EMERGENCY RULES
Effective Date of Rule: Immediately.
Other Findings Required by Other Provisions of Law as Precondition to Adoption or Effectiveness of Rule: Emergency rule findings are required, see below.
Purpose: Effective January 1, 2010, reseller permits will replace resale certificates as the means to substantiate wholesale purchases. Section 404, chapter 563, Laws of 2009 authorizes the department of revenue (department) to accept applications for reseller permits, issue reseller permits, adopt rules, and take any other action before January 1, 2010, necessary to ensure the effective implementation of the legislation. The department is adopting these rules on an emergency basis to explain the application process and eligibility requirements for businesses to receive department-issued reseller permits.
The adopted rules are WAC 458-20-10201 Application process and eligibility requirements for reseller permits and 458-20-10202 Brief adjudicative proceedings for matters related to reseller permits.
Statutory Authority for Adoption: RCW 82.32.300 and 82.01.060(2).
Under RCW 34.05.350 the agency for good cause finds that immediate adoption, amendment, or repeal of a rule is necessary for the preservation of the public health, safety, or general welfare, and that observing the time requirements of notice and opportunity to comment upon adoption of a permanent rule would be contrary to the public interest.
Reasons for this Finding: The department is adopting these rules on an emergency basis because permanent rules cannot be adopted at this time. These rules will provide needed guidance on reseller permits that the department will begin issuing in September 2009.
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 2, Amended 0, Repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.
Number of Sections Adopted on the Agency's Own Initiative: New 2, Amended 0, Repealed 0.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.
Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.
Date Adopted: August 31, 2009.
Alan R. Lynn
Rules Coordinator
(101) Introduction. Effective January 1, 2010, seller's permits issued by the department of revenue (department) replace resale certificates as the documentation necessary to substantiate the wholesale nature of a sales transaction pursuant to Chapter 563, Laws of 2009 (SB 6173) ("the act"). To reduce the potential for confusion, a "seller's permit" will be described as a "reseller permit." The act provides unique requirements and provisions for construction contractors. (See Part III of this section.) The act authorizes the department to accept applications for reseller permits, issue reseller permits, adopt rules, and take any other action before January 1, 2010, necessary to ensure the effective implementation of the act. This section explains the criteria under which the department will automatically issue a reseller permit, the application process for both construction contractors and taxpayers engaging in other business activities when the department does not automatically issue or renew a reseller permit, and the criteria that may result in the denial of an application for a reseller permit.
(102) What is a reseller permit? A reseller permit is the document issued to a taxpayer by the department, a copy of which the taxpayer provides to a seller to substantiate a wholesale purchase. A wholesale purchase is not subject to retail sales tax. See RCW 82.04.060; 82.08.020. Reseller permits are to be used for wholesale purchases made on and after January 1, 2010.
In addition to this section, information regarding the reseller permit is available at the following sources:
| • | http://apps.leg.wa.gov/billinfo/, through which a copy of Chapter 563, Laws of 2009 (SB 6173) and background information about the legislation can be obtained; |
| • | http://dor.wa.gov/resellerpermit, which is the department's specific webpage for information relating to reseller permits; and |
| • | WAC 458-20-10202, which explains the process a taxpayer uses when appealing the department's denial of an application for a reseller permit. |
| • | WAC 458-20-102 (Resale Certificates), which explains the taxpayer's responsibilities regarding the use of a resale certificate, the seller's responsibility for retaining a resale certificate, and the implications for a taxpayer not properly using a certificate and a seller not obtaining a certificate from the taxpayer. It is important to note that sellers should retain resale certificates for five years from the date of last use (e.g., December 31, 2014, for sales made in 2009) as the certificates may be requested by the department to verify the wholesale nature of a sale made prior to January 1, 2010. |
(201) Can any business obtain a reseller permit? No. This act was passed by the Legislature to address the significant retail sales tax noncompliance problem resulting from both the intentional and unintentional misuse of resale certificates. The department will not issue a reseller permit unless the business can substantiate that the business is entitled to make wholesale purchases. Some businesses may not receive a reseller permit, and if they do make wholesale purchases, they will need to pay retail sales tax to the seller and then claim a "taxable amount for tax paid at source" deduction or request a refund from the department as discussed in subsection (206) of this section.
(202) How does a business obtain a reseller permit? The department will initially automatically issue a reseller permit to some businesses. These businesses will be notified in September 2009. Those businesses that do not receive an automatically issued reseller permit may apply to the department to obtain a reseller permit. Beginning in September 2009, applications will be available at: http://dor.wa.gov/resellerpermit or by calling 1-800-647-7706. Completed applications should be mailed or faxed to the department at:
Department of Revenue
Taxpayer Account Administration
P.O. Box 47476
Olympia, WA 98504-7476
Fax: (360) 586-0527
(203) When does a business apply for a reseller permit?
A business can apply for a reseller permit anytime after
September 1, 2009. In order for approved applicants to
receive their reseller permits by January 1, 2010, the
department recommends that businesses submit their fully
completed applications no later than October 15, 2009.
(204) What criteria will the department consider when making its decision whether a business will receive a reseller permit?
(a) Except as provided in paragraph (b) of this subsection, a business other than a construction contractor will receive a reseller permit if it satisfies the following criteria (construction contractors should refer to subsection (305) of this section for an explanation of the requirements unique to them):
(i) The business has an active tax reporting account with the department;
(ii) The business must have reported gross income on tax returns covering a monthly or quarterly period during the immediately preceding six months or, if the business reports on an annual basis, on the immediately preceding annual tax return; and
(iii) Five percent or more of the business's gross income reported during the applicable six or twelve-month period described in (a)(ii) of this subsection was reported under a retailing, wholesaling, or manufacturing business and occupation (B&O) tax classification.
(b) Notwithstanding paragraph (a) of this subsection, the department may deny an application for a reseller permit if:
(i) The Department determines that an applicant is not entitled to make purchases at wholesale based on the nature of the applicant's business;
(ii) The applicant has been assessed the penalty for the misuse of a resale certificate or a reseller permit; or
(iii) The department determines that denial of the application is in the best interest of collecting the taxes due under Title 82 RCW.
(c) For purposes of this subsection, "gross income" means gross proceeds of sales as defined in RCW 82.04.070 and value of products manufactured as determined under RCW 82.04.450.
(d) In the event that a business has reorganized, the new business resulting from the reorganization may be denied a reseller permit if the former business would not have qualified for a reseller permit under paragraphs (a) or (b) of this subsection. For purposes of this subsection, "reorganize" means:
(i) The transfer, however effected, of a majority of the assets of one business to another business where any of the persons having an interest in the ownership or management in the former business maintain an ownership or management interest in the new business, either directly or indirectly;
(ii) A mere change in identity or form of ownership, however effected; or
(iii) The new business is a mere continuation of the former business based on significant shared features such as owners, personnel, assets, or general business activity.
(205) What if I am a new business and don't have a past reporting history? New businesses will generally be issued permits if they indicate they will engage in activity taxable under a retailing, wholesaling, or manufacturing B&O tax classification.
(206) What if I don't get a reseller permit and some of my purchases do qualify as wholesale purchases? It is possible that some taxpayers that do not qualify for a reseller permit will make wholesale purchases. In these circumstances, the taxpayer must pay retail sales tax on these purchases and then claim a "taxable amount for tax paid at source" deduction on the taxpayer's excise tax return. See also WAC 458-20-102 (11)(b). Alternatively, the taxpayer may request a refund from the department of retail sales tax it paid on purchases that are later resold without being used ("intervening use") by the taxpayer or for purchases that would otherwise have met the definition of wholesale sale if the taxpayer had provided the seller with a reseller permit or uniform exemption certificate as authorized in RCW 82.04.470. See also WAC 458-20-229 (Refunds). However, such a deduction in respect to the purchase of services is not permitted if the services are not of a type that can be sold at wholesale under the definition of wholesale sale in RCW 82.04.060.
(301) How does a contractor obtain a reseller permit? The act does not authorize the department to automatically issue a reseller permit to "contractors." Contractors must apply for a reseller permit and meet certain eligibility requirements.
(302) How do I determine whether I am a "contractor"? For purposes of the reseller permit:
(a) A "contractor" is any person engaging in the activities described by:
(i) RCW 82.04.050 (2)(b), which are activities generally referred to as "retail construction" when performed for consumers, "wholesale construction" when performed for a person other than a consumer (e.g., a prime contractor), and "speculative construction" or "speculative building" when the taxpayer is constructing on land that it owns. See also WAC 458-20-170 (Constructing and repairing of new or existing buildings or other structures upon real property) for additional information;
(ii) RCW 82.04.050(8), which are activities often referred to as "public road construction." See also WAC 458-20-171 (Building, repairing or improving streets, roads, etc., which are owned by a municipal corporation or political subdivision of the state or by the United States and which are used primarily for foot or vehicular traffic) for additional information; and
(iii) RCW 82.04.050(10), which are activities often referred to as "U.S. government construction" or "government contracting." See also WAC 458-20-17001 (Government contracting -- Construction, installations, or improvements to government real property) for additional information.
(b) "Retail construction" is defined as the constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property of or for consumers, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation, and it also includes the sale of services or charges made for the clearing of land and the moving of earth excepting the mere leveling of land used in commercial farming or agriculture. Retail construction activity generally involves residential and commercial construction performed for others, including road construction for the state of Washington. It generally includes construction activities that are not specifically designated as speculative building; government contracting; public road construction; logging road construction; radioactive waste cleanup on federal lands; or designated hazardous site cleanup jobs.
(c) "Materials" is defined as tangible personal property that becomes incorporated into the real property being constructed, repaired, decorated, or improved. Materials are the type of tangible personal property that contractors on retail construction projects purchase at wholesale, such as lumber, concrete, paint, wiring, pipe, roofing materials, insulation, nails, screws, drywall, and flooring material. Materials do not include consumable supplies, tools, or equipment, whether purchased or rented, such as bulldozers. However, for purposes of the percentage discussed in (305)(a)(iii) of this section, purchases of consumable supplies, tools, and equipment rentals may be included with material purchases if all such purchases are commingled in the applicant's records and it would be impractical to exclude such purchases.
(d) "Labor" is defined as the work of subcontractors (including personnel provided by temporary staffing companies) hired by a contractor to perform a portion of the construction services in respect to real property owned by a third party. In the case of speculative builders, labor includes the work of any construction contractor hired by the speculative builder. Labor does not include the work of taxpayer's employees. Nor does the term include consultants, engineers, construction managers, or other independent contractors hired to oversee a project. However, for purposes of the percentage discussed in (305)(a)(iii) of this section, purchases of labor may include the wages of taxpayer's employees and amounts paid to consultants, engineers, construction managers or other independent contractors hired to oversee a project if all such purchases are commingled in the applicant's records and it would be impractical to exclude such purchases.
(303) How does a contractor apply for a reseller permit? A contractor applies for a reseller permit in the same manner as non-contractor taxpayers apply as provided in subsection (202) of this section. Contractors who the department has determined may be eligible for a reseller permit will be notified in September 2009 and receive an application with their notification. The application identifies information specific to contractors that must be provided.
(304) When does a contractor apply for a reseller permit? The same guidelines for non-contractor applicants as provided in subsection (203) of this section also apply to contractor applicants.
(305) What are the criteria specific to contractors to receive a reseller permit?
(a) The Department may issue a permit to a contractor that:
(i) Provides a completed application with no material misstatement as that term is defined in paragraph (c) of this subsection;
(ii) Demonstrates it is entitled to make purchases at wholesale; and
(iii) Reported on its application that more than twenty-five percent of its total dollar amount of material and labor purchases in the preceding twelve months were for retail construction activities performed by the contractor. The department may, however, approve an application not meeting this criterion if the department is satisfied that approval is unlikely to jeopardize collection of the taxes due under Title 82 RCW.
(b) If the criteria in subsection (305)(a) are satisfied, the department will then consider the following factors when determining whether to issue a reseller permit to a contractor:
(i) Whether the contractor has an active tax reporting account with the department;
(ii) Whether the contractor has reported gross income on tax returns covering a monthly or quarterly period during the immediately preceding six months or, if the contractor reports on an annual basis, on the immediately preceding annual tax return;
(iii) Whether the contractor has the appropriate certification and licensing with the Washington State Department of Labor & Industries;
(iv) Whether the contractor has been assessed the penalty for the misuse of a resale certificate or a reseller permit; and
(v) Any other factor resulting in a determination by the department that denial of the contractor's application is in the best interest of collecting the taxes due under Title 82 RCW.
(c) For purposes of this subsection, a "material misstatement" is a false statement knowingly or purposefully made by the applicant with the intent to deceive or mislead the department. For example, a contractor who reports on its application that it had more than twenty-five percent of its purchases of materials and labor during the preceding twelve months for retail construction activity when it in fact did not have any purchases of materials and labor during the preceding twelve months for retail construction activity has made a "material misstatement."
(d) For purposes of this subsection, "gross income" means gross proceeds of sales as defined in RCW 82.04.070 and value of products manufactured as determined under RCW 82.04.450.
(e) The provisions of subsection (204)(d) of this section are equally applicable to contractors.
(306) What if a contractor does not obtain a reseller permit and some of its purchases do qualify as wholesale purchases? The provisions of subsection (206) of this section are equally applicable to contractors.
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(a) A determination of whether an applicant for a reseller permit meets the criteria for a reseller permit per WAC 458-20-10201; and
(b) On the administrative appeal of an initial order denying the taxpayer's application for a reseller permit, a determination as to whether the department's order denying the application was correctly based on the criteria for approving reseller permits as set forth in WAC 458-20-10201.
This section explains the procedure and process pertaining to the adopted brief adjudicative proceedings.
(2) Record in brief adjudicative proceedings. The record with respect to a taxpayer's appeal per RCW 34.05.482 through 34.05.485 of the department's denial of an application for a reseller permit will consist of:
(a) The taxpayer's application for the reseller permit, the taxpayer's notice of appeal, the taxpayer's written response, if any, to the reasons set forth in the department's notice of denial of a reseller permit, and all records relied upon by the department or submitted by the taxpayer; and
(b) All correspondence between the taxpayer requesting the reseller permit and the department regarding the application for the reseller permit.
(3) Conduct of brief adjudicative proceedings. If the department denies an application for a reseller permit, it will notify the taxpayer of the denial in writing, stating the reasons for the denial. To initiate an appeal of the denial of the reseller permit application, the taxpayer must file a written appeal no later than twenty-one days after service of the department's written notice that the taxpayer's application has been denied.
(a) A form notice of appeal of the denial of a reseller permit application ("Reseller Permit Appeal Petition") is available at: http://dor.wa.gov/resellerpermit or by calling 1-800-647-7706. The completed form should be mailed or faxed to the department at:
Department of Revenue
Taxpayer Account Administration
P.O. Box 47476
Olympia, WA 98504-7476
Fax: (360) 586-0527
(b) A presiding officer, who will be either the assistant
director of the taxpayer account administration division or
such other person as designated by the director of the
department (director), will conduct brief adjudicative
proceedings. The presiding officer for brief adjudicative
proceedings will have agency expertise in the subject matter
but will not otherwise have participated in responding to the
taxpayer's application for a reseller permit.
(c) As part of the appeal, the taxpayer or the taxpayer's representative may present written documentation and explain the taxpayer's view of the matter. The presiding officer may request additional documentation from the taxpayer or the department and will designate the date by which the documents must be submitted.
(d) No witnesses may appear to testify.
(e) In addition to the record, the presiding officer for brief adjudicative proceedings may employ agency expertise as a basis for decision.
(f) Within twenty-one days of receipt of the taxpayer's appeal of the denial of a reseller permit, the presiding officer will enter an initial order, including a brief explanation of the decision per RCW 34.05.485. All orders in these brief adjudicative proceedings will be in writing. The initial order will become the department's final order unless an appeal is filed with the department's appeals division per subsection (4) of this section.
(4) Review of initial orders from brief adjudicative proceeding. A taxpayer that had its application for a reseller permit denied in an initial order issued per subsection (3) of this section may request a review by the department by filing a petition for review or by making an oral request for review with the department's appeals division within twenty-one days after the service of the initial order on the taxpayer. A form for an appeal of an initial order per subsection (3) of this section denying the taxpayer's application for a reseller permit is available at: http://dor.wa.gov/resellerpermit. A request for review should state the reasons the review is sought. A taxpayer making an oral request for review may at the same time mail a written statement to the below address stating the reasons for the appeal and its view of the matter. The address, telephone number, and fax number of the appeals division are:
Appeals Division, Reseller Permit Appeals
Department of Revenue
P.O. Box 47476
Olympia, WA 98504-7476
Telephone Number - (800) 647-7706
Fax - (360) 586-0527
(a) A reviewing officer, who will be either the assistant
director of the appeals division or such other person as
designated by the director, will conduct brief adjudicative
proceedings and determine whether the department's denial of
the taxpayer's application was correctly based on the criteria
for approving reseller permits as set forth in WAC 458-20-10201. The reviewing officer will review the record
and, if needed, convert the proceeding to a formal
adjudicative proceeding.
(b) The agency record need not constitute the exclusive basis for the reviewing officer's decision. The reviewing officer will have the authority of a presiding officer.
(c) The order of the reviewing officer will be in writing and include a brief statement of the reasons for the decision, and it must be entered within twenty days of the petition for review. The order will include a notice that judicial review may be available. The order of the reviewing officer represents the final decision of the department.
(d) A request for administrative review is deemed denied if the department does not issue an order on review within twenty days after the petition for review is filed or orally requested.
(5) Conversion of a brief adjudicative proceeding to a formal proceeding. The presiding officer or reviewing officer may convert the brief adjudicative proceeding to a formal proceeding at any time on motion of the taxpayer, the department, or the presiding/reviewing officer's own motion.
(a) The presiding/reviewing officer will convert the proceeding when it is found that the use of the brief adjudicative proceeding violates any provision of law, when the protection of the public interest requires the agency to give notice to and an opportunity to participate to persons other than the parties, and when the issues and interests involved warrant the use of the procedures of RCW 34.05.413 through 34.05.479.
(b) When a proceeding is converted from a brief adjudication to a formal proceeding, the director may become the presiding officer or may designate a replacement presiding officer to conduct the formal proceedings upon notice to the taxpayer and the department.
(c) In the conduct of the formal proceedings, WAC 458-20-10002 will apply to the proceedings.
(6) Court appeal. Court appeal from the final order of the department is available pursuant to Part V, chapter 34.05 RCW. However, court appeal may be available only if a review of the initial decision has been requested under subsection (4) of this section and all other administrative remedies have been exhausted. See RCW 34.05.534.
(7) Computation of time. In computing any period of time prescribed by this section or by the presiding officer, the day of the act or event after which the designated period is to run is not to be included. The last day of the period is to be included, unless it is a Saturday, Sunday or a legal holiday, in which event the period runs until the next day which is not a Saturday, Sunday or legal holiday. When the period of time prescribed is less than seven days, intermediate Saturdays, Sundays and holidays are excluded in the computation. Service as discussed in subsection (8) of this section is deemed complete upon mailing.
(8) Service. All notices and other pleadings or papers filed with the presiding or reviewing officer must be served on the taxpayer, their representatives/agents of record, and the department.
(a) Service is made by one of the following methods:
(i) In person;
(ii) By first-class, registered or certified mail;
(iii) By fax and same-day mailing of copies;
(iv) By commercial parcel delivery company; or
(v) By electronic delivery pursuant to RCW 82.32.135.
(b) Service by mail is regarded as completed upon deposit in the United States mail properly stamped and addressed.
(c) Service by electronic fax is regarded as completed upon the production by the fax machine of confirmation of transmission.
(d) Service by commercial parcel delivery is regarded as completed upon delivery to the parcel delivery company, properly addressed with charges prepaid.
(e) Service by electronic delivery is regarded as completed on the date that the department electronically sends the information to the parties or electronically notifies the parties that the information is available to be accessed by them.
(f) Service to a taxpayer, their representative/agent of record, the department, and presiding officer must be to the address shown on the notice described in subsection (3)(a) of this section.
(g) Service to the reviewing officer must be to the appeals division at the address shown in subsection (4) of this section.
(h) Where proof of service is required, the proofs of service must include:
(i) An acknowledgment of service;
(ii) A certificate, signed by the person who served the document(s), stating the date of service; that the person did serve the document(s) upon all or one or more of the parties of record in the proceeding by delivering a copy in person to (names); and that the service was accomplished by a method of service as provided in this subsection.
(9) Continuance. The presiding officer or reviewing officer may grant a request for a continuance by motion of the taxpayer, the department, or on its own motion.
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