Olympia, Wash., Oct. 5, 2009 — 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.

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 this state 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.

The Department has been working closely with industry to develop the new process since the law passed during the 2009 legislative session, Revenue Director Cindi Holmstrom said.

“I want to thank the business community for helping us implement this new law,” she said. “It’s in everyone’s best interest to ensure that sales tax is paid when due, and not paid when not due.”

Holmstrom said 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 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.

More information on reseller permits is available at http://dor.wa.gov/resellerpermit.

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We received this information from the IRS concerning emails that are currently being sent out.  Please be cautious as always about opening any email from anyone you don’t know, and understand that the IRS NEVER sends unsolicited emails!

The subject of the message falsely informs recipients that they have under-reported their incomes, resulting in fraud. The body of the email contains a link inviting users to review their tax statement on the IRS website. If they click on the link, victims are directed to a mock website that contains additional links. If they then click on one of those, a trojan is downloaded. The best thing you can do is delete the email. The IRS does not send unsolicited emails.

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For those of you who don’t follow updates to employment compliance forms, you might have missed the big news. The 2/02/09 revision of the Homeland Security Department’s form I-9 was set to expire 6/30/09 and be replaced. When an udpated form wasn’t made available by the expiration date, they permitted the February version to continue to be used.

Well, at long last, the revised I-9 is available.

If your employees filled out the 2/02/09 version of the form, no action is required from you at this point.

If your employees last filled out a version prior to the 2/02/09 edition, you should have them complete the new edition. Take the time to re-verify their documentation to ensure that they still meet the eligibility requirements to work in the United States.

Any new employees should use the 8/07/09 revision.

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Many employers have  employees who work in more than one L&I job classification. For example, a painter has one rate for interior or ground-level work and another for exterior work done on scaffolding. Because of the differences in the rates, employers may save money by splitting work between these job classifications.

Here is what the Washington State L&I Employer Guide says about this procedure:

The worker hours of any one employee may be divided for reporting purposes between two or more assigned basic risk classifications. This may be done only when accurate records of actual hours worked, supported by original timecard or time-book entries, document the division of duties.

You may not divide a worker’s hours between a “basic” classification and a “standard exception” classification, or between two standard exception classes. Standard exceptions are clerical office (class 4904), auto/truck/camper/trailer/mobile home/motorcycle and pleasure craft sales personnel (class 6301), door-to-door sales (class 6302), outside sales, (class 6303), LLC members/manager (class 7100), corporate officers (class 7101), and permanent yard or shop (class 5206).

If you do not keep accurate records of divided worker hours, all of a worker’s hours must be reported in the highest rated classification in which the worker has duties. Estimates or percentages are not acceptable documentation for splitting hours.

Clearly, documentation is the essential ingredient.

Tracking hours can be achieved in a variety of ways. One of the simplest is to adopt a time sheet that allows multiple entries per day, with room for a description of the activity performed in each block of time. A painter’s time sheet might show 8/13/09, 8-10 am, Interior Painting; 8/13/09 10-12 Exterior Painting; 12-1 pm Lunch break; 1-5 pm Exterior Painting.

Tags: L&I,splitting worker hours
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If you track Washington sales tax rates in QuickBooks, you should take a moment to update everything for Q3 2009. It’s simple and takes just a minute or two.

Step 1: Download WAQBQ309.IIF from the Department of Revenue website. Save it somewhere easy to find, like your Desktop.

Step 2: Open QuickBooks and log into your company file as you usually do.

Step 3: Open the File menu and then the following chain of sub-menus: Utilities > Import > IIF Files…

Step 4: QuickBooks will prompt you to open the file you downloaded in Step 1. Select it and click Open.

A progress bar will display as the rates are imported. QuickBooks will do the following:

• If the import file has a rate that isn’t in your QB file, it will be added.
• If the import file has a rate with the same name as one in your QB file, it will be updated.
• Any items in your file with no matches in the import file will remain unchanged.

Some people don’t like adding the hundred-plus sales tax items. There’s no easy way around that, but you can always choose the Make Inactive option on any rates that you don’t plan to use.

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The state of Washington has passed a new law changing the taxation of some digital products. This law is set to go into effect July 26, 2009. More information can be found at the DOR web site.

What does it mean for you?

The new law brings more conformity in the taxation of digital products. Historically, any downloaded product (software, video, music and others) were taxed as retail sales, subject to the Retailing B&O code and retail sales tax. However, confusion existed if similar products were used online or in a streaming format, without a download. Many businesses were reporting this income under the Services classification and avoiding retail sales tax.

The new law makes all products (with only a few exceptions) subject to retail sales tax. Products most affected include Software-as-a-Service, “cloud” computing, automated digital services (including research sites) and streamed music and video.

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In a recession like this, governments start looking for anything to help cut costs and increase revenues. One of the new tax laws passed by Washington state recently involves a requirement that monthly filers of the Combined Excise Tax Return do so electronically, and that they use a new EFT system for payment.

Electronic filing reduces the cost and increases the accuracy of return filing. Washington has been encouraging everyone to switch to e-file for a while now, but many people (including myself) have resisted. There is good news, though: a major update the online filing system has made it much more functional and removed some of my concerns.

Electronic payment, of course, means no more floating checks through the mail. But there’s a silver lining here as well: previously, the state charged you to pay electronically, but the new EFT system has no fees. (For non-monthly filers, you can still use the e-check option for $1 or the credit option for 2.5%, but why would you?)

These requirements take effect July 1, 2009. The return for this period is not filed until August 25, 2009, but it is better to get started on the registration process soon. Failure to file and pay electronically will result in a 10% penalty.

For more information, see the DOR web site or give us a call.

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A recent court case may dramatically change how sales tax collection is handled in the United State of America. The case, [Dell Marketing LP v. Taxation and Revenue Dept. of the State of New Mexico, No. 26,843, N.M. Ct. App. 2008] involves a dispute between the state of New Mexico and Dell Computers.

Dell asserts that it does not owe sales tax in New Mexico as it has no physical presence there – all it does is ship computers into the state from its out of state location. These orders are all catalog or Internet based. New Mexico nevertheless pursued the case to force Dell to pay New Mexico state and occupation taxes.

The case linked above is the finding from the New Mexico Supreme Court, which determined that New Mexico could assess sales and occupation tax and that this assessment did not represent a barrier to interstate commerce that would be protected. The case was appealed the United State Supreme Court, which has refused to hear the case. While this doesn’t have the same force as if the Supreme Court had chosen to hear and affirm the case, their decision means that the New Mexico court’s finding will stand, and will become a precedent that other courts can borrow on.

Washington implemented the Destination-Based Sales Tax rules last year, which require remote sellers to charge sales tax based on the delivery location of goods, not the location of the seller. Of greater concern, Washington is part of a coalition of state, the SSUTA which intends to make remote sellers collect sales tax on sales to any state. This New Mexico decision may not directly affect you today, but it paves the way for a dramatic change in sales tax policies.

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We have been working with some pretty amazing clients throughout the tax season and some have sent their payments for our services in “Thank You” notes.  We are very honored and privileged to work with these people and I thought it would be nice to share a couple of their comments.

“We have been very pleased with your services and finally feel like we don’t have to stress (as much) about our taxes.  You make a great team and thank you so much!”

“You have been incredible to work with and I thank you!  It means a lot that you have taken a very scary subject like taxes and made it approachable and understandable.”

Comments like these are what I hear over and over when I am out interacting in networking groups or other events around the community.  Spontaneous testimonials seem to erupt when I am not expecting them at all.  Mostly, people appreciate that we take the time to sit down and discuss their taxes with them, asking questions and making sure we understand everything going on in their particular situation that may help us help them.  Then, we don’t just hand them their completed tax return, say, “sign here,” and “here’s your bill,” and try to get them out the door quickly.  We are not an assembly-line tax service!  We not only make sure we can claim every legal deduction and  dig for anything that can help, but we explain their completed return to them.  They leave knowing what the numbers on those pages mean, where they came from, and how they work.  I can’t tell you how many of our clients have left amazed and thanking us because for the very first time they actually understand their tax return and how much they appreciate our taking that time with them.  Over and over I hear our clients telling others how cared about they felt with us, and how respected.

The thanks goes both ways with us – and a huge THANK YOU to each of our clients in return. You rock!

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