WSR 00-23-003

PERMANENT RULES

DEPARTMENT OF REVENUE


[ Filed November 1, 2000, 3:42 p.m. ]

Date of Adoption: November 1, 2000.

Purpose: 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 conditions under which a nonresident bringing watercraft into Washington for personal enjoyment and/or repair is not subject to use tax.

The department has traditionally followed the registration statutes administered by the Department of Licensing with respect to watercraft for the purposes of administering the use tax exemption provided by RCW 82.12.0251 to nonresidents "temporarily" using property within Washington. RCW 88.02.030 was revised to extend the period of time a nonresident individual may use a vessel within Washington without being required to register the vessel. The department is amending WAC 458-20-238 to incorporate this change. The amended rule also explains that tax-exempt sales to nonresidents may be documented using the department's "Buyer's Retail Sales Tax Exemption Certificate." This multi-use certificate replaces the exemption certificate and affidavit of out-of-state residency currently provided in this rule.

Citation of Existing Rules Affected by this Order: Amending WAC 458-20-238 Sales of watercraft to nonresidents.

Statutory Authority for Adoption: RCW 82.32.300.

Adopted under notice filed as WSR 00-18-007 on August 24, 2000.

Changes Other than Editing from Proposed to Adopted Version: Description of changes from proposed Rule 238 to adopted Rule 238:

Subsection (4)(c) - Editing changes for clarification.

Proposed language: (c) Watercraft temporarily brought into this state by nonresidents exclusively for repair, alteration, or reconstruction are exempt from the use tax if removed from this state within sixty days.

Adopted language: (c) Watercraft ((temporarily brought into this state)) owned by nonresidents and in this state exclusively for repair, alteration, or reconstruction are exempt from the use tax if removed from this state within sixty days.

Subsection (5)(d) - The language provided in this subsection/example was changed to clearly indicate that the time watercraft is in Washington exclusively for repair does not count against the period of time the nonresident is considered to be "temporarily" using the yacht in Washington for personal enjoyment.

Proposed language: (d) Mr. Smith, a resident of ((California)) British Columbia, Canada, brings his yacht into Washington ((for)) with the intention of temporarily using the yacht for personal enjoyment. The yacht experiences mechanical difficulty requiring repair. Extensive repairs and testing require the yacht to remain in Washington waters for ((ninety)) two hundred seventy days. Mr. Smith obtains the required identification issued by the department of licensing entitling him to use the yacht within Washington for six months in a 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, however, on all charges for repair parts and labor. The exemption from sales tax for purchases of vessels does not extend to repairs.

Adopted language: (d) Mr. Smith, a resident of ((California)) British Columbia, Canada, brings his yacht into Washington ((for repair)) with the intention of temporarily using the yacht for personal enjoyment. Mr. Smith obtains the required identification document issued by the department of licensing. After four months of personal use, the yacht experiences mechanical difficulty. ((Extensive repairs and testing require the yacht to remain in Washington waters for ninety days. Mr. Smith 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 exemption period.)) The yacht is taken to a repair facility and due to the extensive nature of the damage the yacht remains at the repair facility for six months. As explained in subsection (4)(c) above, Mr. Smith makes a timely filing of each required "Nonresident Out-of-State Vessel Repair Affidavit." 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,)) Mr. Smith may personally use the yacht in Washington waters for up to two months after taking delivery of the repaired yacht. He will not incur liability for use tax because the instate use of the yacht for personal enjoyment will not exceed six months in a twelve-month period. The time the yacht is at the repair facility exclusively for repair does not count against the period of time Mr. Smith is considered to be "temporarily" using the yacht in Washington for personal enjoyment. Retail sales tax is due, and must be paid, however, on all charges for repair parts and labor. The exemption from sales tax for purchases of vessels does not extend to repairs.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 1, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 1, Repealed 0. Effective Date of Rule: Thirty-one days after filing.

November 1, 2000

Russell W. Brubaker

Assistant Director

OTS-4266.3


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 also should 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 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)) (MATC). 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, however, 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.)) Exemptions. 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. 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.)

(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))) is not limited to the types of watercraft qualifying for the exemption provided by RCW 82.08.0266. The term "vessel," for the purposes of ((this subsection)) RCW 82.08.02665, 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))) (b) Exemption requirements. The following requirements must be met to perfect any claim for exemption under RCW 82.08.0266 and 82.08.02665:

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

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

(((C))) (iii) 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.))) to document the exempt nature of the sale. This requirement may be satisfied by using the department's "buyer's retail sales tax exemption certificate," or another certificate with substantially the information as it relates to the exemption provided by RCW 82.08.0266 and 82.08.02665. The certificate must be completed in its entirety, and retained by the seller. A blank certificate can be obtained via the Internet at http://dor.wa.gov, by facsimile by calling Fast Fax at (360) 786-6116 or (800) 647-7706 (using menu options), or by writing to: Taxpayer Services, Washington State Department of Revenue, P.O. Box 47478, Olympia, Washington 98504-7478. The seller should not accept an exemption certificate if the seller becomes aware of any information prior to the completion of the sale which is inconsistent with the purchaser's claim of residency, such as a Washington address on a credit application.

(c) ((Watercraft qualifying for exemption under RCW 82.08.0266 and 82.08.02665.)) Component parts and repairs. 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)) delivery to and acceptance 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, or 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 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 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 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 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 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 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. 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 and remit to the department 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 credit against Washington's use tax is allowed for retail sales or use tax previously paid by the user or the user's bailor or donor with respect to the property to any other state of the United States, any political subdivision thereof, the District of Columbia, and any foreign country or political subdivision thereof, prior to the use of the property in Washington. RCW 82.12.035. See also WAC 458-20-178.

(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) Use tax does not apply to the temporary use or enjoyment of watercraft brought into this state by nonresidents ((for their use and 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 (whether residents of other states or foreign countries) may temporarily bring watercraft into this state for their use or enjoyment without incurring liability for the use tax if such use does not exceed a total of six months in any twelve-month period. To qualify for this six-month exemption period, the watercraft must be issued a valid number under federal law or by an approved authority of the state of principal operation, be documented under the laws of a foreign country, or have a valid United States customs service cruising license. The watercraft must also satisfy all identification requirements under RCW 88.02.030 for any period after the first sixty days. Failure to meet the applicable documentation and identification requirements will result in a loss of the exemption. Prior to January 1, 1998, the temporary use exemption period was limited to sixty days for all nonresident users of watercraft.

(c) Watercraft ((temporarily brought into this state)) owned by nonresidents and in this state exclusively for repair, alteration, or reconstruction are exempt from the use tax if removed from this state within sixty days. 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 and subject to the use tax.

(((7))) (5) 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.)) Mr. Kelley, a resident of California, pilots his cabin cruiser which is registered in that state into Puget Sound for his enjoyment. On the sixtieth day of his stay, Mr. Kelley obtains an identification document for the cabin cruiser under RCW 88.02.030 for the boat from the department of licensing. To further extend his stay in Washington waters, he applies for a second identification document within the prescribed period. In the middle of his fifth month on Puget Sound, Mr. Kelley departs and returns the craft to its home port in California. The stay would not subject Mr. Kelley to use tax. On the other hand, if Mr. Kelley were a resident of Vancouver, British Columbia, bringing a vessel registered in Canada, he would also have to timely obtain and display the appropriate identification document required by RCW 88.02.030 to allow his temporary use of the watercraft in Washington.

(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) 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) Mr. Smith, a resident of ((California)) British Columbia, Canada, brings his yacht into Washington ((for repair)) with the intention of temporarily using the yacht for personal enjoyment. Mr. Smith obtains the required identification document issued by the department of licensing. After four months of personal use, the yacht experiences mechanical difficulty. ((Extensive repairs and testing require the yacht to remain in Washington waters for ninety days. Mr. Smith 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 exemption period.)) The yacht is taken to a repair facility and due to the extensive nature of the damage the yacht remains at the repair facility for six months. As explained in subsection (4)(c) above, Mr. Smith makes a timely filing of each required "Nonresident Out-of-State Vessel Repair Affidavit." 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,)) Mr. Smith may personally use the yacht in Washington waters for up to two months after taking delivery of the repaired yacht. He will not incur liability for use tax because the instate use of the yacht for personal enjoyment will not exceed six months in a twelve-month period. The time the yacht is at the repair facility exclusively for repair does not count against the period of time Mr. Smith is considered to be "temporarily" using the yacht in Washington for personal enjoyment. Retail sales tax is due, and must be paid, however, 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