Should you collect sales tax in Washington?
Sales tax is levied on retail sales of tangible personal property to customers. However, you will collect the sales tax if you determine the nexus in Washington. A nexus is a presence that may come physically or economically.
Physical nexus is typically created when your business has a store, warehouse, or any office location in Washington. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds are based on revenue.
Let’s explore if your business has a Physical nexus in Washington.
A physical nexus is integrated when your business is engaged in the following in Washington:
- Leasing or owning any physical property in Washington.
- Maintaining, occupying, or using a place of business or an office in Washington.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to establishing a market in the state.
- Having a distribution place in Washington.
- Employees working in the state.
You may also refer to the Washington Revenue Department advisory to know more about business activities that may create a physical nexus within the state.
Is it constituting an Economic nexus in Washington?
You are required to comply and register under sales tax rules if your retail business sales in Washington exceed $100,000 during the current or previous calendar year.
For more detailed guidance on economic nexus, kindly read through the guidance issued by the Washington Department of Revenue.
How can you Register for Sales tax in Washington?
You can use the Business Licensing Wizard to apply for tax registration and obtain Washington’s tax account number. Once you apply online for sales tax registration, receiving the sales tax permit generally takes ten business days. However, if you have city or state endorsements, getting approval may take another 2-3 weeks.
Otherwise, you can also submit the licensing application to their mailing address. Usually, it would take six weeks to process your application.
Along with the application for a sales tax permit, you also need to pay a fee of $50 for the first-time application.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- Personal and Business IDs (e.g. FEIN).
- Business starts date.
- Bonds and licenses as applicable.
- Contact information
Is your product or services liable to Sales tax in Washington?
Tangible Property: Sales tax in Washington is imposed primarily on the retail sale of tangible personal property, such as furniture, giftware, toys, etc.
Services: Many services are subject to tax in Washington such as construction, installation, cleaning, repair, etc. For more information, click here.
Digital Product: Sales or use tax applies to digital products regardless of how they are accessed, downloaded, streamed, etc. Here is what Washington says about digital products and online transactions.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. This is taxable in Washington. Review the Washington Revenue Department advisory on a case that discusses cloud-based services.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, manufacturing equipment, etc. Please click here to see what exemptions are covered.
You can read further by visiting the department website to know exactly what’s included in your list of items bound to pay sales tax.
How should you collect and calculate state taxes in Washington?
Collecting and computing accurate sales tax to be remitted to the state may involve stratospheric efforts, especially when you are not Washington-based, as the sales tax is destination-based in Washington, which means you must collect taxes on tangible property sold to buyers based in Washington.
However, complexities are involved when you have a business nexus, even if you are outside the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Washington has a base sales tax rate of 6.5%, followed by local tax rates, which vary based on the cities and municipalities. The sales tax rates page on the Washington Revenue Department website provides more information.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6.5% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in the sale invoice raised to the customer or dissipated within the selling price of items sold. There will be no tax applicability if shipping charges are entirely to be borne by the seller; otherwise, the seller needs to collect sales tax on shipping charges.
Further, if non-taxable items are sold, shipping charges associated with such sale are not liable to sales tax. However, the sale includes both taxable and non-taxable items, shipping charges need to be apportioned relatively between taxable and non-taxable parts of the sale, and accordingly, sales tax is applicable on the taxable portion of the sale. Refer to more detailed guidance on delivery charges.
How should you file sales tax in Washington?
There are multiple options available to you for reporting your sales tax.
E-file: You can e-file your return using the My DOR portal on the Washington Department of Revenue website.
File by Mail: If you have received a waiver from the Washington Department of Revenue, you can file the return by mail using the available forms.
File by Call: If you don’t have any business activity to report, you can file by call through their automated system at 360-705-6705.
You would also be required to file and pay Washington Occupation and Business tax along with sales tax filing.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the Washington Department of Revenue assigns you a filing frequency, which can be Monthly, Quarterly, or Yearly. According to your filing frequency, the due date for filing sales tax would be the 25th of the month following the relevant reporting period.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the official Washington government advisory, where you can see what the state says about sales tax filing due dates.
Are there any fines or penalties for default in filing or paying sales tax?
The state levies a penalty of 9% of sales tax due if you default in filing the sales tax by the due date. However, if you file or pay after the last day of the month following the reporting period, the penalty would be 19% of the tax due. Similarly, the penalty will be 29% of the tax due if you file after the last day of the second month following the relevant reporting period. The minimum penalty amount would be $5 in any case.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the guidelines the Washington Revenue Department issued for penalties and interest.