University of Washington

Basic Tax Refresher Quiz Is the UW exempt from all WA sales/use tax? What is the first question to ask when determining whether something is subject to sales or use tax? Tangible piece of property OR pure service? Which of the above is taxable, generally? Tangible piece of property

Basic Tax Refresher Quiz (con’t) When is a service considered taxable? When it is associated with a piece of tangible property Is a warranty or maintenance agreement taxable? Yes, both are taxable. When is shipping considered taxable? Pure shipping without purchase of taxable tangible property, not taxable. Otherwise, taxable.

Name ONE sales/use tax exemption people at the UW can take when making purchases. Reseller’s permit Machinery and Equipment High tech deferral Not brought into Washington

Basic Tax Refresher What is destination based sales tax? Tax rate charged is that of the location of delivery What are object codes used for? Does the object code determine the taxability of the item? NO! Taxability is based on the underlying item being purchased.

Taxation of digital goods Law was put in place July 26, 2009 Washington at forefront of taxation of digital products Includes digital goods and digital automated services Digital Good: sounds, images, data, facts, or information, or any combination thereof, transferred electronically Digital Automated Service: any service transferred electronically that uses one or more software applications Digital products are generally subject to sales or use tax User’s right of use can be permanent or less than permanent May be a subscription

Examples of digital goods Digital audio works Music Audio books Digital audio visual works Movies Music videos Digital books But, not newspapers, chat rooms or weblogs Items that you would have traditionally received in tangible form, but are now electronic

What isn’t a digital good Telecommunications services (may still be taxable) Computer software Internet and internet access Professional and personal services, represented in electronic form Involves the application of human effort Human effort originated after the customer requested the service

Digital automated services (DAS) Examples: Online searchable database Information service using software to transfer news, other information Online data gathering service Service that searches the internet to identify, gather, and categorize digital documents Online gaming service Games played against others online Online rental facilitation Eg. Apartment rental

What isn’t a DAS Services that require primarily human effort by the seller Primarily (more than 50%) human effort involved Contract with company to build website (not taxable) But, purchase website template (taxable as DAS) Live presentations via the internet where discussion takes place in real time, not taxable Recorded presentations, taxable

Digital codes Codes that give the purchaser the right to obtain digital products E.g. code to download software Does not include a code that represents a stored monetary value, a redeemable card, gift card, or gift certificate Can be delivered by different means , soft drink bottle cap, etc. If code provides access to traditionally taxable (e.g. software license) & nontaxable items (e.g. live webinar to train how to use software), then if the seller itemizes the taxable & nontaxable items separately, each could be taxed accordingly If not itemized, entire purchase price for code would be taxable

Exclusions Online education programs Live presentations Seminars Participants can ask real time questions Doesn’t include a pre-recorded webinar Doesn’t include online training courses if not live Storage, web hosting and back-up Security, firewalls, web filtering are not included

General Sales Tax Exemptions Resale Component of a new product Made available free to general public Received for free by end user Sales to internal departments Machinery & equipment used in research & development

What should I remember? Even if it is delivered digitally, it might be taxable If you have it made specifically for you, it’s probably not taxable If you and the rest of the world can buy it, it probably is taxable Internet access and web hosting are not taxable

Computers - Hardware Hardware is taxable Includes sales, leases, rentals, licenses to use and any other transfer of possession Sales tax also applies to all charges for the repair, maintenance, alteration, or modification of hardware, software, or equipment

Computers - Software Prewritten software is taxable Includes keys, or codes to access the software Includes right to access software where possession is maintained by the seller or third party regardless of how the payment is structured Prewritten software maintenance agreements Agreement may include professional service components All taxable if part of the same agreement Professional services taxed as professional services if broken out Customized software is generally not taxable

Medical matters Exempt items Prescription drugs used in diagnosis, cure, mitigation, treatment, or prevention of disease in humans Includes prescription lenses Includes items/substances used in treating patients Needles, tubing, bag when used to deliver prescription drugs Diagnostic substances and reagents, including prepared slides, tubes that contain diagnostic substances and reagents Stands for intravenous bags, plain glass slides, not included Same items are NOT exempt when used in research

More medical items Prosthetic devices are exempt Artificial substitutes that replace missing parts of the human body Includes dental prosthetic devices “Orthotic devices” are not exempt, but may qualify as a prosthetic Designed to activate or supplement a weakened or atrophied limb or function Braces, collars, casts, splints Can be temporary or permanent Prosthetic/Orthotic devices do not include: Wheelchairs, crutches, walkers, canes (taxable)

Value Added Tax (VAT) A tax on the purchase of a good or service Usually seen in the European Union, but also in Asia Generally between 15% - 25% Can try to get a refund at the airport Best option is to buy it through the internet when you get back

Miscellaneous Services to publish materials Taxable if services provided in WA Includes copying (Kinkos) Payment processing service (Paypal) Not taxable Data warehousing services Server space to store data Not taxable

More Miscellaneous I paid 7.3% sales tax in Arizona. I don’t have to pay use tax in Washington, do I? Well, yes actually you do. That’s not fair! What can I do? Retail sales of tangible personal property to nonresidents temporarily within Arizona, for use outside of Arizona, are exempt from transaction privilege tax if the seller ships or delivers the tangible personal property out of Arizona. Generally applicable in most states. Confirm you are not resident and will use the item out of state. Confirm treatment with seller!

Misc Continued Amazon didn’t charge sales tax on my last purchase. I don’t have to pay use tax, do I? Yes, you do have to pay use tax. Third party sellers sometimes do not charge sales tax, so if the item is taxable, use tax is due. Does the University of Washington pay Business and Occupation (B&O) tax? No, the UW is statutorily exempt from B & O tax. What is a UBI? A Unified Business Identifier. The UW has one for all its operations.

Is that it? Yep, it’s that easy. To sum up: If you don’t pay sales tax, you probably owe use tax, unless there is a specific exemption. If you pay sales tax someplace else, you probably shouldn’t have and you likely still have to pay use tax in WA. Even if you can’t touch it, it might be taxable. (digital goods) Object codes don’t drive taxability, the law does. What do I do if I can’t figure it out? or call the Tax Office!

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