Sales tax is a crucial aspect of business, and understanding how it works is essential for business owners. In the state of Washington, sales tax is levied on the sale of specific goods and services. Whether you are a local retailer or an out-of-state seller, it's essential to know the basics of Washington state sales tax to ensure compliance with state and local laws. In this guide, we'll provide an overview of Washington state sales tax and cover the sales tax information you need to know.
The general state sales tax rate in Washington is currently 6.5 percent. However, it's important to note that there may be additional local sales taxes and special district taxes imposed on top of the state sales tax.
For example, Seattle has a total sales tax rate of 10.25%, with a state sales tax rate of 6.5% and an additional local sales tax rate of 3.75%. On the other hand, Spokane has a total sales tax rate of 9%, with a state sales tax rate of 6.5% and an additional local sales tax rate of 2.5%.
These local taxes can range between 0 percent and 4.10 percent. As a result, the combined sales tax rates in Washington can vary depending on the location of the sale, ranging from 6.5 percent to 10.4 percent.
If you are a business owner selling taxable goods or services, you act as an agent of the state of Washington by collecting sales tax from purchasers and passing it along to the appropriate tax authority. The Washington Department of Revenue (DOR) is responsible for administering sales and use tax in the state.
As a business owner, it's crucial to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can result in penalties and interest charges. Remember, any sales tax collected from customers belongs to the state of Washington, not to you.
To determine whether you need to collect sales tax in Washington, ask yourself the following three questions:
Nexus refers to a significant connection with the state, which gives the state the legal authority to require your business to collect, file, and remit sales tax. Nexus can be established through physical presence or economic factors.
In Washington, most goods and services are subject to sales tax. The state imposes a sales tax on retail sales, leases, and rentals of tangible personal property, as well as certain services. Here is a non-exhaustive list of examples of taxable goods and services in Washington:
It's important to note that there may be exemptions or special rules for particular goods or services. Additionally, local jurisdictions in Washington may have additional sales tax requirements or exemptions. It's recommended to consult with a tax professional or the Washington State Department of Revenue for specific guidance related to your business and the goods or services you offer.
The answer to this question ultimately boils down to how you sell your product(s).
Do you use a marketplace platform that has the responsibility of collecting and remitting sales tax? Or do you sell it on your own platform, website, or store where the responsibility is yours? Laws have changed consistently shifting the responsibility based on the platform or location you use to sell your product(s).
Talking through each of these critical questions with a professional will help you gain confidence through collaboration. You will gain confidence in the next steps when you find you have nexus, sell taxable products and/or services, and sell them in a way that requires you to register, collect, and remit tax.
While most retail sales in Washington State are subject to sales tax, some exemptions exist. Some (again, not an exhaustive) of the most common items that are exempt from sales tax in Washington State include:
It's important to note that there are nuances around exemptions and it is best to consult with a tax specialist if questions arise.
If you meet the criteria for collecting sales tax but choose not to do so, you will be held responsible for the tax due, along with applicable penalties and interest. It's crucial to set up tax collection at the point of sale, as collecting sales tax from customers after a transaction can be challenging.
Nexus in Washington can be established through various means, including physical presence, click-through nexus, economic nexus, marketplace sales, and non-collecting seller use tax reporting.
Traditionally, a physical presence in a state was required for a business to have sales tax nexus. This includes having employees, offices, retail stores, or warehouses in the state.
Click-through nexus occurs when a business has an agreement to reward a person in the state for referring potential purchasers through an internet link, website, or other means.
In June 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc. that states can require online retailers to collect and remit sales tax, even if they don't have a physical presence in the state. As a result, many online retailers now collect and remit sales tax on purchases made by Washington State residents.
Economic nexus is based on a business's economic activity in the state. In Washington, a remote seller, marketplace facilitator, or referrer must register and collect sales tax if they exceed a certain threshold. The threshold is currently $100,000 in annual gross retail sales or 200 or more transactions in Washington.
Sales tax in Washington State can be complex, with rates and exemptions varying by location and type of item or service. If you have questions or need further information, it's always a good idea to consult with a tax professional or contact the Washington State Department of Revenue.
Staying informed about your state and local sales tax rules will help ensure your business charges customers the right amount, which will make it easier to stay compliant and keep ahead.
With further questions, contact us for a free consultative call. There is confidence in collaboration; we would love to collaborate with you.