Advanced Sales Tax

Presented by:University of Washington’s Tax

Office

Agenda

• Review and General Exemptions• Computer Software & Hardware• Digital Products• Bundled items• Medical Matters• DNA Sequencing

• Other Misc. items

Basic Tax Refresher• Quiz

– What is the first question to ask when determining whether something is subject to sales or use tax?

• Tangible piece of property OR pure service?

– Which of the above is taxable, generally?

• Tangible piece of property

Basic Tax RefresherQuiz (con’t)

– When is a service considered taxable?

• When it is associated with a piece of tangible property

– Is a warranty or maintenance agreement taxable?

• Yes, both are taxable.

– When is shipping considered taxable?

• Pure shipping without purchase of taxable tangible property, not taxable.

• Otherwise, taxable.

Basic Tax Refresher

• Name ONE sales/use tax exemption people at the UW can take when making purchases.

– Reseller’s permit –Machinery and Equipment– Not brought into Washington

General Sales Tax Exemptions

• Resale– Component of a new product

• Sales to internal departments• Machinery & equipment used in

research & development

Computers - Hardware• Hardware is taxable

• Includes sales, leases, rentals, licenses to use and any other transfer of possession

• Sales tax also applies to all charges for the repair, maintenance, alteration, or modification of hardware or equipment

Computers - Software• Prewritten software is taxable

– Includes keys, or codes to access the software– Includes right to access software where possession is

maintained by the seller or third party regardless of how the payment is structured

– Remote Access Software is also taxable

• Prewritten software maintenance agreements are taxable.

• Sales tax also applies to all charges for the repair and maintenance of software.

• Customized software is generally not taxable.

Digital Products

What is a Digital Product?• Something transferred electronically• Digital goods are digital products• Digital Automated Services are

services that have been automated. These are also considered digital product.

• Digital products are generally subject to sales or use tax

Digital Goods

• What is a digital good?– Sounds, images, data, facts, or

information, or any combination thereof, transferred electronically

– These are taxable

Examples of digital goodsAre Items that you would have traditionally received in tangible form, but are now electronic. Examples:• Digital audio works

– Music– Audio books

• Digital audio visual works– Movies– Music videos

• Digital books– But, not newspapers, chat rooms or weblogs

• Data file with list of emails or names• Domain names

What isn’t a digital good• Telecommunications services (may

still be taxable)• Computer software (may be

taxable)• Internet and internet access (not

taxable)• Professional and personal services,

represented in electronic form (not taxable)

Digital automated services (DAS)

DAS are services that have been automated and are transferred electronically. DAS is not software, but includes one or more software applications in providing the service.

These are taxable, examples include:• Online searchable database

– Information service using software to transfer news, other information. Example -Tax Database.

• Online gaming service– Games played against others online

• Online rental facilitation– Apartment rental

• Online report services– Car history report, credit report

What isn’t a DAS• Services that require primarily human

effort by the seller.– Primarily (more than 50%) human effort

involved• Contract with company to build website (not

taxable)• But, purchase website template (taxable as DAS)

• Live presentations via the internet where discussion takes place in real time, not taxable. However, recorded presentations are taxable (digital good).

• Data Processing Services (not taxable)• Online advertising services (not taxable)

Digital codes• Codes that give the purchaser the right to obtain

digital products– E.g. code to download software or access to a

DAS.

• Does not include a code that represents a stored monetary value such as a redeemable gift card or gift certificate.

• Can be delivered by different means.– Email, soft drink bottle cap, plastic card, etc.

• If code provides access to traditionally taxable (e.g. software license) & nontaxable items (e.g. live training webinar), the seller will need to list separately in order to not tax the whole price.

Digital Goods Exclusions• Online education classes provided by

schools• Live presentations• Storage, web hosting and back-up• Made available free to general public or

received for free by end user.

What should I remember?

• Even if it is delivered digitally, it might be taxable

• If you have it made specifically for you, it’s probably not taxable

• If you and the rest of the world can buy it, it probably is taxable

• Internet access and web hosting are not taxable

Bundled Items

• Both taxable and non taxable items bundled together into one price may make the entire price taxable.

• Agreements may include professional service components, especially for digital products.– All taxable if part of the same

agreement– Professional services taxed as

professional services if broken out

Medical Items• Exempt items– Prescription drugs used in diagnosis, cure,

mitigation, treatment, or prevention of disease in humans

– Includes prescription lenses– Includes items/substances used in treating

patients• Needles, tubing, bag when used to deliver prescription

drugs• Diagnostic substances and reagents, including prepared

slides, tubes that contain diagnostic substances and reagents

• Stands for intravenous bags, plain glass slides, not included

• Same items are NOT exempt when used in research

More medical items• Prosthetic devices are exempt

– Artificial substitutes that replace missing parts of the human body

– Includes dental prosthetic devices

• “Orthotic devices” are not exempt, but may qualify as a prosthetic – Designed to activate or supplement a weakened or

atrophied limb or function– Braces, collars, casts, splints– Can be temporary or permanent

• Prosthetic/Orthotic devices do not include:– Wheelchairs, crutches, walkers, canes (taxable)

DNA Sequencing

• To determine whether or not DNA sequencing services are taxable, we need to ask more questions.

• Does the service involves primarily human effort?

• Services from Genewiz not taxable.

Value Added Tax (VAT)• A tax on the purchase of a good or service

• Usually seen in the European Union, but also in Asia

• Generally between 15% - 25%

• Can try to get a refund at the airport

• Best option is to buy it through the internet when you get back

More Miscellaneous• I paid 7.3% sales tax in Arizona. I don’t have to

pay use tax in Washington, do I? – Well, yes actually you do.

• That’s not fair! What can I do?– Retail sales of tangible personal property to

nonresidents temporarily within Arizona, for use outside of Arizona, are exempt from transaction privilege tax if the seller ships or delivers the tangible personal property out of Arizona.

– Generally applicable in most states. Confirm you are not resident and will use the item out of state.

– Confirm treatment with seller!

Misc Continued• Amazon didn’t charge sales tax on my last

purchase. I don’t have to pay use tax, do I? – Yes, you do have to pay use tax. Third party

sellers sometimes do not charge sales tax, so if the item is taxable, use tax is due.

• Does the University of Washington pay Business and Occupation (B&O) tax? – No, the UW is statutorily exempt from B & O tax.

• What is a UBI?– A Unified Business Identifier. The UW has one for

all its operations.

That’s it, Any Questions?

Resources

• taxofc@uw.edu• http://f2.washington.edu/fm/tax/home• http://

f2.washington.edu/fm/tax/taxability• http://dor.wa.gov/Content/Home/Default.

aspx• http://apps.leg.wa.gov/rcw/default.aspx?

cite=82.08• http://apps.leg.wa.gov/wac/default.aspx?

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