Title of Rule and Other Identifying Information: WAC 458-20-144 Printing industry.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed amendment to WAC 458-20-144 (Rule 144) incorporates provisions of chapter 514, Laws of 2005.

     Reasons Supporting Proposal: Background: WAC 458-20-144 (Rule 144) explains the B&O and retail sales tax reporting responsibilities of persons engaged in printing activities. This rule was revised in January 2005, with an effective date of July 1, 2005.

     The major revision to Rule 144 was the removal of language stating that a deduction from the measure of tax for both B&O and retail sales tax purposes was available where a mailing bureau purchased postage for a customer and charged that customer for the postage. The January 2005 revision explained that amounts received from a customer for postage costs incurred by the seller are, under the law, included in the measure of both taxes.

     Effective July 1, 2005, the department adopted revisions to Rule 144 on an emergency basis to reflect chapter 514, Laws of 2005, which provide a B&O tax deduction and retail sales and use tax exemptions for delivery charges made for the delivery of direct mail if the charges are separately stated. These provisions of chapter 514 took effect May 16, 2005, and supercede the instructions included in the January 2005 rule actions regarding charges for postage costs.

     Current Rule-Making Action: The department is undertaking the current rule action to incorporate the provisions of chapter 514 in permanent Rule 144.

     Statutory Authority for Adoption: RCW 82.32.300 and 82.01.060(2).

     Statute Being Implemented: RCW 82.08.010 and chapter 514, Laws of 2005.

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Department of Revenue, governmental.

     Name of Agency Personnel Responsible for Drafting: JoAnne Gordon, 1025 Union Avenue S.E., Suite #544, Olympia, WA, (360) 570-6121; Implementation: Alan R. Lynn, 1025 Union Avenue S.E., Suite #544, Olympia, WA, (360) 570-6125; and Enforcement: Janis P. Bianchi, 1025 Union Avenue S.E., Suite #544, Olympia, WA, (360) 570-6147.

November 14, 2005

Alan R. Lynn

Rules Coordinator

OTS-8454.1

AMENDATORY SECTION(Amending WSR 05-03-052, filed 1/11/05, effective 7/1/05)

WAC 458-20-144   Printing industry.   (1) Introduction. This ((rule)) section discusses the taxability of the printing industry. For information on the taxability of mailing bureau services, refer to WAC 458-20-141, Duplicating industry and mailing bureaus.

     Chapter 514, Laws of 2005, changed the taxability of delivery charges associated with direct mail. Refer to subsection (4) of this section for further information.

     (2) Definition. The phrase "printing industry" includes letterpress, offset-lithography, and gravure processes as well as multigraph, mimeograph, autotyping, addressographing and similar activities.

     (3) Business and occupation tax. Printers are subject to the business and occupation tax under the printing and publishing classification upon the gross income of the business.

     (4) Retail sales tax. The printing or imprinting of advertising circulars, books, briefs, envelopes, folders, posters, racing forms, tickets, and other printed matter, whether upon special order or upon materials furnished either directly or indirectly by the customer is a retail sale and subject to the retail sales tax, providing the customer either consumes, or distributes such articles free of charge, and does not resell such articles in the regular course of business. The retail sales tax is computed upon the total charge for printing, and the printer may not deduct the cost of labor, author's alterations, or other service charges in performing the printing, even though such charges may be stated or shown separately on invoices.

     RCW 82.04.070 and 82.08.010, respectively, define "gross proceeds of sales" and "selling price." These definitions provide that there is no deduction for "delivery costs." RCW 82.08.010 further provides that there is no deduction for "delivery charges," a term also defined by the statute to include postage. ((If a printer purchases stamps, applies metered postage using its meter account, or applies its permit imprint, and also charges the customer for the postage, the charge is included in the measure of B&O and/or retail sales tax, unless excluded by another provision of chapters 82.04 and 82.08 RCW. See also WAC 458-20-111 for information about nontaxable advances and reimbursements.)) Effective May 17, 2005, chapter 514, Laws of 2005, provides a B&O tax deduction and retail sales and use tax exemption from the measure of tax for amounts derived from delivery charges for direct mail when the delivery charges are separately stated on an invoice or similar billing invoice provided to the buyer.

     "Direct mail" means printed material delivered or distributed by United States mail or other delivery service to a mass audience or to addressees on a mailing list provided by the purchaser or at the direction of the purchaser when the cost of the items are not billed directly to the recipients. "Direct mail" includes tangible personal property supplied directly or indirectly by the purchaser to the direct mail seller for inclusion in the package containing the printed material. "Direct mail" does not include multiple items of printed material delivered to a single address. RCW 82.08.010 and chapter 514, Laws of 2005.

     "Delivery charges" means charges by the seller of personal property or services for preparation and delivery to a location designated by the purchaser of personal property or services including, but not limited to, transportation, shipping, postage, handling, crating, and packing. RCW 82.08.010.

     Sales of printed matter to advertising agencies who purchase for their own use or for the use of their clients, and not for resale in the regular course of business, are sales for consumption and subject to the retail sales tax.

     Sales of tickets to theater owners, amusement operators, transportation companies and others are sales for consumption and subject to the retail sales tax. Such tickets are not resold by the theater owners or amusement proprietors as tangible personal property but are used merely as a receipt to the patrons for payment and as evidence of the right to admission or transportation.

     Sales of school annuals and similar publications by printers to school districts, private schools or student organizations therein are subject to the retail sales tax.

     Sales by printers of books, envelopes, folders, posters, racing forms, stationery, tickets and other printed matter to dealers for resale in the regular course of business are wholesale sales and are not subject to the retail sales tax.

     Charges made by bookbinders or printers for imprinting, binding or rebinding of materials for consumers are subject to the retail sales tax.

     Sales to printers of equipment, supplies and materials which do not become a component part or ingredient of the finished printed matter sold or which are put to "intervening use" before being resold are subject to the retail sales tax. This includes, among others, sales of fuel, furniture, lubricants, machinery, type, lead, slugs and mats.

     Sales to printers of paper stock and ink which become a part of the printed matter sold are sales for resale and are not subject to retail sales tax.

     (5) Commissions and discounts. There is a general trade practice in the printing industry of making allowances to advertising agencies of a certain percentage of the gross charge made for printed matter ordered by the agency either in its own name or in the name of the advertiser. This allowance may be a "commission" or may be a "discount."

     A "commission" paid by a seller constitutes an expense of doing business and is not deductible from the measure of tax under either business and occupation tax or retail sales tax. On the other hand, a "discount" is a deduction from an established selling price allowed to buyers, and a bona fide discount is deductible under both these classifications.

     In order that there may be a definite understanding, printers, advertising agencies and advertisers are advised that tax liability in such cases is as follows:

     (a) The allowance taken by an advertising agency will be deductible as a discount in the computation of the printer's liability only in the event that the printer bills the charge on a net basis; i.e., less the discount.

     (b) Where the printer bills the gross charge to the agency, and the advertiser pays the sales tax measured by the gross charge, no deduction will be allowed, irrespective of the fact that in payment of the account the printer actually receives from the agency the net amount only; i.e., the gross billing, less the commission retained by the agency. In all cases the commission received is taxable to the agency.

[Statutory Authority: RCW 82.32.300 and 82.01.060(2). 05-03-052, § 458-20-144, filed 1/11/05, effective 7/1/05; Order ET 70-4, § 458-20-144 (Rule 144), filed 6/12/70, effective 7/12/70.]