualify for favorable exemptions and to define them accordingly, but states may not necessarily agree. Whether in the medical, manufacturing, educational, or technology space, what exactly your business is defined as can vary wildly from state to state. Your product or service may fall under a completely different definition in a new state where you are doing business, and re-examining how your product is defined can prevent surprises in audit. Washington Department of Revenue, WA—Determination No. 19-0027, (Jun. 25, 2021)