WAC 246

Direct Sellers/Multilevel Organizations Guide

Exemptions -- Sales by certain out-of-state persons to or through direct seller's representatives.

Sales to or through a direct seller's representative The Department is amending WAC 458-20-246 to recognize 2ESSB 6143, (chapter 23, Laws of 2010). This legislation: reaffirmed and clarified the legislature’s intent in establishing the direct sellers’ exemption; and repealed the exemption effective May 1, 2010.

Sales to or through a direct seller's representative. Updated 12/31/99.

Direct Seller's Use of the Internet, Mail Orders, Direct Calls, etc. Revised 2/2/09 See ETA 3006.2009

Direct Seller’s Use of the Internet, Mail Orders, Direct Calls, etc.

Direct seller's Use of the Internet, Mail Orders, Direct Calls, etc.

Special Notice for Direct Sellers

Direct Seller's B&O Tax Exemption Repealed

SERVICE B&O TAX -- SALES COMMISSIONS -- SELLING AGENT -- DIRECT SELLER'S REPRESENTATIVE. Merely because Rule 246 explains that a "direct seller's representative" is subject to the Service B&O tax on commissions earned does not mean if a taxpayer is a selling agent who does not qualify as a direct seller's representative under the rule's definition that the taxpayer's sales commissions are exempt from the Service B&O tax. The taxpayer's earned sales commissions are Service B&O taxable under Rule 159.Accord:8 WTD 7 (1989), Det. 89-286.

COMMISSION INCOME – MULTI-LEVEL MARKETERS. All commission income of a multi-level marketer must be included in its gross income for B&O tax purposes.

B&O TAX – DISCRIMINATION – EXEMPTION FOR DIRECT SELLERS. Washington’s tax structure does not discriminate against interstate commerce. If anything, a potential tax benefit is provided to the out-of-state firm using a direct sellers representative, since no equivalent is granted to a Washington-based seller of goods in the home or non-permanent retail locations.

DIRECT SELLER'S REPRESENTATIVE -- PERMANENT RETAIL ESTABLISHMENT. In order for a direct seller who sells to wholesalers to qualify for the direct seller's exemption, neither the buyer, which is the direct seller's representative, nor any other person may resell the direct seller's products in a permanent retail establishment.Regardless of to whom the representative sells, the retail sale of the product must take place either in the buyer's home or in a location that is not a permanent retail establishment for the direct seller to qualify for the exemption.

B&O TAX -- EXEMPTION -- DIRECT SELLERS -- REPRESENTATIVES -- METHOD OF PAYMENT. For direct sellers to qualify for exemption, RCW 82.04.423 requires their representatives to work on a “buy-sell” or “deposit-commission” basis. Transactions are on a "deposit-commission basis" if the sales representatives are entitled to retain part or all of the purchase deposits paid in connection with sales transactions. Direct sellers do not qualify for exemption when they accept orders and payments directly from buyers and then mail commissions to their representatives.

B&O TAX -- EXEMPTION -- DIRECT SELLERS -- PLACE OF SALE. When a direct seller sells through a direct representative who is selling at wholesale, the seller can qualify for the direct seller's exemption only if its products are never sold in a permanent retail establishment. The direct seller exemption is based on the notion of an itinerant sales force, and not the use of established retail places of business where consumers might go to purchase or order the direct seller’s goods.

B&O TAX -- EXEMPTION -- DIRECT SELLERS -- "CONSUMER PRODUCT. "Custom made-to-order cabinets to be installed in a house are not “consumer products.” They are major construction components destined to become a permanent part of real estate before being used.

B&O TAX – DIRECT SELLER’S REPRESENTATIVE EXEMPTION.The requirements of the direct seller’s exemption are not met where the seller makes sales in Washington both through a representative and directly to customers, and the seller uses the representative to sell both consumer and non-consumer goods.

B&O TAX -- EXEMPTION -- DIRECT SELLERS' REPRESENTATIVE -- EXCLUSIVITY OF SALES. A person selling both by direct mail and by direct seller's representatives is entitled to the exemption provided by RCW 82.04.423 if the direct mail sales are disassociated from any local activity.

B&O TAX -- EXEMPTION -- DIRECT SELLER'S REPRESENTATIVE -- RELATIONSHIP TO SELLER. The direct seller's representative exemption is not lost if the direct seller's representative is owned by some of the owners of the seller. The seller and the direct seller's representative were separate corporations and therefore separate persons under Washington's excise tax system even though they shared some ownership in common.

B&O TAX -- EXEMPTION -- DIRECT SELLER'S REPRESENTATIVE -- EXCLUSIVITY OF SALES. The direct seller's representative exemption is not lost if sales are made to Washington customers other than through direct seller's representatives if those sales are constitutionally exempt from tax.

B&O TAX -- EXEMPTION -- SALES MADE TO OR THROUGH DIRECT SELLER'S REPRESENTATIVE -- CONSUMER PRODUCT -- AUTOMOTIVE PRODUCTS -- PERSONAL USE AND ENJOYMENT. The B&O tax does not apply to an out-of-state person in respect to sales made to or through a direct seller's representative of "consumer products." Where taxpayer sold automotive products (aluminum wheels, sport grips, running boards, seat belts), they are held to be within Rule 246's definition of "consumer products" because they are sold for personal use or enjoyment.

B&O TAX -- EXEMPTION -- DIRECT SELLER'S REPRESENTATIVE -- INTENT. The B&O tax exemption granted in Rule 246 was enacted by the legislature to avoid the situation in which the activities of independent direct seller's representatives was attributed to an out-of-state manufacturer or wholesaler to find nexus in this state.

B&O TAX -- EXEMPTION -- DIRECT SELLER'S REPRESENTATIVE -- OTHER ACTIVITIES. The exemption granted in Rule 246 is not lost where a taxpayer conducts other activities in this state, so long as the activities in this state do not generate sales to consumers.