Businesses are urged to learn more about pending changes that are mandatory beginning Jan. 1
Last month, wholesalers and manufacturers in the state of Washington saw initial changes to the reseller system that will go into full effect and become mandatory on Jan. 1, 2010. The Department of Revenue is now issuing reseller permits to businesses to stem the loss of an estimated annual $100 million in unpaid state and local sales tax. These replace existing resale certificates.
Under the current system, businesses are allowed to buy products for resale without paying sales tax by giving a resale certificate to the seller. The resale certificate states that the purchaser plans to resell the products and will ultimately collect and remit sales tax for the product when it is sold.
Ongoing misuse of these certificates by some businesses, those that intentionally purchased products for their own use with no intent to resell or those that misunderstood that taxes must be paid if they used or sold the products themselves, spawned Senate Bill 6173 which passed Apr. 25, 2009.
Under this new system, wholesalers, retailers, manufacturers and qualified contractors are issued a number of free permits from Department of Revenue. These allow them to make wholesale purchases without paying sales tax. The permits are valid for anywhere from one to four years, depending on the industry and the length of time the business has been registered with the Department.
The Department of Revenue is automatically sending the new reseller permits to more than 154,000 qualified businesses. More than 40,000 contractors that are deemed likely to be eligible should also receive a letter and application form encouraging them to apply. About 286,000 other businesses will not automatically receive permits or applications but are able to apply if they believe they qualify for the sales tax exemption.
The reseller permits are free to businesses. Failure to use them or misuse of the documents may result in a penalty of 50 percent of the tax due, in addition to the tax, interest and other penalties imposed.
Misuse may result in permits being revoked. Sellers are not responsible for uncollected sales tax if they have a valid reseller permit or exemption certificate that supported the sale.
Buyers that are without a permit or other exemption certificate after Dec. 31, 2009 must pay retail sales tax on purchases, but can take a “Taxable Amount for Tax Paid at Source” deduction on their tax return, or request a refund for the sales tax. For audit purposes, all previous resale certificates and the new reseller permits need to be retained for at least five years.
Revenue Director Cindi Holmstrom said the Department has been working with stakeholders, including wholesalers, retailers, contractors, and business associations, to ensure a smooth transition to the new system.
“The goal here is to ensure that sales tax is paid when due, and not paid when not due,” she said. “We’ve developed a robust system that will allow us to more closely monitor the use of the reseller exemption while discouraging its misuse.”
All businesses are urged to go online at the Washington State Department of Revenue Web site to learn more about the changes to the current system. Multi-media links as well as multi-language documents are available to review.
Lists of items that can and cannot be applied to a reseller permit are listed.
The Department of Revenue has also supplied PDF files of signs and information cards to print and pass on to customers.
For more information go online at http://dor.wa.gov/resellerpermit or call 1-800-647-7706 or e-mail to reseller@dor.wa.gov
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