WSR 00-14-087



[ Filed July 5, 2000, 11:57 a.m. ]


This announcement of the repeal of these interpretive statements is being published in the Washington State Register pursuant to the requirements of RCW 34.05.230(4).

The Department of Revenue has repealed the following Excise Tax Advisories effective June 30, 2000.

ETA 085.08.107 Engineering services in connection with design of machinery for sale, the tax result provided in this document is correct given the circumstances. However, the document incorrectly explains that the basis for the result is that "a mixed transaction containing elements which might bear different rates of tax if separately bargained for should be taxed at the highest rate for the various elements involved." ETA 087.04.136 Labor costs paid by another corporation, this document is no longer needed. It explains that in the described situation labor costs paid by the owner of a cannery and cold storage plant to the operator was subject to the processing for hire B&O tax. The document notes that cannery workmen were not employees of the cannery owner, despite the fact that the amounts received by the operator were the exact amount of all payroll expenses. WAC 458-20-105 Employees distinguished from persons engaged in business, provides a more detailed and helpful description of the factors one needs to consider when determining employer/employee status. In addition, WAC 458-20-136 as adopted in May 2000, explains that persons operating a manufacturing facility owned by another is considered a processor for hire.

ETA 192.03.189 Agricultural organizations working with governmental units subject to tax, this document explains that nonprofit agricultural organizations composed of farmers working closely with governmental units are not entitled to the B&O tax exemption provided to state and federal entities. While this result is generally correct, this document fails to recognize chapter 200, Laws of 1998 (codified as RCW 82.04.338). This legislation provides a B&O tax exemption under certain circumstances to nonprofit organizations working with a Hop Commodity Commission or Hop Commodity Board. WAC 458-20-189 and 458-20-190 explain the taxability of entities engaging in business with the state of Washington and the United States, respectively, without making a distinction for the type of entity.

ETA 185.04.200 Lease based on a percentage of gross proceeds, this document explains that an operator of an amusement concession may not deduct rent payments (calculated as a percentage of gross receipts) when computing his or her tax liability. It is no longer needed. RCW 82.04.070 and 82.04.080 clearly provide that costs of doing business are not to be deducted from the measure of tax. WAC 458-20-187 Coin operated amusement devices and service machines, also explains that persons operating such machines are subject to tax upon their gross proceeds. It also explains that if the machines are placed at a location owned by another person, that person is subject to tax upon any compensation received from the operator of the machine.

ETA 218.08.113 Chemicals used in processing to remove gases from steel furnaces, this document explains that oxygen used to remove unwanted gases from furnaces is subject to tax because none of the products of the oxygen's reaction with carbon are present in the end ingredients of the final product. The requirement that a chemical react with ingredients or components of the product being processed is sufficiently addressed in WAC 458-20-113.

ETA 245.04.162 Investment Income of a Brokerage Business, this document explains that gains realized on securities purchased and sold by a brokerage firm are subject to tax. The document is no longer needed as WAC 458-20-162 currently explains that income from all sources is subject to tax.

ETA 249.04.159 Interstate sales and consignor as agent of seller, this document is no longer needed. It simply explains that under a specific set of circumstances, a taxpayer substantiated its claim as the seller by obtaining affidavits of agency and "other evidence" that consignors on bills of lading were in fact agents for the taxpayer.

ETA 257.16.182 Insurance charges by public grain warehouses, the ETA explains that charges to customers for a pro rata share of expenses incurred by a public grain warehouse operator (in this case insurance expenses) are a part of the gross income subject to the public utility tax, even if separately billed. Warehouses are no longer subject to the public utility tax as of July 1, 1986.

ETA 275.08.170 Deeding of land to contractor building house for landowner, this document explains that the charge for building a house is a retail sale even if the landowner first deeds the land to a contractor, who after construction then sells or deeds the property back to the original landowner. This issue is specifically addressed in RCW 82.04.050 (2)(c) and WAC 458-20-170 Constructing and repairing of new or existing buildings or other structures upon real property.

ETA 366.04.171 Road construction under federal timber purchase agreements, this document provides incorrect tax-reporting information. It states that a subcontractor performing logging road construction under the terms of a federal timber purchase agreement is considered a public road contractor. This is incorrect. Logging road construction, whether performed by the timber buyer or a subcontractor, is considered a part of the logging activity. (See also Lyle Wood Products vs. Dept. of Revenue, 91 Wn.2d 193, 588 P.2d 215.) ETA 366 also incorrectly notes that a timber buyer is not a consumer of road materials provided by the federal government if the timber purchase agreement does not contain a separately stated allowance for road construction. This is also incorrect.

ETA 436.04.170 Construction on land owned by contractor's principal stockholder, this document explains that construction by a corporation on land owned by a stockholder of the corporation is taxable as a retail sale. This issue is specifically addressed in WAC 458-20-170 Constructing and repairing of new or existing buildings or other structures upon real property.

ETA 449.12.170 Turnkey projects sold to housing authorities, this document includes incorrect information. Referring to turnkey contracts to build for housing authorities, this document explains that the landowner/contractor is taxed as a speculative builder if the right of possession does not transfer at the time the parties enter into the construction contract. These persons are generally subject to the government contracting tax classification.

ETA 451.04.99.1 Corporate Distribution of Stock Dividends, this document explains that in the taxpayers in question were engaging in business per RCW 82.04.150 and taxable as a financial business despite the fact that they did not "hold themselves out to the public." This document does not recognize the specific tax-reporting instructions for financial businesses provided in ETA 571.04.169 (Taxability of investment income). In addition, ETA 019.04.194 (Engaging in business within the state) also explains that a person is not required to hold itself out to the public as a prerequisite to be considered "engaging in business."

ETA 474.04.136 Taxability of the manufacture of "refinery gas," WAC 458-20-121 Sales of heat or steam -- Including production by cogeneration, while not specifically identifying refinery gas, does explain that persons who produce their own fuel to generate heat, steam, etc. are subject to B&O tax, even if the fuel is a byproduct of a manufacturing process.

ETA 499.12.170/178 Tax liability on materials purchased by contractors in Idaho for use in Washington, this document explains that Idaho vendors are not permitted to accept resale certificates from Washington contractors because under Idaho law all construction contractors are defined as consumers of construction materials. The document further provides that the construction contractor can avoid the Idaho tax only by taking delivery of the materials outside Idaho. This information is incorrect as Idaho law now provides a tax exemption under certain circumstances for materials sold to contractors who subsequently incorporate those materials into real property.

ETA 537.04.19301 Effective date for claiming MATC credits, this document explains that the State Supreme Court held that the effective date for claiming all MATC credits is June 1, 1987. This information is no longer needed.

ETA 564.12.113 Retail sales/use tax -- Oak barrels used by wineries and winemakers, this document explains that the retail sales or use tax applies only to that portion of the cost of oak barrels used to flavor wine representing the storage value of the "spent" barrel. This explanation is now incorrect. Under the manufacturing and equipment exemptions provided by RCW 82.08.02565 and 82.12.02565, wine barrels used by wineries and winemakers are exempt from the retail sales and use taxes.

Questions regarding the repeal of these advisories may be directed to Alan R. Lynn, Legislation and Policy, P.O. Box 47467, Olympia, WA 98504-7467, phone (360) 570-6125, fax (360) 664-0693, Internet

Claire Hesselholt

Policy Counsel

Washington State Code Reviser's Office