WSR 02-18-035

PROPOSED RULES

DEPARTMENT OF REVENUE


[ Filed August 26, 2002, 3:09 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 02-09-068.

Title of Rule: WAC 458-20-208 Exemptions for adjustments of new motor vehicle inventory between new car dealers and accommodation ((Accommodation)) sales.

Purpose: To explain the application of the business and occupation (B&O) tax exemptions for wholesale sales of new motor vehicles between new car dealers and accommodation sales.

Statutory Authority for Adoption: RCW 82.32.300.

Statute Being Implemented: RCW 82.04.422 and 82.04.425.

Summary: Rule 208 explains how the B&O tax exemption for inventory adjustments applies to sales of new motor vehicles between new car dealers selling motor vehicles of the same make. It also explains the application of the B&O tax exemption for accommodation sales.

Reasons Supporting Proposal: The rule is being amended to incorporate chapter 258, Laws of 2001. To consolidate tax-reporting information currently found in multiple documents, the rule is also being amended to incorporate information from Excise Tax Advisories 064.04.208 and 428.04.103/208.

Name of Agency Personnel Responsible for Drafting: JoAnne Gordon, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6120; Implementation: Alan Lynn, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6125; and Enforcement: Russell Brubaker, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6131.

Name of Proponent: Department of Revenue, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: This proposed rule incorporates RCW 82.04.422 (chapter 258, Laws of 2001), which provides a B&O tax exemption for wholesale sales of new motor vehicles by new car dealers for the purpose of adjusting inventory levels. It explains that the sale must be made to another new car dealer making sales of the same make of vehicle and the amount paid by the purchasing dealer cannot exceed the amount paid by selling dealer in acquiring the motor vehicle. The rule also discusses the B&O tax exemption for accommodation sales provided in RCW 82.04.425, the conditions that must be satisfied for the exemption to apply, and the documentation requirements.

One of the requirements for exemption under RCW 82.04.422 and 82.04.425 is that the amount paid by the purchasing dealer/buyer does not exceed the amount paid by the selling dealer/seller when acquiring the property being sold. The proposed rule clarifies how this requirement is satisfied when the selling dealer/seller receives manufacturer's holdbacks or discounts on the purchase of the property being sold. The rule also incorporates information from Excise Tax Advisories 064.04.208 and 428.04.103/208, which explains that the B&O tax exemption for accommodation sales applies to exchanges of fungible products if the statutory requirements of RCW 82.04.425 are satisfied.

Proposal Changes the Following Existing Rules: This is a revision to WAC 458-20-208 as described above.

No small business economic impact statement has been prepared under chapter 19.85 RCW. A small business economic impact statement is not required because the rule and the proposed amendments do not impose any requirements or burdens upon small businesses that are not already required by statute.

RCW 34.05.328 does not apply to this rule adoption. This is an interpretive rule as defined in RCW 34.05.328.

Hearing Location: Capitol Plaza Building, 4th Floor, Large Conference Room, 1025 Union Avenue S.E., Olympia, WA, on October 10, 2002, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Sandy Davis no later than ten days before the hearing date, TTY 1-800-451-7985 or (360) 570-6175.

Submit Written Comments to: JoAnne Gordon, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, fax (360) 664-0693, e-mail @dor.wa.gov, by October 10, 2002.

Date of Intended Adoption: October 17, 2002.

August 26, 2002

Alan R. Lynn

Rules Coordinator

Legislation and Policy Division

OTS-5894.1


AMENDATORY SECTION(Amending Order ET 70-3, filed 5/29/70, effective 7/1/70)

WAC 458-20-208   Exemptions for adjustments of new motor vehicle inventory between new car dealers and accommodation sales.   ((The term "accommodation sales" means only sales for resale by persons regularly engaged in the business of making sales of the type of property so sold to other persons similarly engaged in the business of selling such property where (1) the amount paid by the buyer does not exceed the amount paid by the seller to his vendor in the acquisition of the article and (2) the sale is made as an accommodation to the buyer to enable him to fill a bona fide existing order of a customer or is made within fourteen days to reimburse in kind a previous accommodation sale by the buyer to the seller.

The "amount paid by the seller to his vendor" may under some circumstances include certain actual costs incurred by the seller and billed as such to the buyer in addition to the invoice cost of the article sold at an accommodation sale. The facts concerning such added costs must be submitted to the department of revenue for specific rulings. The "amount paid by the seller to his vendor" shall not be reduced by the amount of any manufacturer's holdbacks or discounts received after an article has been sold at an accommodation sale even though such holdbacks or discounts may be retained by the seller.


Business and Occupation Tax

In computing tax under the wholesaling -- Other classification, there may be deducted from the reported gross amount so much as represents receipts from accommodation sales. Each seller claiming this deduction must retain as a part of his sales records sufficient evidence to prove the nature of the transactions.

Revised June 1, 1970.)) (1) Introduction. This rule discusses the business and occupation (B&O) tax exemptions for certain wholesale sales of new motor vehicles between new car dealers and accommodation sales. The rule also clarifies the applicability of the accommodation sale exemption to exchanges of fungible products, such as gasoline and oil.

(2) Inventory adjustments by new car dealers. Effective July 1, 2001, RCW 82.04.422 provides a B&O tax exemption for wholesale sales of new motor vehicles by new car dealers to other new car dealers for purposes of adjusting inventory levels.

The following conditions must be satisfied for the exemption to apply.

(a) New motor vehicle. The property sold must be a new motor vehicle. For the purposes of this rule, "new motor vehicle" means every motor vehicle that is self-propelled and is required to be registered and titled under Title 46 RCW, has not been previously titled to a retail purchaser, and is not a "used motor vehicle" as defined under RCW 46.04.660. RCW 46.70.011. Examples of motor vehicles include passenger cars, trucks, motorcycles, and motor homes.

(b) Wholesale sale between new car dealers selling the same make of new motor vehicles. The sale must be a wholesale sale and must occur between new car dealers selling the same make of vehicle.

(i) Example 1. A new car dealer sells a new light pick-up truck, Make A, to another new car dealer. The purchasing dealer also sells new Make A passenger vehicles. This sale qualifies for the exemption.

(ii) Example 2. A new car dealer sells a new passenger vehicle, Make X, to another new car dealer. The purchasing dealer is not regularly engaged in the business of selling new Make X vehicles. This sale does not qualify for the exemption.

(c) Amount paid by the purchasing dealer may not exceed amount paid by selling dealer. The amount paid by the purchasing dealer cannot exceed the amount the selling dealer paid in the acquisition of the new motor vehicle, although the selling dealer may add reasonable expenses for preparing the vehicle for sale or transfer. Actual freight or delivery costs incurred by the seller and billed as such to the buyer may also be added.

(i) What are reasonable expenses for preparation? Reasonable expenses for preparing the vehicle for sale or transfer include, but are not limited to, the actual cost of additional accessories installed by the selling dealer, such as wheel/tire upgrades, and pin striping.

Questions concerning whether the exemption is available when other costs are included should be submitted to the department for determination at:

Department of Revenue

Taxpayer Services

P.O. Box 47478

Olympia, WA 98504-7478

(ii) What is the effect of holdbacks or discounts on amount paid? The amount paid by the selling dealer may not be reduced by the amount of any manufacturer's holdbacks or discounts received after an article has been sold to adjust inventory levels even though the seller may retain such holdbacks or discounts.

For the following examples, presume a new car dealer receives two new motor vehicles from the manufacturer on June 1st. The manufacturer's sales invoice indicates an invoice price of $16,600 and a holdback of $500 for each vehicle. The dealer is entitled to receive the holdback on July 1st, thirty days after being billed for the vehicle by the manufacturer.

(A) Example 1. The new car dealer sells one of the vehicles to another new car dealer on June 10th. The amount paid by the selling dealer in the acquisition of the vehicle is $16,600.

(B) Example 2. The new car dealer sells the other vehicle to another new car dealer on July 18th. The amount paid by the selling dealer in the acquisition of the vehicle is $16,100.

(3) Accommodation sales. RCW 82.04.425 provides a B&O tax exemption for wholesale sales of tangible personal property by persons who regularly engage in making sales of the type of property so sold to other persons who similarly engage in the business of selling such property.

The following conditions must be satisfied for the exemption to apply.

(a) Amount paid by buyer may not exceed amount paid by seller. The amount the buyer pays to the seller may not exceed the amount the seller paid to the seller's vendor in the acquisition of the property. Thus, a seller who manufactured the property sold cannot claim the exemption because the property has not been acquired from a vendor.

The instructions in subsection (2)(c) of this rule regarding additional expenses for preparation and the effect of holdbacks and discounts equally apply to the accommodation sale B&O tax exemption provided by RCW 82.04.425.

(b) Sale is an accommodation to fill an existing order. The sale must occur as an accommodation to allow the buyer to fill a bona fide existing order of a customer or occur within fourteen days to reimburse in-kind a previous accommodation sale by the buyer to the seller. A bona fide existing order is present if there is a commitment by the buyer's customer to purchase the property. The buyer must retain records demonstrating the customer's commitment to purchase, such as a written agreement or deposit.

For example, Recreational Vehicle Dealer A purchases a fifth-wheel trailer from Recreational Vehicle Dealer B as an accommodation. Ten days later, Dealer A sells a travel trailer to Dealer B as reimbursement in-kind of the previous accommodation sale. For Dealer A to claim the B&O tax exemption for the sale of the travel trailer to Dealer B, Dealer A must keep sufficient records to document a bona fide existing customer order for the fifth-wheel trailer purchased from Dealer B.

(c) Documentation. A person claiming the exemption for an accommodation sale must maintain sufficient documentation to verify the exemption. In addition to the documentation noted above establishing, where pertinent, the existence of a bona fide existing customer order, this documentation must include:

(i) The buyer's name and address;

(ii) The seller's name and address;

(iii) The buyer's UBI/tax registration number;

(iv) Description of the property purchased, including make, model, and serial numbers as appropriate;

(v) The date of purchase and the purchase price;

(vi) A statement by the buyer as to whether the purchase is to fill a bona fide existing order or to reimburse a previous in-kind accommodation sale, including information identifying the previous accommodation sale; and

(vii) The buyer's signature and title.

(4) Exchanges of fungible products. Persons engaged in the selling and distributing of fungible products often enter into exchange agreements. An exchange is a sale regardless of whether it results in a profit because a transfer of the ownership of, title to, or possession of property for valuable consideration occurs. RCW 82.04.040. Exchanges are subject to the B&O tax unless otherwise exempt by law.

(a) What is a fungible product? Fungible products are products that lose their physical identity to the point that they cannot be distinguished from like-kind items when comingled. Examples of fungible products include gasoline, bulk oil products, grains, logs, wood chips, fruits, and vegetables.

(b) What is an exchange? Under typical exchange agreements, a person is required to furnish products to another person selling and distributing the same products, sometimes receiving payment in-kind or with a substitute product at a later date. Exchange agreements may require the person to arrange for direct delivery from his or her vendor to the third party distributor. In some cases, actual title and/or possession of the product may pass directly from the vendor to the third-party distributor.

Persons exchanging fungible products often do so on a regular and continuing basis to cover shortages occurring because of a lack of storage or production facilities, and/or to effect savings in transportation costs. Exchanges may be carried as loans on the books of account (in which case the exchanges are often referred to as "intercompany loans"). Products acquired via an exchange may or may not be carried as regular inventory on the books of account.

(c) May an exchange of fungible products qualify as an accommodation sale? The fact that the product sold is a fungible product does not preclude a claim that the sale is exempt as an accommodation sale. However, such a claim will be recognized only if the statutory requirements of RCW 82.04.425 are met.

[Order ET 70-3, 458-20-208 (Rule 208), filed 5/29/70, effective 7/1/70.]

Washington State Code Reviser's Office