Retailers selling in areas of Washington State with high tourist traffic often make sales to nonresidents who claim they are exempt from Washington sales tax. While a retailer is not required to make a sale without charging tax, most find it is good business to do so. But, while it is easy to give the exemption, it is harder to keep it on a routine compliance audit if you haven’t kept the right records. There is no reason to lose the non-resident sales tax exemption, however, because it is easy to take the proof you will need in an audit. Here are some quick tips to preserve this exemption:
1. First of all, as we said, don’t give the non-resident sales tax exemption if you don’t want to. It is voluntary, and if you don’t think you will lose business, you don’t have to bother with it. Second, certain sales require more specific proof and are not covered by the general non-resident exemption – cars and boats are two examples.
2. Don’t accept at face value a customer’s claim that they think they are exempt. Show them a list of the places which qualify, and check the Department of Revenue website every now and then to make sure the list is current. Right now these are the places: Alaska, Colorado, New Hampshire, Delaware, Montana, Oregon, American Samoa and the Canadian provinces/territories of Alberta, Northwest Territories, Nunavut and Yukon Territory.
3. The exemption is available for sales of tangible personal property, digital products or digital codes. Tangible personal property is easily understood – it is “things” which you sell, but not services which you perform, even if the service is one which is defined as a retail sale. Sales of digital products and codes are a little difficult to explain, and you will need to do some homework if you sell these to know if you have to charge sales tax (we will try to cover this topic in a companion article).
4. As we said, the exemption is not (repeat, not) available for services which are taxable as retail sales, or the sales of things which are substantially used or consumed in Washington. Think of hotel rooms, parking, dry cleaning and tattooing as services, think of restaurants as selling things substantially consumed in Washington.
5. If you have a sale which may qualify here is what you do:
i accept only a current driver’s license or state photo ID, and take the following information off of the ID: state and ID number, name, address and expiration date. Our office has succeeded on audit in convincing the Department that the name of the nonresident was unnecessary, but not the other three items (DOR wants to see from the record that the state qualifies, and that the ID is current and not someone else’s old one).
ii. you can photocopy the ID, but you probably don’t have a copier next to the cash register. You can take a picture from your camera if you can get all of the detail, and if you remember to store the picture for at least 4 years plus the current year. If you issue register receipts you can write the information on the back of your copy and keep those receipts separately.
A negative audit result can be appealed, but appeals is itself a stickler for details when the question is sales tax exemption. However, if you have proof, but some of it is less than perfect, don’t hesitate to take an appeal and try to settle for less than the full assessed amount.
Learn more about the non-resident sales tax exemption and Attorney Martin Silver, PS.