DEPARTMENT OF REVENUE

(1) Introduction. This rule explains the business and occupation (B&O) tax, sales tax and use tax responsibilities of those engaged in commercial deep sea fishing, and suppliers selling to those persons.

(2) Definitions. ((As used herein:)) The following definitions apply to this rule.

(a) Commercial deep sea fishing. "Commercial deep sea fishing" means fishing done for profit outside the territorial waters of the state of Washington. It does not include sport fishing or the operation of charter boats for sport fishing. (((See WAC 458-20-183 for tax liability of such persons.))) Nor does the phrase include the operation or purchase of watercraft for kelping, purse seining, or gill netting, because such fishing methods can be legally performed in Washington only within the territorial waters of the state (the three-mile limit). Therefore, watercraft rigged for fishing by any of these methods will be deemed for use in other than commercial deep sea fishing unless proof, including documentation to be retained by sellers, is furnished that said watercraft will be used for these purposes exclusively outside the Washington territorial limit.

(b) (("Watercraft" means every type of floating equipment which is designed for the purpose of carrying therein or therewith fishing gear, fish catch or fishing crews, and used primarily in commercial deep sea fishing operations.)) Commercial passenger fishing. "Commercial passenger fishing" means that done from charter boats for sport outside the territorial waters of the state of Washington.

(c) Component part. "Component part" includes all tangible personal property ((which)) that is attached to and a part of a watercraft. It includes dories, gurdies and accessories, bait tanks, baiting tables and turntables. It also includes spare parts ((which)) that are designed for ultimate attachment to a watercraft. The ((said)) term "component part" does not include equipment or furnishings of any kind ((which)) that are not attached to a watercraft, nor does it include consumable supplies. Thus, it does not include, among other things, bedding, table and kitchen wares, fishing nets, hooks, lines, floats, hand tools, ice, fuel or lubricants.

(d) (("Commercial passenger fishing" means that done from charter boats for sport outside the territorial waters of the state of Washington.

(2))) Watercraft. "Watercraft" means every type of floating equipment that is designed for carrying fishing gear, fish catch or fishing crews, and used primarily in commercial deep sea fishing operations.

(3) Business and occupation tax.

(a) Persons engaged in commercial deep sea fishing are not taxable under the extracting classification with respect to catches obtained outside the territorial waters of this state.

(b) Such persons are taxable under either the retailing or the wholesaling classification with respect to sales made within this state, unless entitled to exemption by reason of the commerce clauses of the federal constitution. (((See WAC 458-20-193.)

(3))) (c) Such persons may qualify for a B&O tax exemption under RCW 82.04.4269. This exemption pertains to the value of products or the gross proceeds of sales derived from:

(4) Retail sales tax.

(a) ((By reason of the exemption contained in)) Under RCW 82.08.0262, the retail sales tax does not apply ((upon)) to sales of watercraft (including component parts thereof) which are primarily for use in conducting commercial deep sea fishing operations, nor does ((said)) retail sales tax apply to sales of or charges made for labor and services rendered in respect to the constructing, repairing, cleaning, altering or improving of such property.

(b) The retail sales tax applies ((upon)) to sales made to persons engaged in commercial deep sea fishing of every ((other)) type of tangible personal property (except only sales of watercraft and component parts thereof) and ((upon)) to sales of or charges made for labor and services rendered in respect to the construction, repairing, cleaning, altering or improving of such ((other)) types of property. Thus, the retail sales tax applies ((upon)) to sales to such persons of such things as fishing nets, hooks, lines, floats and bait; table and kitchen wares; hand tools, ice, fuel except diesel fuel as noted ((below)) in subsection (7) of this rule, and lubricants for use or consumption((, except only sales of watercraft and component parts thereof)). For sales of food ((products)) and food ingredients see WAC 458-20-119 and 458-20-244.

(((4))) (5) Exemption certificates required.

(a) Persons selling watercraft or component parts thereof to persons engaged in commercial deep sea fishing or performing services with respect to such craft or parts, are required to obtain from the ((purchaser)) buyer a certificate evidencing the exempt nature of the transaction. ((This certificate must identify the purchaser by name and address, and by name of the watercraft with respect to which the purchase is made, and must contain a statement to the effect that the property purchased or repaired is for use primarily in commercial deep sea fishing operations.

(c) ((Incidental use)) Fishing boats used primarily in commercial deep sea fishing operations that are incidentally used within the waters of this state ((of fishing boats which are used primarily in deep sea fishing operations, will not deprive the owners thereof of the statutory exemption from the)) are still eligible for the exemption from retail sales tax.

(d) ((In the event the)) Sales of fishing ((boat with respect to which an exemption is claimed is of a)) boats, that are the types used in the waters of Puget Sound or the Columbia River and the tributaries thereof, and ((is)) are not practical for use in deep sea fishing, ((sellers should collect)) are subject to the retail sales tax ((upon all sales of such boats and)) including sales of component parts thereof and ((upon)) on charges made for the repair of the same.

(e) It is a gross misdemeanor for a buyer to make a false certificate of exemption for the purpose of avoiding the tax.

(((5))) (6) Use tax.

(a) The use tax does not apply ((upon)) to the use of watercraft or component parts thereof. RCW 82.12.0254.

(b) The use tax ((does apply upon)) applies to the actual use within this state of all other types of tangible personal property purchased at retail ((and upon which)) where the sales tax has not been paid (((see WAC 458-20-178) except on diesel fuel as noted below)) and no exemption exists.

(((6))) (7) Diesel fuel.

(a) ((The law provides for)) RCW 82.08.0298 and 82.12.0298 provide sales and use tax exemptions on diesel fuel for both commercial passenger fishing (charter boats for sport fishing) and commercial deep sea fishing operations.

(b) Neither retail sales nor use tax applies with respect to sales or use of diesel fuel in the operation of watercraft in commercial deep sea fishing operations or commercial passenger fishing operations by persons who are regularly engaged in the business of such operations outside the territorial waters (three-mile limit) of this state. For purposes of this exemption, a person is not regularly engaged in either business if the person has gross receipts from the extra territorial operations of less than five thousand dollars a year. For persons involved in both commercial deep sea fishing operations and commercial passenger fishing operations, the receipts from both ((shall)) will be added together to determine eligibility for this exemption.

(c) ((This exemption is plenary in scope and it is not required that all of the diesel fuel purchased be used outside of the territorial waters of this state.)) If a person qualifies for the exemptions by virtue of operating a deep sea fishing vessel, and has the requisite amount of gross receipts from that activity, all diesel fuel purchases and uses by such person for such vessel are tax exempt. It is not required that all the diesel fuel purchased be used outside the territorial waters of this state.

(d) Diesel fuel exemption certificates required. Persons selling diesel fuel to such persons are required to obtain from the ((purchaser)) buyer a certificate evidencing the exempt nature of the transaction. This certificate must identify the ((purchaser)) buyer by name and address, and by the registered name and number of the watercraft with respect to which the purchase is made. ((It must contain a statement to the effect that the diesel fuel is for use by a person who is engaged in commercial deep sea fishing and/or commercial passenger fishing operations who has annual gross receipts therefrom of at least five thousand dollars.)) Blanket certificates covering all diesel fuel purchases for specified watercraft may be used, where appropriate. A seller of diesel fuel who accepts such a certificate ((in good faith shall not be)) is not liable for sales tax on the diesel fuel sold. Certificates must be retained by the sellers in their permanent records as evidence of the exempt nature of diesel sales to eligible buyers. It is a gross misdemeanor for a buyer to make a false certificate of exemption for the purpose of avoiding the tax. Buyers may use the Buyers' Retail Sales Tax Exemption Certificate found on the department's web site at dor.wa.gov.