Washington sales tax guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Washington first adopted a general state sales tax in 1933, and since that time, the rate has risen to 6.5 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 3.9 percent. Currently, combined sales tax rates in Washington range from 6.5 percent to 10.4 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the state of Washington by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Washington is administered by the Washington Department of Revenue (DOR).

Any sales tax collected from customers belongs to the state of Washington, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

In Washington, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.

To help you determine whether you need to collect sales tax in Washington, start by answering these three questions:

1. Do you have nexus in Washington?

2. Are you selling taxable goods or services to Washington residents?

3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in Washington is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Washington, it’s now possible for out-of-state sellers to have sales tax nexus with Washington.

Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, if cumulative gross receipts from these sales exceed $10,000 during the preceding calendar year. Click-through nexus took effect in Washington on September 1, 2015, and was eliminated effective March 15, 2019.

Economic nexus: Having a certain amount of economic activity in the state. For sales made between October 1, 2018, and March 15, 2019, any remote seller, marketplace facilitator, or referrer making sales in the state must register with the state then collect and remit Washington sales tax if the remote seller, facilitator, or referrer meets either of the following criteria (the economic thresholds):

• More than $100,000 in annual gross retail sales to Washington consumers; or

• 200 retail transactions in the current or prior calendar year

As of March 15, 2019, the 200 transactions threshold was eliminated; the threshold is $100,000 in annual gross retail sales to Washington.

Marketplace sales: Making sales through a marketplace. Effective October 1, 2018, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of marketplace sellers in Washington. Additional reporting requirements for marketplace facilitators take effect July 1, 2019.

Non-collecting seller use tax reporting: From January 1, 2018, to June 30, 2019, non-collecting marketplace facilitators, remote sellers, and referrers selling their own goods that have between $10,000 and $100,000 in Washington gross receipts in the current or preceding calendar year are required to notify customers about their potential use tax liability, provide customers with an annual purchase summary, and provide the state with a customer information report. The precise nature of these requirements varies from state to state; for more state-specific information, see Washington’s Use tax notice and reporting requirements.

As of July 1, 2019, non-collecting seller use tax notice and reporting in Washington is eliminated.

For more information, see the Washington DOR’s Marketplace Fairness – leveling the playing field; Marketplace facilitators; and New law updates Washington state tax requirements for out-of-state businesses.

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. In Washington, if you stop an activity that created nexus for your business, you will continue to have nexus for the remainder of that year, plus one additional calendar year.

For more information, see the Washington DOR’s Trailing nexus.

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Washington.

If you sell taxable goods to Washington residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

Washington is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.

For additional information, see the state’s destination-based sales tax overview.

After determining you have sales tax nexus in Washington, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Washington business license and sales tax registration.

Washington doesn’t have a traditional sales tax permit. However, when you register your business you’ll be assigned a tax reporting account, and this allows you to begin collecting and remitting sales tax.

You can register your business online through the Washington DOR. To apply, you’ll need to provide the DOR with certain information about your business, including but not limited to:

• Business name, address, and contact information

• Federal EIN number

• Date business activities began or will begin

• Projected monthly sales

• Projected monthly taxable sales

• Products to be sold

There is currently no cost to register your business in Washington.

You must register with the Washington Department of Revenue if you acquire an existing business in Washington. The state requires all registered businesses to have the current business owner’s name and contact information on file.

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

Washington became a full member of the SST on July 1, 2008.

Once you've successfully registered to collect Washington sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Washington DOR, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Washington sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Washington sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Washington sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Some goods are exempt from sales tax under Washington law. Examples include most non-prepared food items, prescription drugs, and some machinery and equipment.

We recommend businesses review the laws and rules put forth by the Washington DOR to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under Washington law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Washington sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Washington DOR may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.

As of March 2019, however, there are no sales tax holidays in Washington.

You're registered with the Washington Department of Revenue and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Washington, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

Once you’ve collected sales tax, you’re required to remit it to the Washington DOR by a certain date. The DOR will then distribute it appropriately.

Filing a Washington sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the DOR. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

Online filing is generally recommended, but paper returns are acceptable. Multipurpose tax filing forms are available for download.

The DOR will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

Washington sales tax returns and payments must be remitted at the same time; both have the same due date.

You may file directly with the DOR by visiting their site and entering your transaction data manually. This is a free service, but preparing Washington sales tax returns can be time-consuming — especially for larger sellers.

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Washington sales tax code.

Businesses that meet ALL of the following criteria are not required to file monthly, quarterly, or annual returns:

• Business activity does not require the collection of retail sales tax

• Gross proceeds of sales, gross income, or value of products for all business and occupation tax classifications is less than $28,000 per year; or $46,667 dollars per year for persons generating at least 50 percent of their taxable amount from activities taxable under RCW 82.04.255, 82.04.290(2)(a), and 82.04.285

• Gross income of the business for all public utility tax classifications is less than $24,000 per year

• The business does not owe any other tax or fee to the Department of Revenue

While not required to file a return, when applicable, businesses are required to report no business activity.

The Washington DOR requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount. As of March 2019, the Washington DOR does not offer sales tax filers a discount.

It's important to know the due dates associated with the filing frequency assigned to your business by the Washington Department of Revenue. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The Washington DOR requires all monthly sales tax filing to be completed by the 25th of the following month. Quarterly taxes are due on the last day of the month following the tax period. Annual filing is due on January 31 of the following year. Below, we've grouped Washington sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Filing a Washington sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a Washington sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the DOR may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting Washington sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the Washington DOR and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Washington sales and use tax liability.

If you’re collecting sales tax from Washington residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Washington sales tax may apply to charges for shipping, handling, delivery, freight, and postage.

The general rule of thumb in Washington is that if the sale is exempt, related delivery charges are exempt. However, if the sale is taxable, delivery-related charges may be fully taxable, partially taxable, or non-taxable. If a shipment contains both taxable and exempt goods, tax applies to the percentage of the delivery charges due on the taxable goods (determined by sale price or weight).

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Washington and sales tax should be taken directly to a tax professional familiar with Washington tax laws.

For additional information, see Washington DOR’s guide on delivery charges.