WSR 12-03-007



[ Filed January 5, 2012, 8:54 a.m. ]

     Subject of Possible Rule Making: WAC 458-20-193 (Rule 193) Inbound and outbound interstate sales of tangible personal property.

     Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 82.32.300 and 82.01.060(2).

     Reasons Why Rules on this Subject may be Needed and What They Might Accomplish: Rule 193 provides guidance on how Washington's B&O and retail sales taxes apply to sales of tangible personal property associated with interstate commerce.

     The department is considering a limited amendment to Rule 193, the primary purpose of which would be to reconcile the existing different trailing nexus periods for the B&O and retail sales taxes.

     Rule 193 currently explains in subsection (7)(c) that once nexus is established, nexus (referred to as "trailing nexus") continues for up to five years, notwithstanding the instate activity that created nexus has ceased. Section 102, chapter 23, Laws of 2010 1st sp.s., changed the trailing nexus period, for B&O tax only, so that B&O nexus now exists only through the following tax year. (See RCW 82.04.220.) This legislation only addresses B&O tax nexus. Thus, under current Rule 193, a seller remains responsible for collecting retail sales tax on sales made up to five years after the activity creating nexus ends, even though the seller is liable for B&O tax for only one additional year. The department is considering an amendment to Rule 193 to establish a one-year tax trailing nexus period for all other taxes.

     The department is also considering other changes to clarify existing information, such as:

Removing the outdated sample exemption certificate now provided in the rule, which can be used to substantiate certain tax-exempt sales. The department anticipates referring readers to the department's web site for the "Buyer's Retail Sales Tax Exemption Certificate";
Updating subsection (6)(b), to recognize chapter 7, Laws of 2011, which amended the sales tax exemption available for sales of property to residents of certain states, United States possessions, and Canadian territories or provinces; and
Clarifying the explanation of the tax-reporting responsibilities associated with drop-shipment sales.

     While the department believes that other guidance provided in current Rule 193 is outdated, and warrants updating, it does not at this time anticipate proceeding with amendments in these areas - unless there is stakeholder support for these changes. Nonetheless, to the extent guidance in Rule 193 conflicts with statutory provisions, the statute controls. Examples include recognizing:

RCW 82.32.730 (9)(f)'s definition of "receive" and "receipt," particularly the provision stating that these terms "do not include possession by a shipping company on behalf of the purchaser."
RCW 82.04.627, which provides that sales of certain parts to the manufacturer of a commercial airplane are deemed to occur at the site of final testing or inspection.

     Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: None.

     Process for Developing New Rule: Parties interested in this rule making may contact the individual listed below. The public may also participate by providing written comments throughout this rule making or giving oral testimony at a public rule-making meeting or public rule-making hearing scheduled for this rule action.

     Interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication. The department anticipates that a preliminary draft of possible rule changes will be available by January 13, 2012, via the department's on-line Rules Agenda. The department is at this time asking for written comments regarding its anticipated course for amending Rule 193. Written comments should be directed to Gayle Carlson, ITA Division, P.O. Box 47453, Olympia, WA 98504-7453, e-mail Please provide your comments no later than February 10, 2012.

January 5, 2012

Alan R. Lynn

Rules Coordinator

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