tax audit statute

If you sell products or certain services in Washington, you need to collect sales tax from your customers. Washington has a state sales tax plus local sales taxes, and it’s the responsibility of merchants to collect and remit these taxes. 

Not paying your state sales tax bill can lead to serious consequences including penalties and eventually the closure of your business. Keep reading to get an overview of the basics. To get help with sales tax or other business or personal tax problems, contact us at Seattle Legal Services today.

Understanding Washington State Sales Tax

Washington started collecting sales tax nearly 100 years ago in 1933. Now, the state collects over $15 billion per year in sales tax. Sellers must collect both state and local sales taxes, but they only need to file a single return with the state. The Washington Department of Revenue sends the sales tax funds to local governments as applicable. 

Because Washington does not have a state income tax, it relies on sales tax, business and occupation tax, state property tax, and other taxes to fund its activities. Sales tax applies to most goods sold in the state, tangible personal property, digital goods, accommodations, and certain services. The state exempts necessities such as groceries, prescription drugs, and medical devices from the tax. 

How Much Is Sales Tax in Washington?

Washington’s state sales tax rate is 6.5%. This applies uniformly across the state, and local rates go on top. For example, in Edmonds. WA, the local sales tax rate is 4%, making the effective rate 10.5% in this area. 

As of 2024, sales tax rates in Washington range from 6.5% to 10.5%. To find the rate in your area, check out the Sales Tax Rate Lookup tool on the DOR’s website. Alternatively, most point-of-sale software has built-in tools that will automatically calculate the most up-to-date sales tax rates for your area. 

Note that if you’re sending goods to consumers in Washington but you’re based in another state, you may have to collect WA state sales tax. In these cases, you should use the tax rate that’s applicable in the buyer’s location. However, you only have to worry about this if you have nexus in the state, which is explained below. 

Nexus in Washington

Nexus is a Latin word that means “binding together”, i.e. a business entity has a binding relationship with the state of Washington. Nexus is the deciding factor for whether the state has the legal authority to require a business to collect, file, and remit sales tax.

In Washington State, nexus is established if a business has a physical or economic presence within the state. Physical presence includes having a location, employees, or property in the state. Economic presence, also known as “economic nexus,” is triggered if a business generates a certain amount of sales or transactions in Washington. 

As of 2024, your business has economic nexus in the state if you have more than $100,000 in gross receipts to WA-based customers. Additionally, engaging in specific activities like soliciting sales, delivering goods, or providing services within the state can also create a nexus for sales tax purposes.

How to Register for Washington Sales and Use Tax

If you have nexus in the state, you need to register for a sales tax account. Typically, you’re supposed to register before you start collecting the sales tax, but in some cases, online retailers may end up registering once they realize that they’ve hit the sales threshold. 

You can register online through the DOR’s website, or you can have a tax professional handle it for you. 

What Info Do You Need?

To get a WA sales tax license, you need the following details:

  • Federal tax ID, EIN, or Social Security Number. 
  • Business structure such as sole proprietorship, partnership, or corporation.
  • Information on business owner(s).
  • North American Industry Classification System (NAICS) number.
  • Your estimated gross annual sales in Washington State.
  • Details about your products and services.

How to Create an Account with the Washington State DOR

You can create an online account with the DOR or use your existing account if you have one. Navigate to the sales and use tax section. Then go to “Apply for or Update a Business License” and follow the prompts to set up your account. Once you’re set-up, you can file your returns and make payments online. Most businesses have to pay online, but you can get exemptions in select cases.

How Long Does It Take?

After you register for your sales tax license, the DOR will send you an immediate confirmation email. Then, it usually takes about one to two weeks before you receive your physical sales tax license. If you have a retail location, you need to hang the license in a visible spot. 

While setting up your sales tax account, make sure to double-check rates, due dates, and other details so that you can stay compliant with the state’s rules. 

Collection of Sales Taxes

Theoretically, collecting sales tax is very straightforward. You find the rate in your area, you apply that rate to every taxable sale, and then, you send the funds to the DOR. For example, if the sales tax rate is 10% and you sell a taxable good for $100, you collect $110, and then, you send the $10 to the state when you file your sales tax return. 

However, there are slightly different rules for different types of businesses. Here is an overview:

In-State Businesses

If you operate in the State of Washington and you sell taxable goods and services, you must collect and pay sales tax. This includes retailers, wholesalers, manufacturers, and other businesses that engage in taxable transactions within the state.

Out-of-State & Remote Businesses with Nexus

If you’re based out of state and you have over $100,000 in sales to customers in Washington, then, you must also register and pay sales tax. This rule is relatively new as it was ushered in in the wake of South Dakota Vs. Wayfair in 2018.

Marketplace Facilitators 

If you sell items through a marketplace facilitator such as Amazon, eBay, or Etsy, the facilitator should take care of your sales tax obligations. They should also provide you with details of the sales tax paid in relation to your sales by the 15th of every month. That way you can keep tabs on things. 

Service Providers

If you provide taxable services, you must also register, collect, and remit sales tax. Taxable services may include repair and maintenance services, construction services, and digital goods and services as well as others. 

Which Goods and Services Are Subject to Sales Tax in WA?

Taxable goods and services in Washington State include:

  • Tangible Personal Property: Clothing, electronics, furniture, appliances, vehicles, and other tangible goods.
  • Digital Goods and Services: Digital downloads, streaming services, software, e-books, and digital subscriptions.
  • Services: Construction, installation, cleaning, repair, landscaping, retail recreation services such as fishing charters or tickets to sporting events, personal training, tanning, tattooing, dating and escort services, car washes, catering, personal chefs, vehicle towing, and a few other services.
  • Admissions and Amusements: Tickets to events, attractions, and entertainment venues, such as movie theaters, sporting events, concerts, and amusement parks. Also applies to services at athletic and fitness facilities, martial arts, and non-profit youth organizations.
  • Restaurant and Food Services: Sales of prepared food and beverages, including meals served at restaurants, cafes, food trucks, and other dining establishments. However, certain food items may be exempt from sales tax if they qualify as grocery or food items for home consumption.

How to Report Sales Tax in Washington

First, determine your filing frequency which is based on the volume of taxable sales, and then, note your due dates. Depending on your sales volume, you may need to file monthly, quarterly, or annually. You can file directly through the state’s website. You can use software to file on your behalf, or you can ask for an e-filing exemption so that you can file through the mail.

You must keep detailed records to back up your sales tax returns. You should also keep records about sales that were exempt from tax. Typically, your invoices from vendors coupled with your POS sales reports will provide all of the info you need. If you’re selected for an audit, you will need to provide the state with these records. 

Paying Sales Tax in Washington

To pay your sales tax liability, go to the DOR website, complete your sales tax return, and remit your payment. Online, you can pay with an e-check or with a credit/debit card for a fee. If you have an online filing exemption, you can mail a paper check. The state will not accept a paper check if you don’t have an exemption. 

If you’ve received a letter about an unpaid excise tax, you can call the DOR and pay over the phone with a check or credit card. You can pay in cash in person, but if you’re paying over $20,000, the DOR suggests making an appointment. 

Due Dates and Penalties

Due dates vary based on your volume of sales. Most vendors need to pay sales tax monthly. However, if you have a lower volume of sales, you may be able to pay quarterly or annually.

Monthly Due Dates

Monthly filers must file and pay their sales tax by the 25th of the month after the sales. For example, the sales tax return for January 2024 sales is due February 25, 2024. If the 25th falls on a weekend or holiday, the return and payment are due the next business day.

Quarterly Due Dates

Quarterly returns are due on the last day of the month following the end of the quarter. For instance, the first quarter runs from January to March, and returns are due on the last day of April. Again, the due date moves to the following business day if the usual due date falls on a weekend or holiday.

  • Quarter 1, 2024 – 04/30/24
  • Quarter 2, 2024 – 07/31/24
  • Quarter 3, 2024 – 10/31/24
  • Quarter 4, 2024 – 01/31/25

Annual Due Date

Only retailers with a relatively low amount of sales are required to file/pay annually, and their returns are due on April 15th (or the next business day) following the year of sales. For example, 2024 WA state annual sales tax returns are due on 4/15/25. 

The DOR assesses penalties and interest on businesses that pay their sales tax late. Penalties are generally a percentage of the unpaid tax, and they range from 5 to 25% depending on how late you are. For example, if you don’t pay $10,000 in sales tax, the penalty is typically $500 for the first month, but it can get up to $2,500. Interest is assessed on top of of this amount at a rate set by the DOR. 

Washington Sales Tax Audits

The Department of Revenue has the right to audit businesses to ensure they are reporting and paying their sales tax correctly. Most audits cover the last four years of sales. During the audit, you may need to provide sales records, bank account records, and more to back up the info reported on your returns. Some auditors just look at a sample of your records, while others may want to see every detail in a spreadsheet.

What If You Didn’t Collect Sales Tax?

What should you do if you were supposed to collect WA sales tax and you didn’t? Ideally, you should contact the DOR as soon as possible. By reaching out before the state contacts you, you can minimize penalties and other consequences. 

Review your records to determine how many taxable sales you had, and calculate the amount of sales tax you should have paid. Work with the state to submit your delinquent returns, and then, either pay off the sales tax liability in full or contact the DOR to ask about payment plans. In rare situations, you may even be able to settle for less than owed through a Rule 100 Settlement.

Voluntary Disclosure Agreement (VDA) in Washington

The WA DOR has a Voluntary Disclosure Program (VDP) to help businesses that are not in compliance with their sales tax obligations. However, you can only participate if you have never registered for a sales tax account. If you have an existing account but you haven’t been filing or paying, you cannot use this program. 

Generally, the DOR will waive or reduce penalties if you use the VDP and they typically limit the look-back period to the last four years. However, if you were collecting sales tax from your customers and not paying it, the state may go past the four-year period. 

With the VDP, all of your unpaid sales tax gets lumped together in a single tax liability. That means you don’t have to worry about keeping track of multiple bills, and it makes it easier to set up payments or other arrangements with the state. 

Get Help With WA Sales Tax Problems

If you want help registering for a sales tax account, determining nexus, requesting payment plans, or making a voluntary disclosure, you should consider contacting a tax attorney. At Seattle Legal Services, we can help you navigate this issue and any other personal or business tax problems you have on the state or federal level. To get help now, contact us at Seattle Legal Services today.

Washington State Sales Tax – FAQ 

What items are exempt from sales tax in Washington?

Consumers don’t have to pay sales tax on food and groceries, prescription drugs, medical supplies, residential utilities, personal and professional services, and certain agricultural products. Thus, if you sell these items or services, you don’t have to collect/remit sales tax.

How do I apply for a sales tax permit in Washington?

Apply for a sales tax permit on the DOR’s website. 

How does Washington enforce sales tax compliance for online businesses?

To ensure online businesses are paying sales tax, the state monitors nexus thresholds using data mining, return matching, and other tools to identify non-compliant businesses.