The Washington Department of Revenue (DOR) denied a company seeking to claim sales tax exemptions for their account access services to credit unions. Washington imposes a sales tax and a B&O tax on those in the business of making retail sales in the state. The definition of retail sale includes digital automated services, including information access services and excluding data processing services. The taxpayer asserted that they provide data processing services, which are excluded from the tax. However, the state determined that the taxpayer provides information access services, so the services are taxable. The DOR stated the following to explain their reasoning: “The Taxpayer is not selling any of the enumerated excluded services or otherwise charging its member credit card unions for specific excluded services. Rather these services are but component parts of a larger, integrated service, which as detailed above constitute a retail sale of DAS.”
Similarly, the taxpayer attempted to claim an exemption on their phone services claiming that data processing was its main function, but the DOR disagreed because “the service goes beyond the scope of extracting and processing information that would fit within the data processing exemption.”
Lastly, the taxpayer claimed that the taxation of these services violates the Internet Tax Freedom Act which prohibits “multiple or discriminatory taxes on electronic commerce.” The state concluded that to qualify as discriminatory taxation, “it must be established that that “similar” services be taxed differently in order for discrimination to exist under the ITFA.” So in this case, the tax is not discriminatory.
(Washington Department of Revenue, Det. No. 19-0284R, 41 WTD 118, April 12, 2022)