Retail sales taxes (chapter 82.08 RCW) and use taxes (chapter 82.12 RCW) are an important revenue source for many local governments in Washington – specifically cities, towns, counties, transit districts, and public facilities districts. (There are many other types of special purpose districts that do not have sales tax authority and must rely on other revenue sources such as property taxes or user fees and charges.)
For those local government entities with sales tax authority, sales taxes are typically the largest or second-largest source of revenue (the other usually being property taxes). For simplicity’s sake, we will refer to “retail sales and use” taxes as “sales taxes” unless otherwise noted.
Since 2008, Washington has used the destination-based sales tax system, also known as the “streamlined sales tax.” Under this system, the point of sale (the location where sales tax is calculated) is considered to be the point of delivery or where the buyer receives or takes possession of the merchandise (i.e. the destination).
In other words, the tax rate that is owed depends on the location of the sale/delivery, not the location of the business or shipping warehouse. For instance, if you buy a piece of furniture that is shipped from a warehouse in Auburn and have it delivered to Seattle, you will pay the local sales tax rate applicable in the City of Seattle. But if you take possession of merchandise at a retail business location in Auburn, you will pay the local sales tax rate applicable in the City of Auburn.
Sales taxes apply to most retail sales of “tangible personal property” within Washington, as defined in RCW 82.04.050. In addition, the Marketplace Fairness Act requires all “remote sellers” without a physical presence in the state (such as Internet or mail-order retailers) to collect and remit sales taxes on all purchases.
Services to individuals and businesses – things like haircuts, medical bills, consultant fees, etc. – are not “personal property,” and most services are not subject to sales tax. However, some services are subject to sales tax, as listed in RCW 82.04.050. For example, lodging and all other services provided by a hotel, motel, etc. are subject to the retail sales tax, as are physical fitness activities.
Local governments must pay and collect sales tax on all taxable purchases, just like any business or consumer, unless there is a specific exemption written into state law. See RCW 82.08.010(3), which defines “buyer,” “purchaser,” and “consumer” to include local government entities, and WAC 458-20-189 which discusses sales tax applicability to local governments and exemptions.
If a taxable purchase is made out-of-state by a Washington resident, business, or governmental entity for use in Washington, and the sales tax paid is less than the rate being levied within the local jurisdiction, state law requires that a “use tax” be calculated and paid to make up the difference (see chapter 82.12 RCW and WAC 458-20-178).
For example, if you buy furniture in Oregon (where there is no sales tax) and bring it back to Washington, and the sales tax rate in your city is 8.2%, you owe a use tax of 8.2% on the purchase price. Likewise, if you buy camera equipment in Idaho, where the sales tax rate is 6%, and your local sales tax rate is 8.2%, you owe a 2.2% use tax.
Practically speaking, few consumers pay a use tax, unless the purchase is of a car or truck where a use tax must be paid before the vehicle can be licensed. However, the implementation of the Marketplace Fairness Act in 2018, which required remote sellers to collect sales taxes on purchases delivered to Washington, should eliminate the vast majority of use tax noncompliance issues for Internet and catalog orders.
Businesses typically do pay use taxes because they are audited by the state Department of Revenue (DOR).
Similarly, local governments should be aware that DOR also audits local governments on a regular schedule to ensure that all use taxes are being paid. Failure to pay the appropriate use taxes can result in fines and interest due.
There are a large number of specific sales tax exemptions listed in chapter 82.08 RCW. These exemptions change with some frequency as new exemptions are written and older ones expire or are repealed. Perhaps the most visible exemptions for consumers are prescription drugs (RCW 82.08.0281) and groceries (RCW 82.08.0293), although alcohol, restaurant meals, and prepared foods sold in grocery stores are taxable.
Sales tax exemptions that may be of particular interest to local governments include:
- Copies made in response to public records requests (RCW 82.08.02525);
- Sales from one political subdivision to another (or use of another jurisdiction’s personal property) directly or indirectly due to annexations, mergers, incorporations, or contractual consolidations (see RCW 82.08.0278 and RCW 82.12.0274); and
- Labor and services on transportation projects (RCW 82.04.050(10) and WAC 458-20-171). (See our page Sales and Use Taxes in Public Works Contracts.)
For more information on exemptions, see DOR’s page on Retail Sales and Use Tax Exemptions.
Nonresident Sales Tax Exemption
In addition, there is a limited sales tax exemption for residents of certain other states or Canadian provinces for goods they purchase to be used out-of-state, if those states or provinces either have no sales tax or if the sales tax is less than 3% (RCW 82.08.0273). The most notable examples are Alaska, Montana, and Oregon residents, who are eligible for this exemption because they do not have a sales tax. This exemption has an impact on border jurisdictions in particular.
However, this nonresident exemption was significantly changed during the 2019 legislative session. ESSB 5997 (effective July 1, 2019), now requires all sales to be taxed at the time of purchase rather than allowing for the exemption to be applied at the time of purchase. To receive a refund, the nonresident buyer must apply for a remittance with the state DOR. The refund only applies to the 6.5% state portion of the sales tax; there is no refund provided for any local sales taxes collected (which are described in more detail below).
To claim the exemption, the buyer must keep records of all their taxable purchases in Washington over the course of the calendar year. Once per year, the buyer may request a refund for sales taxes paid on all purchases made in Washington during the previous calendar year. The request must include appropriate documentation of all purchases along with proof of nonresidency.
The minimum refund that may be claimed is $25 – in other words, nonresidents must spend approximately $385 or more in Washington, before tax, during a single calendar year to be eligible for this refund. (Since only the 6.5% state portion of the sales tax is refunded, and 6.5% of $385 is just over $25.)
The State of Washington imposes a 6.5% sales tax on all retail sales as defined by statute (RCW 82.08.020). Cities, towns, counties, transit districts, and public facilities districts may impose additional local sales taxes as described below.
The state also provides for certain sales tax credits against the 6.5% state portion of the sales tax, which are remitted back to local government entities that meet the requirements of the specific tax credit. See the “Sales Tax Credits” section below for further explanation.