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Product packaging and shipping supplies do not get taxed in Washington State. The list of eligible items is amazingly long. Everything that is used to send product to your customer is not subject to sales or use tax when you buy them. If what you are purchasing will contain, hold, cover, or wrap the product then it is not taxable when purchased. The items become a part of the product being sold. Even labels attached to the product itself or labels attached to the product container are not taxable. If you give shopping bags to your customers to carry their purchases out of your store they are not taxable to you.

The list of possibilities is long with only a few exceptions. Here are a few examples:

Shopping bags

Product manuals

Product labels

Shrink wrap

Banding materials

Pallets

Protective covers

Peanuts

Warranty cards

Product installation instructions

Bottles

Cans

Drums

Twine

String

Wire

Forms to prevent damage during shipment

The Three exceptions are: 1. Shipping labels that have the customers name and address. 2. Containers with deposits. 3. Pallets that were previously used in your warehouse.

See Product Packaging & Shipping Materials for more information.

Many companies provide assistance to varying degrees with reporting and payment of sales taxes in every state charging sales tax. When organizations are audited by these states the focus is on ensuring that all taxable sales have been properly taxed and the taxes are properly remitted to the state. These audits usually cover some typical use taxes that can get missed when purchasing from out of state vendors. They do not look for overpaid taxes. Occasionally, over payments are found but the net result of these state audits is usually a tax bill.

Meanwhile, lost taxes occur every time you pay use taxes on non taxable purchases or when you purchase items that qualify for one or more of the many sales/use tax exemptions. Unfortunately, the many companies providing the sales tax assistance in reporting and paying sales taxes to the various states, referred to above, do not focus much attention to this area.

This is a big mistake. To compound the error, many companies do not realize how much money is slipping through by paying unnecessary sales or use taxes. In fact, almost every organization that we have contacted offering Accounts Payable Recovery Audit services were unaware of the significant amount of money this entails. Only organizations that had gone through a recovery audit even believed that this was possible. Yet over 70% of the recoveries were overpaid sales and use taxes.

It was this misunderstanding that inspired the development of www.isittaxable.com. Our goal is to provide a quick and easy to use resource so organizations paying sales and use tax in Washington State pay only the taxes that are due not a penny more.

Many service companies include sales taxes when they perform inspections, testing, and certifications. Charging sales tax on these services is incorrect. It is easy to understand how this can happen since the tax code has clearly omitted inspections, testing, and certifications in the state's definition of a "sale at retail" found in the Registered Code of Washington RCW 82.04.050 paragraphs (2)(a) through (2)(h). The determining criteria to be used when specific services are not identified as a "sale at retail" is as follows: Has the service been performed for the management or the owners? Will management and/or the owner use the information to comply with regulated standards? And does the information gathered report the status, condition, and/or certification of the systems being reviewed? If these apply, then the service was performed for management and is not a "sale at retail". If however, any aspects of the system was repaired or replaced as a part of the inspections, testing, and certifications process, then the service would be a "sale at retail". The difference being that tangible personal property was modified in some way and the service was not only to provide management with information on its status.

Washington State began taxing retail sales in 1935 at a rate of 2%. Even in 1935 the legislature identified exemptions for dairy products, fruit, vegetables, eggs and bread. Washington has a long history of exemptions, deductions and credits. Most of these reductions in retail sales and use tax were implemented to encourage and stimulate businesses to locate and operate in Washington. However, the following reductions were implemented to benefit and reduce the tax burden on the individual citizens of Washington.

• Food exemptions (1935 & 1937)

• Exemptions for prescription drugs and returnable containers (1974)

• Used mobile homes (1979)

• Exemptions for ride-sharing vehicles, alcohol used in gasohol (1980)

• Exemptions for trade-ins and used floating homes (1984)

• Exemption for hearing aids (1986)

• Exemption for food stamp purchases (1987)

• Exemption extended to birth control and ride-sharing vehicles to include passenger cars with as few as 5 persons (1993)

There are hundreds of these sales tax reductions for organizations, both for profit and non profit, that have influenced organizations to locate or stay in Washington State. As all of the states struggle with their current budget problems, tax exemptions and other reductions have helped them retain viable employers. States have intense competition to hold and entice businesses. Unfortunately, they are now in the position of having to make critical decisions about exemptions and tax rate adjustments which may chase businesses away by redefining and reducing the incentives put in place to woo new businesses in the first place.

Many design firms charge sales taxes for their design services. In most cases this is inaccurate. The development of a design for use in product packaging, advertising, or for the product itself is a professional fee and not a taxable event. Sales taxes are levied on tangible personal property (TPP) not on creative services. Another way to look at this is the activity of designing a graphic is for the person or company ordering the design verses the sale of tangible person property.

See Graphic Design Services for more information.

Some freight charges are taxable and some aren't. When the items you are buying are taxable and freight is charged by your vendor, the freight is also taxable. This is true whether or not the freight was included on the product invoice or billed separately. If the taxable items were delivered to a third party carrier, that you arranged to take delivery at the vendor's warehouse, the freight charges would not be taxable. Freight charges added to your vendor's invoice when buying tax exempt or non taxable items are not taxable.

See Freight Charges for more information.

The purchase and sale of ice has some interesting twists.
Not Taxable: Any cubed, shaved, or crushed ice in bags less than 10 pounds are not taxable. In addition ice sold as a component of a drink is exempt from sales tax.
Taxable: What is taxed are any containers of 10 pounds or more of ice, all blocks of ice regardless of size, ice used to pack and preserve fish by fishermen, and ice used to cool food products.

See Ice for more information.

When donating inventory held for resale to non profit organizations there is no sales or use tax due. Use tax does apply to any kind of inventory held for resale that is donated to individuals or to for profit organizations.

See Donations and Non Profit Organizations in Industry Guides for more information.

There are four main categories defining Machinery and Equipment for the Manufacturer's Sales/Use tax Exemption.
1. Industrial Fixtures which are items attached to a building or the land and become part of the real estate. Examples are fuel oil lines, boilers, craneways, and special concrete slabs.
2. Devices which are items not attached to the building or site. Examples are forklifts, air compressors, clamps, free standing shelving, ladders, etc.
3. Support Facilities which are a part of the building or structure or improvement used to contain or steady an Industrial Fixture or Device. A Support Facility must be specifically designed and necessary for the functioning of an Industrial Fixture or Device to be eligible. Examples include pollution control equipment installed and used to prevent air pollution, water pollution, or contamination that would result without the equipment.
4. Tangible Personal Property that becomes an ingredient or component of any of the above including repairs and replacements.

See Machinery & Equipment Sales/Use Tax Exemption for more information.

So often fees for training are taxed by vendors. Frequently this is due to out of state vendors not being familiar with Washington State Sales Tax laws. Training is not Tangible Personal Property nor is it adjusting, modifying, or calibrating Tangible Personal Property. Only text books and/or materials sold by the training vendor would be taxable since these items are Tangible Personal Property. Any handouts or workbooks that are a part of the training would be Non Taxable like the Training itself.

See Training for more information.