WSR 02-15-108



[ Filed July 17, 2002, 4:15 p.m. ]


     This announcement of the cancellation 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 cancelled the following audit directives effective July 17, 2002. As a result of this action, audit directives 8108.1, 8144.1, 8168.1, 8171.2, 8177.1, and 8178.1 are the only remaining documents in the audit directive series.

AD 7170.1 Use tax on U.S. Government contracts awarded

AD 7170.2 Government contract audits

AD 7170.2A Use tax on government contracting projects

     The United States Supreme Court sustained the government contracting tax applications for Washington in 1983, even though the ultimate economic burden of the tax is borne by the United States government (Washington v. US, 75 L.Ed 2d 264, (1983)). These directives were issued while the department was negotiating with federal agencies regarding direct payment of use tax owed by contractors on contracts awarded prior to October 1, 1983. Their purpose was to provide guidance to audit personnel to ensure uniformity for tax-reporting instructions provided to and audit examinations of contractors performing construction services for the U.S. government during this period. This information is no longer needed. They are being formally cancelled because copies of these directives have been included in the instructional materials used to train auditors on tax issues related to the construction industry.

AD 8122.1 Feed purchased by cattle auction businesses

     This directive explains that because of a 1985 law change, custom feedlot operators may purchase feed at wholesale and are exempt from B&O tax irrespective of whether they charge the livestock owner separately for the cost of feed. Chapter 118, Laws of 2001, and Det. 87-266, 4 WTD 007 (1987) provide sufficient guidance to determine the tax consequences of this activity.

AD 8143.1 Intermediate steps in a printing process--Publishers

     This directive notes that ETB (now ETA) 417.12.144 (Printing industry -- Use tax on consumable materials and supplies) and 456.08.143 (Taxability of print shops -- Plate production and printing charges) provide tax-reporting information for printers regarding products manufactured and used during intermediate steps in a printing process. The directive notes that the department was in 1987 reviewing the appropriateness of expanding this tax treatment to publishers who may not perform any printing activity.

     This issue was settled some time ago and the directive is no longer needed. Publishers are entitled to the same treatment as printers with respect to products purchased for use in a printing process. ETA 456 provides in part that a "publisher, printers, and trade shops which purchase or produce such items are liable for use tax thereon measured by the value of the materials. This is because these materials do not become a component part of the printed article sold and are put to an intervening use by the printer."

AD 8144.2 Silk screen printing process

     This directive explains that the intermediate steps in a silk-screen printing process are similar to those used in other more conventional printing processes, and subject to the tax-reporting instructions provided in ETA 417.12.144 (Printing industry--Use tax on consumable materials and supplies) and 456.08.143 (Tax liability of print shops -- Plate production and printing charges). It also explains that persons producing silk-screen products and selling the same outside the state incur a manufacturing B&O tax liability. This directive is no longer needed. Det. 92-352, 12 WTD 509 (1992), and Det. 88-351, 6 WTD 371 (1988), sufficiently address these issues.

AD 8146.1 Loan set up fees

     This directive explains that loan set-up fees that represent an adjustment to yield will be considered interest income for tax purposes. This directive is no longer needed. This issue is addressed more completely in subsequent published determinations (e.g., Det. 89-280, 7 WTD 375 (1989) and Det. 99-241, 19 WTD 295 (1999)).

AD 8146.3 Gains and losses on futures contracts

     This directive explains that losses from futures contracts should not be used to offset gains. This information is outdated and incorrect. Det. 90-63, 9 WTD 107 (1990) provides sufficient information on this subject and explains that futures contract gains may be offset by losses.

AD 8146.5 Interest from sales of real estate

     This directive explains that the deduction for interest earned on loans secured by a first mortgage or trust deed on nontransient residential property may not be claimed for interest derived from real estate sales contracts. This information is accurate, but the directive is no longer needed. This issue is sufficiently addressed in subsequent published determinations of the department (e.g., Det. 93-023, 12 WTD 575 (1993)).

AD 8156.1 Special charges related to escrows

     This directive explains that consistent with the holding in Det. 87-100, 2 WTD 433 (1987), charges by escrow businesses to complete a federal information return are retail sales. This information is no longer needed.

AD 8171.1 Value of rock from state or federal pits

     This directive explains that ETB 11 provides values of rock removed from city or county-owned rock pits to be used to determine use tax liability. The directive notes that the ETB values are not to be used for rock taken from federal or state owned pits for uses such as logging road construction. It then identifies values for crushed aggregate and bank run rock based on a review of records maintained by Department of Transportation and the Department of Natural Resources several years prior to issuance of the directive. These figures were to be used to determine for use tax purposes the value of materials removed from federal or state-owned pits when the contractor was not charged for the materials. The information provided in this directive is out of date. ETB 11 was cancelled in 1990. RCW 82.12.010 (1)(a) (defining "value of article used"), WAC 458-20-178 Use tax, and 458-20-13501 Timber harvest operations, all provide guidance as to determining the measure of use tax.

AD 8178.2 Appliances used for demonstration

     This directive explains under what circumstances use tax applies to appliances used for demonstration purposes. This directive is no longer needed as this issue is sufficiently addressed in ETA 332.12.178.

AD 818801.1 Audits of the medical industry

     This directive to provide interim tax policy guidance in some general areas related to the medical industry. It primarily provides guidance regarding the taxability of delivery systems, dual purpose systems, prosthetic and orthotic devices, prepackaged kits, and reagents. The issues addressed in this directive are currently addressed in either WAC 458-20-18801 or other published determinations of the department, including but not limited to Det. 91-077 11 WTD 095, Det. 91-261 11 WTD 439, Det. 91-261S, 12 WTD 023, and Det. No. 92-164, 12 WTD 205.

AD 8193A.1 ETB 527 -- Merchandise pickup out of state

AD 8193A.2 Interstate sales and deliveries

AD 8193A.3 Manufacturing tax prior to June 1, 1987

AD 8193A.1 clarifies the conditions under which tax-reporting information provided in ETB 527 (subsequently ETA 527) applies.
AD 8193A.2 clarifies interim instructions provided by revenue policy memorandum (RPM) No. 89-1 regarding the taxability of interstate sales and deliveries.
AD 8193A.3 was issued to explain how the department will proceed with respect to applying the manufacturing B&O tax for periods prior to June 1, 1987, in light of the United States Supreme Court ruling in National Can Corp. v. Department of Rev., 109 Wn.2d 878 (1988), cert. den., 486 U.S. 1040, 108 S.Ct. 2030 (1988).

     The information in these directives no longer has any application. ETA 527 was cancelled in 1999. RPM 89-1 was cancelled in 1992. The information provided in AD 8193A.3 addresses transactions outside the statutory claim period provided by RCW 82.32.050.

AD 8233.1 Medical service bureaus -- Deferred compensation

     This directive explains the tax treatment of income deferred by a physician through a deferred compensation plan sponsored by a medical service bureau. This directive provides inaccurate information and is no longer needed. Tax-reporting instructions for deferred compensation plan sponsoring medical service bureaus and their member physicians are explained in Det. 89-467, 8 WTD 247 (1989).

AD 8251.2 Drainage utility charges

     This directive explains that the income derived from drainage utility charges is subject to the service and other activities B&O tax classification. This directive is no longer needed as this issue is addressed in Det. 98-208, 19 WTD 332 (2000).

AD 9200.1 Reliance of determinations

AD 9201.1 IRS information exchange agreement

AD 9201.2 IRS information exchange agreement

AD 9202.1 Audit information

AD 9400.1 Fraternal benefit societies - RCW 48.36A.240

AD 9600.1 Tax deferral audits

AD 9601.1 New causes for audit adjustment

AD 9601.2 Cause for audit adjustments form

AD 9602.1 Delinquent returns included in audit

AD 9603.1 Use of federal income tax returns in audits

AD 9605.1 Bankruptcy filings

AD 9606.1 Administrative audit directives

AD 9607.1 Unregistered accounts - UBI registration

AD 9608.1 Test periods for use tax                   

AD 9608.2 Detail of test periods

AD 9608.3 Use tax projections

AD 9609.1 Audit types

AD 9610.1 Excise Tax Bulletins to be abandoned

AD 9610.2 Excise Tax Bulletins to be abandoned

AD 9611.1 (1) Assessments Placed on Hold - Extension Requests

          (2) Payments made prior to Audit Issuance

AD 9611.2 Instructions on the Local Sales Tax Distribution Forms

AD 9612.1 Motor Vehicle Excise Tax

AD 9613.1 Successors

AD 9614.1 MATC Templates

     These documents address policy and procedure issues such as what information is to be included in an audit report, how to complete forms, and how DOR field personnel are to communicate information to DOR personnel reviewing audit reports. This information is outdated and is no longer used for determining department procedures or practices.

     Questions regarding the cancellation of these documents 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

Alan R. Lynn

Rules Coordinator

© Washington State Code Reviser's Office