Washington Tax Decisions

Affiliated entities (“Taxpayers”) that sell new and used video games, video game controllers, video game consoles, and other miscellaneous items protest retail sales tax and retailing business and occupation (B&O) tax assessed on disallowed deductions it had claimed for like kind trade-ins. We deny the petitions.

Following the federal government’s seizure of cigarettes from a residence in Washington, the Department of Revenue (“Department”) assessed Taxpayer cigarette tax, and a ten-dollar per-pack penalty on those cigarettes. Taxpayer objects to the assessment. We deny the petition.

An out-of-state company protests the denial of a request for refund of Business and Occupation (B&O) tax for the period of October 1, 2007 through May 31, 2010, because it did not maintain a place of business in Washington during that time. We affirm the denial, because until 2006 the company employed a sales representative who visited Washington on its behalf, establishing nexus under RCW 82.06.067 and WAC 458-20-194.

A mutual fund advisor appeals a ruling that its gross income could not be taxed at the preferential rate for international [investment management] services. When the proportion of the advisor’s income from investment management services to total income exceeds 50%, and 10% of their income comes from qualified clients, the advisor can pay business and occupation (B&O) tax on its income from investment management services multiplied by the preferential rate. We revise the ruling subject to verification.

A taxpayer that charged customers to play in its basketball tournaments and leagues disputes the assessment of additional tax, penalties, and interest that resulted from reclassification of taxpayer’s tournament and league revenue from the Service & Other Activities business and occupation (B&O) tax classification to the Retailing B&O tax classification. The taxpayer argues that RCW 82.04.050 and WAC 458-20-183 are unclear on their faces, that the taxpayer reasonably relied on the substantive tax advice of its professional accountant, and that Taxpayer has always filed its returns timely and accurately. We deny the petition.

Two affiliated limited liability companies (Taxpayers) engage in construction services. Taxpayers protest the Department of Revenue’s (Department) disallowance of bad debt deductions taken against retailing business and occupation (B&O) tax and retail sales tax. Taxpayers argue that they were eligible to claim the bad debt deductions for federal income tax purposes and, therefore, qualified for the deduction on their Washington combined excise tax returns. We disagree and deny Taxpayers’ petition accordingly.

Public hospital district protests future reporting instructions and denial of refund request on the grounds that the Department of Revenue (the “Department”) improperly calculated its leasehold excise tax credit under RCW 82.29A.120. The petition is denied

A company operating a restaurant protests an adjusted assessment of tax for unreported cash sales, asserting that all sales were reported. We affirm the adjusted assessment because business records were insufficient and the Audit Division reasonably exercised its authority to arrive at an estimate of cash sales. We deny the Taxpayer’s petition.

Three LLCs that transferred real property for consideration that included the grantees taking the property subject to non-recourse mortgages, petition for reconsideration of a determination sustaining REET (Real Estate Excise Tax) assessed on the non-recourse debt included in the sales price. Because the WAC 458-61A-103(2) REET exemption applies only to transfers involving solely non-recourse debt, and no other consideration, we affirm the assessment of additional REET.

A taxpayer petitions for the correction of a real estate excise tax (REET) assessment claiming that the change in ownership in a limited liability company (LLC), which resulted from the extinguishment of a fifty percent owner’s membership interest under the terms of the LLC agreement due to the member’s insolvency, did not constitute a “transfer” or “acquisition” of a controlling interest in the LLC and that a REET-taxable transaction did not take place. Taxpayer’s petition is denied.

A motor vehicle dealer protests an assessment of retail sales tax, asserting that it met the documentation requirements for tax-exempt sales of motor vehicles for use outside the state, set forth in RCW 82.08.0264 and WAC 458-20-177 (Rule 177), by providing proof of motor vehicle registration in the nonresident buyer’s state of residence subsequent to the sale. The taxpayer’s petition is denied.

A joint owner of real estate quitclaimed his one-half interest in the real estate to the other owner. Prior to the transfer the grantor was paying 50% of the mortgage payment but, after the transfer, the grantee began paying 100% of the mortgage payment on the property. The grantor petitions for refund of real estate excise tax (REET) paid on 50% of the outstanding debt on the property at the time of transfer. We deny the petition for refund, because the grantee relieved the grantor of his monthly mortgage payment, which constitutes consideration.

The taxpayer, a building contractor on an active nonreporting status, collected retail sales tax from customers and did not remit it for several years. It appeals the 50% tax evasion penalty imposed on the amount of retail sales tax it collected but did not remit. Because the failure to remit these retail sales tax trust funds was intentional, we uphold the penalty.