Our customers ask us to help interpret state sales tax laws so they can better understand when they’re required to collect sales tax and how much they’re supposed to collect. To help explain what can be confusing stuff, I put together the following examples for those of you curious about what do do in Washington state. The examples cover the most common types of businesses that use TaxJar. If your particular case is more unique than what I’ve outlined, be sure to contact a tax professional.
You’re an online seller living anywhere but Washington
This is the simplest example. If you live in any state other than Washington and sell a taxable item to someone who wants that item shipped to an address in Washington then you’re in luck – you’re not obligated to collect sales tax on that transaction.
You live/operate your business in Washington
If you’re an online seller living in Washington, then you’re not quite as lucky as the last example. In this case you’re required to collect sales tax on taxable items being delivered to addresses in Washington. In fancy tax lingo, your business has sales tax nexus with the state.
By the way, before you can collect sales tax it’s important that you register your business with the Washington Department of Revenue. Get more information about registration here or file your application online.
How much sales tax are you supposed to collect? Stay patient or scroll down a bit. I’m getting to it.
You live out-of-state but use a fulfillment service like FBA
Here’s a very common example we see with our customers. Let’s say you’re an online seller living in a state other than Washington but you use a fulfillment service such as Fulfillment By Amazon. In this case your inventory is shipped all over the country potentially including Amazon’s fulfillment centers in Bellevue and Sumner. In that case, Washington considers your inventory nexus to their state. That means your business is required to collect sales tax on transactions that are shipped to customers with a Washington address. Here’s a screenshot of the DOR’s website where they talk about out-of-state online sellers and nexus.
Collecting at the correct sales tax rate
If your business has nexus with Washington, the sales tax rate you’re required to collect from your customers is the sum of a state sales tax rate plus a local rate. The local rate is what varies. What local rate do you charge? Good question! The state of Washington is a destination-based sales tax state which the Washington Department of Revenue (DOR) does a good job of explaining saying that the local rate is…
generally based on where in Washington the customer receives the product (e.g. shipping address).
If you’re head is spinning, just know that’s normal. Hopefully this example will help. Let’s say you’re an online seller operating your business out of a home office in Seattle. You sell a taxable item that needs to be shipped to Elmer City. According to the Washington DOR, that item should be taxed at a rate of 7.7% (6.5% for state and 1.2% for local sales tax), which is the sales tax rate effective where the item is being shipped.
Let’s say you live in California but you use a fulfillment service that stores your inventory in Washington. Nothing changes in this case. You still need to collect sales tax based on the shipping address of your customer.
Filing sales tax returns in Washington ain’t fun
The biggest pain we hear from our customers when it comes to states like Washington is filing sales tax returns. That’s because Washington requires you to break down your gross sales per local jurisdiction (as opposed to asking for one simple gross sales figure for all customers in the state). The good news for you is that TaxJar does that work for you in our local sales tax reports. These give online sellers the jurisdictional breakdown they need to make filing a heck of a lot easier.
Summary: if you have nexus, collect based on shipping address
The two most common ways to be required to collect sales tax in Washington are to live and operate a business there or to have your inventory stored there. In either case you need to collect sales tax from your customers with shipping addresses in the state. The rate collected is based on the shipping address.
Have any questions? Feedback? Tell me about your experience selling in Washington in the discussion section below.
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