WSR 99-04-020

EXPEDITED ADOPTION

DEPARTMENT OF REVENUE


[ Filed January 22, 1999, 3:09 p.m. ]

Title of Rule: Amendatory section WAC 458-20-238 Sales of watercraft to nonresidents.

Purpose: The purpose of the rule is to explain the retail sales and use tax exemptions provided for out-of-state residents and residents of foreign countries relating to watercraft. The rule advises nonresidents, vessel dealers, and Department of Revenue personnel about the various taxes and tax exemptions which may apply to the purchase or use of watercraft in the state.

Statutory Authority for Adoption: RCW 82.32.300.

Statute Being Implemented: RCW 82.08.0266, 82.08.02665, and 82.12.0251 (in part).

Summary: This rule explains the retail sales tax exemptions provided by RCW 82.08.0266 and 82.08.02665 for sales of watercraft to nonresidents. It also explains the use tax exemptions provided to nonresidents using watercraft in Washington by RCW 82.12.0251.

Reasons Supporting Proposal: The department has adopted the vessel registration requirements standards administered by the Department of Licensing for the purpose of determining the eligibility of nonresidents to claim the use tax exemption available for the "temporary" use of vessels within Washington. This amendment is necessary to incorporate chapter 83, Laws of 1997 (as modified by chapter 198, Laws of 1998) which extended the length of time nonresident individuals can use a vessel in Washington without having to register the vessel.

Name of Agency Personnel Responsible for Drafting: D. Douglas Titus, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 664-0687; Implementation: Claire Hesselholt, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 753-3446; and Enforcement: Russell W. Brubaker, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 586-0257.

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: The rule advises nonresidents, vessel dealers, and Department of Revenue personnel about the various taxes and tax exemptions which may apply to the purchase or use of watercraft in the state. The rule explains the retail sales exemptions provided for sales of watercraft to out-of-state residents and residents of foreign countries. It also discusses use tax exemptions for certain nonresidents bringing watercraft into Washington for use or enjoyment and/or repair. The rule explains the documentation requirements that must be satisfied to support a claim for the sales and/or use tax exemptions, providing examples of the certificates to be used to substantiate the exempt nature of a sale. The rule, as amended, explains that the time a nonresident individual may bring watercraft into the state for temporary use or enjoyment without incurring a use tax liability has been extended from a maximum of sixty days to a possible maximum of six months in a twelve-month period, subject to certain Department of Licensing identification conditions.

Proposal Changes the Following Existing Rules: WAC 458-20-238 includes an explanation of the use tax exemption provided to nonresidents "temporarily" using vessels within Washington by RCW 82.12.0251. The Department of Revenue has traditionally followed the registration statutes administered by the Department of Licensing for the purposes of administering this use tax exemption. Chapter 83, Laws of 1997, as modified by chapter 198, Laws of 1998, revised the registration statutes to extend the period of time a nonresident individual may use a vessel within Washington without being required to register the vessel. WAC 458-20-238 is being amended to incorporate this change.

NOTICE

THIS RULE IS BEING PROPOSED TO BE ADOPTED USING AN EXPEDITED RULE-MAKING PROCESS THAT WILL ELIMINATE THE NEED FOR THE AGENCY TO HOLD PUBLIC HEARINGS, PREPARE A SMALL BUSINESS ECONOMIC IMPACT STATEMENT, OR PROVIDE RESPONSES TO THE CRITERIA FOR A SIGNIFICANT LEGISLATIVE RULE. IF YOU OBJECT TO THIS RULE BEING ADOPTED USING THE EXPEDITED RULE-MAKING PROCESS, YOU MUST EXPRESS YOUR OBJECTIONS IN WRITING AND THEY MUST BE SENT TO D. Douglas Titus, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, fax (360) 664-0693, e-mail dougt@dor.wa.gov , AND RECEIVED BY April 3, 1999.


January 22, 1999

Claire Hesselholt, Rules Manager

Legislation and Policy Division

OTS-2691.1


AMENDATORY SECTION(Amending WSR 95-24-103, filed 12/6/95, effective 1/6/96)

WAC 458-20-238
Sales of watercraft to nonresidents.

(1) Introduction. This ((section)) rule explains the retail sales tax exemption provided by RCW 82.08.0266 for sales to nonresidents of watercraft requiring United States Coast Guard ((registration or)) documentation or state registration.  It also explains the retail sales tax exemption provided by RCW 82.08.02665 for sales of watercraft to residents of foreign countries((, which became effective July 25, 1993.  (See chapter 119, Laws of 1993.))). These statutes provide the exclusive authority for granting a retail sales tax exemption for sales of such watercraft when delivery is made within Washington.  This ((section)) rule explains the requirements ((which must)) to be met, and the documents which must be preserved, to substantiate a claim of exemption.  It also discusses use tax exemptions for nonresidents bringing watercraft into Washington for enjoyment and/or repair.

This ((section)) rule primarily deals with the retail sales and use taxes where delivery takes place in Washington.  ((Purchasers of watercraft should also be aware that there is a watercraft excise tax which may apply to the purchase or use of watercraft in Washington.  (See chapter 82.49 RCW.))) Sellers should refer to WAC 458-20-193 if they deliver the vessel to the purchaser at an out-of-state location. Purchasers of watercraft should also be aware that there is a watercraft excise tax which may apply to the purchase or use of watercraft in Washington. (See chapter 82.49 RCW.) In addition, purchasers of commercial vessels may have annual liability for personal property tax. (See RCW 84.08.065.)

(2) Business and occupation tax. Retailing B&O tax is due on all sales of watercraft to consumers under RCW 82.08.0265 and 82.08.0266 if delivery is made within the state of Washington, ((notwithstanding)) even though the sale may qualify for an exemption from the retail sales tax.  If the seller is also the manufacturer of the vessel, the seller must ((generally)) report under both the (("production" (extracting and/or)) manufacturing(())) and (("selling" ())wholesaling or retailing(())) classifications of the B&O tax, and claim a tax credit under the multiple activities tax credit system.  Manufacturers should ((also)) refer to WAC 458-20-136 (Manufacturing, processing for hire, fabricating) and WAC 458-20-19301 (Multiple activities tax credits).

(3) Retail sales tax. The retail sales tax generally applies to the sale of watercraft to consumers when delivery is made within the state of Washington.  However, under certain conditions retail sales tax exemptions are available for sales of watercraft to nonresidents of Washington, even when delivery is made within Washington.

(a) Sales to residents of other states. RCW 82.08.0266 provides an exemption from the retail sales tax for sales of watercraft to residents of states other than Washington for use outside this state, even when delivery is made within Washington.  This specific exemption does not apply to sales of watercraft to ((Canadian or other foreign country)) residents of foreign countries.  The retail sales tax exemption which is available for sales of watercraft to Canadian or other foreign country residents is explained in (b) of this subsection.

(i) The exemption provided by RCW 82.08.0266 is limited to ((the following:

(A) Sales of watercraft which are required to obtain United States Coast Guard documentation; and

(B))) sales of watercraft requiring ((registration by the)) United States Coast Guard documentation or registration with the state in which the vessel will be principally used, but only when that state has assumed the registration and numbering function under the Federal Boating Act of 1958.

(ii) The following requirements must be met to perfect any claim for exemption:

(A) The watercraft must leave Washington waters within forty-five days of delivery;

(B) The seller must examine acceptable proof that the buyer is a resident of a state other than the state of Washington; and

(C) The seller, at the time of the sale, must retain as a part of its records a completed exemption certificate.  (See subsection (4) of this ((section)) rule.)

(b) Sales to residents of foreign countries. RCW 82.08.02665 provides a retail sales tax exemption for sales of vessels to residents of foreign countries for use outside this state, even when delivery is made in Washington.  ((This exemption became effective July 25, 1993.  (See chapter 119, Laws of 1993.)))

(i) The term "vessel," for the purposes of this subsection, means every watercraft used or capable of being used as a means of transportation on the water, other than a seaplane.  This exemption is not limited to the types of watercraft qualifying for the exemption discussed in (a) of this subsection.

(ii) The following requirements must be met to perfect any claim for exemption:

(A) The watercraft must leave Washington waters within forty-five days of delivery;

(B) The seller must examine acceptable proof that the buyer is a resident of a foreign country; and

(C) The seller, at the time of the sale, must retain as a part of its records a completed exemption certificate.  (See subsection (4) of this ((section)) rule.)

(c) Watercraft qualifying for exemption under RCW 82.08.0266 and 82.08.02665. The exemptions provided by RCW 82.08.0266 and 82.08.02665 apply only to sales of watercraft.  For the purposes of these exemptions, the term "watercraft" includes component parts which are installed in or on the watercraft prior to the watercraft being delivered to and accepted by the buyer, but only when these parts are sold by the seller of the watercraft.  "Component part" means tangible personal property which is attached to the watercraft and used as an integral part of the operation of the watercraft, even if the item is not required mechanically for the operation of the watercraft.  Component parts include, but are not necessarily limited to, ((boat)) motors, navigational equipment, radios, depth((-))finders, and winches, whether themselves permanently attached to the watercraft or held by brackets which are permanently attached.  If held by brackets, the brackets must be permanently attached to the watercraft in a definite and secure manner.

These exemptions do not extend to the sale of boat trailers, repair parts, and repair labor((, etc)).  ((Nor do they)) These exemptions also do not extend to a separate seller of unattached component parts, even though these parts may be manufactured specifically for the watercraft and/or permanently installed in or on the watercraft prior to the watercraft being delivered to and accepted by the buyer.

(4) Exemption certificate. The exemption certificate must be completed in its entirety, and retained by the seller at the time of sale.  The seller is required to review one piece of identification substantiating the nonresident status of the customer, and to indicate on the certificate the type of identification examined.  This one piece of identification must either be a current and valid driver's license from the jurisdiction in which out-of-state residency is claimed, or a valid identification document which has a photograph of the holder and is issued by the out-of-state jurisdiction.  If the customer is a partnership, corporation, limited liability company, association, or any other person who is not a natural person, the seller should refer to subsection (5) of this ((section)) rule for an explanation of what constitutes acceptable proof of the customer's nonresident status.

The seller should not accept an exemption certificate if the seller becomes aware of any information prior to completion of the sale which is inconsistent with the purchaser's claim of residency, such as a Washington address on a credit application.  The exemption certificate must be substantially in the following form:

EXCEPTION CERTIFICATE

Seller's Name . . . . . . . . . . . .
Buyer's Name . . . . . . . . . . . .
Address of Buyer . . . . . . . . . . . .
State or Foreign Country of Residence . . . . . . . . . . . .
Date of Sale . . . . . . . . . . . .
Make and Model of Vessel . . . . . . . . . . . .
Serial Number of Vessel . . . . . . . . . . . .

I certify that (a) the vessel described above will be ((registered or)) documented with the United States Coast Guard or registered with the state of principal use; or (b) I am a resident of a foreign country and the vessel has been purchased for use outside the state of Washington.  I further certify that this vessel will leave Washington state waters within forty-five days of delivery, and the purchase of this vessel is exempt from Washington state retail sales tax under the provisions of either RCW 82.08.0266 or 82.08.02665.  This certificate is given with full knowledge of, and subject to, the legally prescribed penalties for fraud and tax evasion.


Signature of buyer or buyer's representative . . . . . . . . . . . .

CERTIFICATION BY SELLER
I hereby certify that I have personally examined one of the following items of documentary evidence submitted by the above purchaser to establish residency in the state or country of . . . . . . . . . . :

. . . Driver's License (list license number and date of expiration) . . . . . . . . . . . .
. . . Identification Card (list card number and date of expiration) . . . . . . . . . . . .

Signature of seller or agent of seller . . . . . . . . . . . .
(5) Sales to residents of other states or countries who are not natural persons. The types of identification described in subsection (4) of this ((section)) rule are not applicable for establishing the residency of partnerships, corporations, limited liability companies, or other persons who are not natural persons. Because many of the types of documentation which would establish the nonresident status of these persons contain confidential information (e.g., federal income tax returns), the seller may satisfy its requirement to examine and record documentary evidence by retaining at the time of sale a completed affidavit, executed by a duly authorized representative of the buyer, substantially in the following form:

AFFIDAVIT OF OUT-OF-STATE RESIDENCY


(This affidavit for use only by purchasers who are not natural persons, such as corporations.)


Name of buyer . . . . . . . . . . . .
Address . . . . . . . . . . . .
State or foreign country of residency . . . . . . . . . . . .
Registration # . . . . . . . . . . . .
Type of entity (e.g., corporation, partnership, etc.) . . . . . . . . . . . .

I certify that . . . (buyer's name) . . . is a resident of . . . . . . . . . . . .
(state or foreign country). . .

Name and title of buyer's representative (printed) . . . . . . . . . . . .
Signature of buyer's representative . . . . . . . . . . . .
The affidavit of out-of-state residency may only be accepted and used for establishing the nonresident status of persons who are not natural persons.  It may not be used as documentary evidence for sales to natural persons.  The seller must at the time of sale retain this affidavit as well as the exemption certificate described in subsection (4) of this ((section)) rule.  A partnership, corporation, limited liability company, or other person who is not a natural person is a "nonresident" for the purposes of exemption under RCW 82.08.0266 or 82.08.02665 if that person's principal place of business is not in Washington, and that person is not incorporated in Washington.

(6) Deferred retail sales or use tax. If Washington retail sales tax has not been paid, persons using watercraft on Washington waters are ((generally subject to the)) required to report such sales tax (commonly referred to as deferred retail sales tax) or use tax ((if Washington retail sales tax has not been paid)), unless ((such)) the use is specifically ((exempted)) exempt by law ((from the use tax)).

(a) ((The deferred retail sales tax or use)) Tax is due on the use by any nonresident of watercraft purchased from a Washington vendor and first used within this state for more than forty-five days if retail sales or use tax has not been paid by the user.  Tax is due notwithstanding the watercraft qualified for retail sales tax exemption at the time of purchase.

(b) Watercraft brought into this state by nonresidents for their use ((and)) or enjoyment while temporarily within this state are exempt from the use tax.  ((However)) Except as otherwise provided in this rule, it will be presumed that ((usage)) use within Washington ((which exceeds more than)) exceeding sixty days in any twelve-month period is more than temporary ((usage)) use and use tax is due. Effective January 1, 1998, nonresident individuals may temporarily bring into this state for their use or enjoyment watercraft which are issued a valid number under federal law or by an approved authority of the state of principal operation (chapter 83, Laws of 1997). These watercraft are exempt from the use tax where such use does not exceed a total of six months in any twelve-month period. Any temporary use after the first sixty days must be pursuant to a valid two-month identification document issued by the department of licensing under RCW 88.02.030. Failure to have a valid identification document during any period of use in Washington after the first sixty days will result in a loss of the exemption.

(c) Watercraft temporarily brought into this state by nonresidents for repair, alteration, or reconstruction are exempt from the use tax ((if removed from this state within sixty days)). "Temporarily" for the purposes of this subsection has the same meaning as described in subsection (6)(b) of this rule, provided in the case of nonresident individuals the appropriate identification document issued by the department of licensing pursuant to RCW 88.02.030 is obtained.  If repair, alteration, or reconstruction cannot be ((made)) completed within this period, the exemption may be extended by ((completing and)) filing with ((this)) the department of revenue compliance division an affidavit as required by RCW 88.02.030 verifying the vessel is located upon the waters of this state exclusively for repair, alteration, reconstruction, or testing.  This ((affidavit)) document, titled "Nonresident Out-of-State Vessel Repair Affidavit," is effective for sixty days.  If additional extensions of the exemption period are needed, additional affidavits ((may)) must be ((completed.  The affidavit should be)) sent to the department ((of revenue - compliance division)).  ((This affidavit is the affidavit which is required under RCW 88.02.030, and)) Failure to ((complete)) file this affidavit can also result in requiring that the vessel be registered in Washington.

(7) Examples. The following examples identify a number of facts and then state a conclusion.  These examples should be used only as a general guide.  The tax results of other situations must be determined after a review of all of the facts and circumstances.  In all examples, retailing B&O tax is due from the seller for all sales of watercraft and parts, and all charges for repair parts and labor.

(a) ((Company A sells a vessel to Jane Smith, a Canadian resident.  Company A examines Jane Smith’s driver's license to verify Jane to be a resident of Canada, and retains the proper exemption certificate at the time of sale.  Delivery is made in Washington and Jane removes the vessel from Washington waters within forty-five days of delivery.  The sale of the vessel is not subject to the retail sales tax because all requirements for exemption under RCW 82.08.02665 have been satisfied.

(b))) Company A sells a yacht to John Doe, an Oregon resident, who takes delivery in Washington.  The yacht is required to be registered by the state of Oregon, which has assumed the registration and numbering function under the Federal Boating Act of 1958.  The vessel is removed from Washington waters within forty-five days of delivery.  Company A examines a driver's license confirming John Doe to be an Oregon resident, and records this information in the sales file.  Company A does not complete and retain the required exemption certificate.

The sale of the yacht is subject to the retail sales tax.  The exclusive authority for granting a retail sales tax exemption for this sale is provided by RCW 82.08.0266.  Completion of an exemption certificate is a statutorily imposed condition for obtaining this exemption.  Company A has not satisfied the conditions and requirements necessary to grant an exemption under this statute.  The exemption provisions under RCW 82.08.0273 for sales to nonresidents of states having less than three percent retail sales tax can not be used for purchases of vessels which require United States Coast Guard ((registration or)) documentation, or registration in the state of principal use.  If the exemption certificate had been properly completed at the time of sale, this sale would have qualified for retail sales tax exemption.

(((c))) (b) Mr. Jones, a California resident, contracts Company B to manufacture a pleasure yacht.  Mr. Jones purchases a boat motor from Company Y with instructions that delivery be made to Company B for installation on the yacht.  The yacht is required to be registered with the state of California, which has assumed the registration and numbering function under the Federal Boating Act of 1958.  Company B examines Mr. Jones' driver's license to verify Mr. Jones is a nonresident of Washington, and retains the proper exemption certificate at the time of sale.  Delivery is made in Washington, and Mr. Jones removes the vessel from Washington waters within forty-five days of delivery.

The sale of the yacht by Company B to Mr. Jones is not subject to the retail sales tax, as the requirements and conditions for exemption have been satisfied.  Retail sales tax does, however, apply to the sale of the motor by Company Y to Mr. Jones.  The exemption provided by RCW 82.08.0266 does not extend to a separate seller of unattached component parts, even though the parts are installed in the watercraft prior to delivery.

(((d))) (c) Mr. Smith, a resident of California, brings his yacht into Washington ((for)) with the intention of temporarily using the yacht for personal enjoyment. The yacht experiences mechanical difficulty that requires repair.  Extensive repairs and testing require the yacht to remain in Washington waters for ((ninety)) two hundred seventy days.  Mr. Smith obtains the required two-month identification documents issued by the department of licensing that entitle him to use the yacht within Washington for six months in any twelve-month period. Mr. Smith then extends the exemption period by filing a "Nonresident Out-of-State Vessel Repair Affidavit" with the department of revenue prior to end of the initial ((sixty-day)) six-month exemption period.  An employee of the repair facility is on board the yacht during all testing, and there is no personal use by Mr. Smith during this period.  Upon completion of the repairs and testing, Mr. Smith takes delivery at the repair facility and promptly removes the yacht from Washington waters.

Mr. Smith has not incurred a use tax liability on his yacht.  The conditions and requirements exempting the yacht from use tax during the period of repair and testing have been met.  However, retail sales tax is due, and must be paid, on all charges for repair parts and labor.  The exemption from sales tax for purchases of vessels does not extend to repairs.

[Statutory Authority: RCW 82.32.300.  95-24-103, 458-20-238, filed 12/6/95, effective 1/6/96; 83-21-061 (Order ET 83-7), 458-20-238, filed 10/17/83; 83-08-026 (Order ET 83-1), 458-20-238, filed 3/30/83; Order ET 70-3, 458-20-238 (Rule 238), filed 5/29/70, effective 7/1/70.]

Washington State Code Reviser's Office