Title of Rule: Amendatory section WAC 458-20-165 Laundries, dry cleaners, and self-service laundries and dry cleaners.

Purpose: The purpose of the rule is to explain the application of the B&O, retail sales, and use taxes to laundries and dry cleaners.

Statutory Authority for Adoption: RCW 82.32.300.

Statute Being Implemented: RCW 82.04.050, 82.04.190, 82.04.290, 82.08.020, and 82.12.020 as they apply to sales of laundry and dry cleaning services.

Summary: This rule explains the application of the B&O, retail sales, and use taxes to laundries, dry cleaners, and laundry pickup and delivery services. The rule explains the taxability of charges for the use of coin-operated laundry facilities. It also explains where the place of sale takes place when a person provides laundry or linen supply services.

Reasons Supporting Proposal: To incorporate the statutory changes reflected in chapter 275, Laws of 1998, and chapter 315, Laws of 1998.

Name of Agency Personnel Responsible for Drafting: D. Douglas Titus, 711 Capitol Way South, #303, Olympia, WA, (360) 664-0687; Implementation: Claire Hesselholt, 711 Capitol Way South, #303, Olympia, WA, (360) 753-3446; and Enforcement: Russell W. Brubaker, 711 Capitol Way South, #303, Olympia, WA, (360) 586-0257.

Name of Proponent: Department of Revenue, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The rule explains the application of the B&O, retail sales, and use taxes to laundry and dry cleaning services. It explains the taxability of charges for the use of coin-operated facilities. The rule is being revised to explain the effects of recent law changes with respect to the taxability of persons providing laundry and dry cleaning services. The proposed rule explains that persons selling laundry and/or dry cleaning services are generally making retail sales, except when making sales to nonprofit health care facilities or providing coin-operated laundry facilities in apartment houses, rooming houses, or mobile home parks. The proposed revision to the rule also clarifies that persons providing laundry or linen supply services to consumers in Washington are not making retail sales in this state if the laundering takes place outside Washington.

Proposal Changes the Following Existing Rules: This is an amendment of an existing rule, WAC 458-20-165 Laundries, dry cleaners, self-service laundries and dry cleaners. This rule is being revised to reflect the exclusion of laundry services provided to nonprofit health care facilities from the definition of "sale at retail" by chapter 315, Laws of 1998. It is also being revised to explain that chapter 275, Laws of 1998, excluded charges for the use of coin-operated laundry facilities provided in apartment houses, rooming houses, or mobile home parks from the definition of "retail sale."

March 29, 1999

Claire Hesselholt, Rules Manager

Legislation and Policy Division

OTS-2942.2

AMENDATORY SECTION(Amending WSR 94-09-016, filed 4/13/94, effective 5/14/94)

WAC 458-20-165
Laundries, dry cleaners, self-service laundries and dry cleaners.

(1) Introduction. This ((section)) rule discusses the application of the business and occupation (B&O) ((tax and)), retail sales ((tax liability of)), and use taxes to laundries, dry cleaners, pickup and delivery services, and self-service laundries and dry cleaners.  ((RCW 82.04.050 includes within the definition of "retail sale" repairing, cleaning, and altering tangible personal property for consumers, except sales of laundry services by nonprofit hospital associations to their members.)) Persons selling laundry and/or dry cleaning services are generally making retail sales, except when making sales to nonprofit health care facilities or providing coin-operated laundry facilities in apartment houses, rooming houses, or mobile home parks. RCW 82.04.050.

(2) ((Terms.)) Definitions. The following definitions apply to this rule.

(a) A "laundry or dry cleaning business" includes operating a plant or establishment, or contracting with others, for laundering, cleaning, dyeing, pressing, and incidentally repairing such articles as clothing, linens, bedding, towels, curtains, drapes, and rugs.  Laundry or dry cleaning businesses include self-service businesses which provide coin-operated and noncoin-operated laundry or dry cleaning facilities ((and)). This term also includes pickup and delivery laundry services performed by persons operating in their own ((name)) respective names and not as commissioned agent for another laundry business.

(b) A "laundry or linen supply service" is the ((business)) activity of providing customers with a supply of items such as clean linen, uniforms, and towels, ((etc.,)) whether ownership of such property is in the person operating the laundry or linen supply service or in the customer.  The term includes supply services ((which operate)) operating their own cleaning establishments as well as those ((which contract)) contracting with other laundry or dry cleaning businesses.

(c) "Nonprofit health care facilities" means facilities operated by nonprofit organizations providing diagnostic, therapeutic, convalescent, or preventive inpatient or outpatient health care services. The term includes, but is not limited to, nonprofit hospitals, nursing homes, and hospices.

(3) Business and Occupation Tax. Business and occupation tax applies as follows.

(a) Retailing.  Persons operating laundry or dry cleaning businesses((, including self-service or coin operated businesses,)) are generally taxable under the retailing classification upon the gross proceeds of sales, without any deduction on account of commissions allowed or amounts paid to another for the performance of all or part of the laundry or dry cleaning service rendered.

(((i) The gross proceeds of sales includes charges for cleaning and for sales of starch, soap, blueing or any other article sold to customers.

(ii) Laundries in Washington which provide linen supply services are making retail sales in this state even though their customers may be located outside this state.  Gross income from such services is subject to tax because the charge is for laundering which takes place in this state, rather than being a true rental of property (uniforms, linen, etc.) to nonresidents.)) The gross proceeds of sales include charges for cleaning and for sales of soap, bleach, fabric softener, laundry bags, hangers, and other tangible personal property to consumers. Charges for alterations are also subject to the retailing classification. See "retail sales tax" below for a more detailed explanation of the charges included in the retailing classification.

(b) Wholesaling.  Tax is due under the wholesaling classification upon the gross proceeds of sales derived from laundry or dry cleaning services rendered for other laundry and dry cleaning businesses. The laundry or dry cleaning business purchasing these services should provide a resale certificate to the seller. See WAC 458-20-102 (Resale certificates).

(c) Service and other activities.   ((Nonprofit associations composed exclusively of nonprofit hospitals are taxable under the service and other activities classification on gross income received for providing laundry services to their members.)) Effective June 11, 1998, any person making sales of laundry services to a nonprofit health care facility is taxable under the service and other activities B&O classification on the gross income received for such services. For the period of July 1, 1993-June 10, 1998, the service and other activities B&O tax applied only to sales of laundry services to members by nonprofit associations composed exclusively of nonprofit hospitals.

(i) Effective July 1, 1998, the service and other activities BO tax applies to charges for the use of coin-operated laundry facilities in apartment houses, rooming houses, or mobile home parks which are provided for the exclusive use of tenants. Chapter 275, Laws of 1998. Prior to this date these charges were considered a retail sale.

(ii) Persons who collect and distribute laundry or dry cleaning as a commissioned agent for one or more laundry or dry cleaning businesses, and who act as an independent contractor rather than as an employee, are liable for service B&O tax on their gross commissions.  See WAC 458-20-159 for the recordkeeping requirements for showing agency status.

(4) Retail Sales Tax. (((a))) Laundry and dry cleaning businesses, including self-service or coin-operated laundries or dry cleaners, and laundry or linen supply services are required to collect the retail sales tax upon the total charge made to the ((customer)) consumer for laundry and dry cleaning service or laundry or linen supply service.  ((RCW 82.04.050 was amended by chapter 25, Laws of 1993 sp.s. to include as a retail sale the income from coin operated laundry facilities situated in an apartment house, hotel, motel, rooming house or trailer camp for the exclusive use of the tenants.  This change became effective July 1, 1993.  Previously such charges were taxed under the service and other business activities classification.

(b))) (a) Persons in Washington who provide laundry or linen supply services are making retail sales in this state even though their customers may be located outside this state. Gross income from such services is subject to tax because the charge is for laundering which takes place in this state, rather than being a true rental of property (e.g., uniforms, linen, and towels) to nonresidents. Conversely, persons located outside the state of Washington who provide laundry or linen supply services to consumers in this state are not making retail sales in this state. The laundering service is performed outside Washington state and is exempt from Washington's BO and retail sales taxes.

(b) Prior to July 1, 1998, charges made for the use of coin-operated laundry facilities provided for the exclusive use of tenants in apartment houses, rooming houses, or mobile home parks were retail sales. This income is subject to the service and other activities B&O tax effective July 1, 1998. (Chapter 275, Laws of 1998.) Charges for the use of coin-operated laundry facilities in hotels, motels, trailer camps, and other locations providing lodging or camping facilities to transients remain subject to the retail sales tax.

(c) Laundry and dry cleaning businesses ((which provide their)) providing services through commissioned agents should collect and remit the retail sales tax to the department.

(i) If the agent is a hotel or an apartment ((which bills)) house billing guests or tenants for laundry or dry cleaning services, the hotel or apartment house should collect the retail sales tax on the total charge for the laundry or dry cleaning and remit the payment to the laundry or dry cleaning business.  The laundry or dry cleaning business is responsible for remitting the tax to the department.

(ii) If the agent is a commissioned driver, the laundry or dry cleaning business can bill the customer directly for the services or the driver can collect the payment from the customer and remit the payment to the laundry or dry cleaning business.  In either case, the retail sales tax must be collected on the total charge made to the customer and the laundry or dry cleaning business is responsible for remitting the tax to the department.

(((c) Sales by supply houses to laundries, dry cleaners and persons operating laundry or linen supply services of soaps, cleaning solvents and other articles or substances which are used in rendering a laundry, laundry supply or cleaning service are retail sales and are subject to the retail sales tax.  Sales to such persons of dyes, fabric softeners, starches and similar articles or substances, which become ingredients of the articles cleaned, are sales at wholesale and are not subject to the retail sales tax.  Similarly, sales to persons operating laundry or linen supply services of linen, uniforms, towels, cabinets, hand soap and similar property rented or supplied to customers as a part of the service rendered are wholesale sales.  Sales by supply houses to laundries, dry cleaners and operators of laundry or linen supply services of equipment and supplies such as machinery, hand tools, sewing notions, scissors, spotting brushes, stationery, etc., are retail sales and the retail sales tax must be collected thereon.

(d) Sales by supply houses to self-service or coin operated laundries of any items which the laundries give to their customers are retail sales.  Sales of soap, bleach, fabric softener or other supplies to self-service or coin operated laundries for resale to their customers are wholesale sales.  The laundry or dry cleaning business should provide a resale certificate to the supply house as provided in WAC 458-20-102.  A sale is for resale if the self-service business sells the supplies to customers separate from the charge for the use of the laundry appliances.

(e) Sales to all operators of laundry or dry cleaning establishments of equipment such as washing machines, ironers, furniture, etc., are retail sales subject to the sales tax.

(f))) (d) In most cases the retail sales tax must be stated separately from the selling price or collected separately from the buyer.  (See RCW 82.08.050.) An exception is made for coin-operated sales.  The seller may deduct the tax from the total amount received in coin-operated machines to arrive at the net amount which becomes the measure of the tax.

(((g))) (e) In general, the place of sale for purposes of local sales tax is the place the laundry or dry cleaning services are performed.  See WAC 458-20-103 and 458-20-145.

(i) If a laundry or dry cleaning business contracts with another laundry or dry cleaning business to do the cleaning, the place of sale is the location of the laundry or dry cleaning business used by the customer to drop off and pickup the laundry.

(ii) If a laundry or dry cleaning business uses a commissioned agent such as a hotel, an apartment house, or a commissioned driver for pickup and delivery of the articles to be cleaned, the place of sale is the location of the laundry or dry cleaning business which does the cleaning.

(f) Sales to laundries or dry cleaning businesses and laundry or linen supply services of soaps, cleaning solvents, and other articles or substances consumed in rendering a laundry, laundry supply or cleaning service are retail sales and are subject to the retail sales tax. Retail sales tax also applies to sales of equipment such as washing machines, irons, and furniture, and supplies such as hand tools, sewing notions, scissors, spotting brushes, and stationery.

(g) Sales to laundry and dry cleaning businesses of dyes, fabric softeners, starches, sizing, and similar articles or substances, which become ingredients of the articles cleaned, are generally sales at wholesale and are not subject to the retail sales tax. Similarly, sales to persons operating laundry or linen supply services of linen, uniforms, towels, cabinets, hand soap, and similar property rented or supplied to customers as a part of the service rendered are generally wholesale sales.

Persons selling laundry services to nonprofit health care facilities are considered consumers of all items used in providing such services. RCW 82.04.190 (2)(a). As a result, sales of items such as dyes, fabric softeners, linens, and uniforms to these persons are retail sales and subject to the retail sales tax.

(h) Sales to self-service or coin-operated laundries of any items the laundries give to their customers are retail sales. Sales of soap, bleach, fabric softener or other supplies to self-service or coin-operated laundries for resale to their customers are wholesale sales. A sale is for resale if the self-service business sells the supplies to customers separate from the charge for the use of the laundry appliances. The laundry or dry cleaning business should provide a resale certificate to the seller as provided in WAC 458-20-102.

(5) Deferred Sales or Use Tax. With respect to purchases by laundries or dry cleaning businesses and laundry or linen supply services, if the seller fails to collect the appropriate retail sales tax, the buyers are required to pay the retail sales tax (commonly referred to as the "deferred sales tax") or use tax to the department.

[Statutory Authority: RCW 82.32.300 and 82.04.050.  94-09-016, § 458-20-165, filed 4/13/94, effective 5/14/94.  Statutory Authority: RCW 82.32.300.  83-07-033 (Order ET 83-16), § 458-20-165, filed 3/15/83; Order ET 73-1, § 458-20-165, filed 11/2/73; Order ET 70-3, § 458-20-165 (Rule 165), filed 5/29/70, effective 7/1/70.]

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