Title of Rule and Other Identifying Information: WAC 458-20-197 When tax liability arises, this rule provides a general discussion of when tax liability arises for accrual and cash receipts basis taxpayers. It also provides specific guidance to construction contractors and persons operating warehouses.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The department is proposing the following changes:

•	Adding language (subsection (5)(c)) to explain that persons operating grain warehouses licensed under chapter 22.09 RCW may elect to report the value proceeding or accruing from grain warehouse operations on either a cash receipts or accrual basis. RCW 82.04.090.
•	An updating of the date year in example in subsection (4)(b)(ii).

     Statutory Authority for Adoption: RCW 82.32.300 and 82.01.060(2).

     Statute Being Implemented: To the extent the following apply to the taxpayers identified in this rule: RCW 82.04.090, 82.08.020, 82.08.100, 82.14.030, and 82.16.020.

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

     Name of Proponent: Department of revenue, governmental.

     Name of Agency Personnel Responsible for Drafting: Gayle Carlson, 1025 Union Avenue S.E., Suite #544, Olympia, WA, (360) 570-6126; Implementation: Alan R. Lynn, 1025 Union Avenue S.E., Suite #544, Olympia, WA, (360) 570-6125; and Enforcement: Janis P. Bianchi, 1025 Union Avenue S.E., Suite #544, Olympia, WA, (360) 570-6147.

April 30, 2007

Alan R. Lynn

Rules Coordinator

OTS-9711.2

AMENDATORY SECTION(Amending WSR 90-10-082, filed 5/2/90, effective 6/2/90)

WAC 458-20-197   When tax liability arises.   (1) Gross proceeds of sales and gross income shall be included in the excise tax return for the period in which the value proceeds or accrues to the taxpayer. For the purpose of determining tax liability of persons making sales of tangible personal property, a sale takes place when the goods sold are delivered to the buyer in this state. With respect to leases or rentals of tangible personal property, liability for retail sales tax arises as of the time the rental payments fall due (see WAC 458-20-211).

     (2) Accrual basis.

     (a) When excise tax returns are made upon the accrual basis, value accrues to a taxpayer at the time:

     (i) The taxpayer becomes legally entitled to receive the consideration, or,

     (ii) In accord with the system of accounting regularly employed, enters as a charge against the purchaser, customer, or client the amount of the consideration agreed upon, whether payable immediately or at a definitely determined future time.

     (b) Amounts actually received do not constitute value accruing to the taxpayer in the period in which received if the value accrues to the taxpayer during another period. It is immaterial if the act or service for which the consideration accrues is performed or rendered, in whole or in part, during a period other than the one for which excise tax return is made. The controlling factor is the time when the taxpayer is entitled to receive, or takes credit for, the consideration.

     (3) Cash receipts basis.

     (a) When returns are made upon cash receipts and disbursements basis, value proceeds to a taxpayer at the time the taxpayer receives the payment, either actually or constructively. It is immaterial that the contract is performed, in whole or in part, during a period other than the one in which payment is received.

     (b) See: WAC 458-20-199 for limitation as to persons who may report on the cash receipts basis.

     (4) Special application, contractors.

     Value accrues for a building or construction contractor who maintains his accounting records on the accrual basis, as of the time the contractor becomes entitled to compensation under the contract.

     (a) If by the terms of the contract the taxpayer becomes entitled to compensation upon estimates as the work progresses, value, to the extent of such estimates, accrues as of the time that each estimate is made and the balance at the time of the completion of the work or of the final estimate.

     (b) If by the terms of the contract the taxpayer becomes entitled to compensation only upon the completion of the work, value accrues as of the earlier of the completion of the work, or, any use of the facilities being constructed, or, 60 days after the facility is substantially complete.

     (i) Example: A contractor agrees to build two buildings for a buyer. Under the terms of the contract, payment is to be made only upon completion of both buildings. One building is substantially completed and occupied on April 15, 1991, the other building is substantially completed on May 15, 1991 and occupied on July 1, 1991. The work on both buildings is completed under the contract on June 15, 1991. Value accrues for the first building on April 15, 1991, the date it was used. Value accrues for the remainder of the contract on June 15, 1991, the date the work was completed.

     (ii) Example: A contractor agrees to build a building for a buyer. Under the terms of the contract, the buyer is to make payment for the building only upon completion of the building. The building is completed, except for minor alterations, and available for planned occupancy on August 15, 1990. However, because of a contract dispute between the buyer and his tenant for the building, the buyer is unable to pay the contractor until February 25, 1991 when the building is finally occupied. The building is completed under the contract on November 15, 1990. Value accrues on the building for sales tax and B&O tax purposes on October 14, 1990, 60 days after August 15, ((1991)) 1990, the date the building was substantially complete.

     (5) ((Warehousemen)) Warehouse operators. In the case of ((warehousemen)) warehouse operators value proceeds or accrues to the taxpayer as follows:

     (a) When the taxpayer is reporting upon the accrual basis, value accrues at the time the charge is entered against the owner of the goods stored in accordance with the terms of the contract between the parties and the regular system of accounting employed by the taxpayer.

     (i) Value accrues when the charge is entered whether the consideration for storage is at a fixed rate per unit per month or other period, or, at a flat charge regardless of the length of time, or, whether payable periodically or at the time of withdrawal.

     (ii) Thus, where a ((warehouseman)) warehouse operator, keeping books on accrual basis, customarily enters as a charge to the owner of the goods and a credit to storage income the full amount of a flat storage charge as of the time the goods are received, even though the time for payment is deferred until withdrawal of the goods, value accrues as of the time the goods are received. However, if the ((warehouseman)) warehouse operator customarily does not enter such charge until the time of withdrawal, value accrues as of such later date.

     (b) When the taxpayer is reporting upon a cash receipts basis, value proceeds at the time the payment for storage is received.

     (c) Exception for grain warehouse operators. Persons operating grain warehouses, licensed under chapter 22.09 RCW, may report the value proceeding or accruing from their grain warehouse operations on either a cash receipts or accrual basis. RCW 82.04.090.

     For effect of rate changes, see WAC 458-20-235 (Effect of rate changes on prior contracts and sales agreements).

[Statutory Authority: RCW 82.32.300. 90-10-082, § 458-20-197, filed 5/2/90, effective 6/2/90; Order ET 70-3, § 458-20-197 (Rule 197), filed 5/29/70, effective 7/1/70.]

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