overview of services subject to retail sales tax · overview of services subject to retail sales...
TRANSCRIPT
Overview of
Services Subject
to Retail Sales Tax
Braden Fraser
Department of Revenue
July 17, 2020
1. Overview of Sales Tax
2. Historical Conditions
3. Application of Sales Tax to Services
4. Expanding Sales Tax Services - How this fits within the principles of sound tax policy
• Washington state levies a 6.5 percent tax on retail sales as defined in RCW 82.04.050
• Local sales tax is levied on the same transactions and is a primary source of revenue for local taxing districts
• The total sales tax rate ends up being between 7 and 10 percent
• Who collects and remits it
• Businesses making these sales to consumers are required to collect and remit retail sales tax to the Department of Revenue
Overview of Sales Tax
• Who pays it
• Generally, retail sales tax is applied to sales to consumers, including individuals and businesses
• Consumer is defined in RCW 82.04.190. Generally, consumers are who we would consider the end users of the product or service
• This means that sales for resale are not subject to retail sales tax
• Sales for resale generally include the following transactions:
• wholesaling
• services such as construction services performed by a subcontractor
• other sales of goods or services where the goods or services are sold to a business which then incorporates those into the goods or services sold to the consumer.
Who Pays Sales Tax?
• Extending sales tax to include more
services is an option for modernization
• Historical consumption is shifting
significantly from goods to services
• Adding more services would broaden the tax
base
• Services are not defined in statute
• The term “services” refers to anything
other than sales of tangible personal
property
Modernization of Tax
Structure
6
1. Overview of Sales Tax
2. Historical Conditions
3. Application of Sales Tax to Services
4. Expanding Sales Tax Services - How this fits within the principles of sound tax policy
7
Historical Conditions• Enacted in 1935, during the Great Depression as
a tax on consumption
• Originally applied to sales at retail of tangible personal property (tangible goods)
• Over the years, the definition of retail sale has expanded to include services including:
• Certain construction activities
• Repair
• Lodging
• Some recreational activities
• Certain other services.
• The Depression Era economy was based more heavily on the sale of tangible goods
• The current economy relies more heavily on the sale of services
Economic Shift Away from Sales-
taxable Items In Washington
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
% of WA personal income spent on taxable items
Washington Economic & Revenue Forecast Council, “Retail Sales Tax:
Percentage of Washington Income Spent on Taxable Items”
Economic Shift Away from
Goods to Services: National
Goods
Services
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1929
1931
1933
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
Goods vs. Services as a Percentage of Personal Consumption Expenditures
U.S. Bureau of Economic Analysis, Table 2.3.5, “Personal Consumption Expenditures by Major Type of Product”
1939: certain services to
tangible personal property
1941: certain services
rendered to real property
1951: hotels and motels
1959: rental of personal property,
clearing and moving of land,
additional services to
buildings, and automobile
towing
1961: recreation, amusement,
title, escrow, and parking
services
1971: road construction
services performed for
the state
1993: landscape
maintenance, guided tours,
rental of equipment
with operator, physical fitness,
massage and certain other
personal services
2005: extended warranties
2009: digital goods (music, books, movies,
etc. transmitted by
electronic means)
2015: clarifies the taxation of
amusement, recreation, and physical fitness
services
Timeline: Retail Sales Tax
Extended to Services
1. Overview of Sales Tax
2. Historical Conditions
3. Application of Sales Tax to Services
4. Expanding Sales Tax Services - How this fits within the principles of sound tax policy
Major Services Currently Subject to
Sales Tax• Construction and other services to real property
• Constructing or improving new or existing buildings and structures for consumers
• Cleaning (not including janitorial services), and other maintenance services
• Clearing land and moving earth
• Landscape maintenance
• Services rendered in respect to tangible personal property
• Repairing, cleaning, installing, or decorating personal property for consumers (including services as applied to motor vehicles)
• Providing tangible personal property with an operator
• Retail recreation services
• Fishing charters
• Day trips for sight-seeing
• Personal services
• Operating an athletic or fitness facility
• Tanning
• Tattooing
• Miscellaneous services
• Extended warranties and maintenance agreements
• Vehicle towing
• Automobile parking
• Telecommunication services
• Digital automated services, remote access software, and digital goods
• Escrow services and abstract and title insurance
• Credit bureau services, including credit worthiness and tenant screening services
Major Services Currently Subject to
Sales Tax
Washington State Department of Revenue, “Services Subject to Sales Tax”
• Custom computer software
• Janitorial services
• Personal and professional services
• Accounting fees
• Health related services
• Insurance agency fees
• Legal fees
• Office support services
• Real estate agency fees
• Satellite and cable television
Major Services Not Currently
Subject to Sales Tax
Washington Department of Revenue, “Tax Exemptions 2020”
1. Overview of Sales Tax
2. Historical Conditions
3. Application of Sales Tax to Services
4. Expanding Sales Tax Services - How this fits within the principles of sound tax policy
• Adequacy
• Fairness
• Equity
• Administrative simplicity
• Transparency
Policy Considerations of
Expanding Sales Tax