Washington Alarm Monitoring: How Much Human Effort Makes a Service Exempt?
- Sales Tax News
- Mar 12, 2014 | Gail Cole
The Department of Revenue has published an Excise Tax Advisory (ETA) on the taxation of alarm monitoring. It addresses specifically the “taxability of alarm monitoring in the context of the primarily human effort exclusion from digital automated services.”
Alarm monitoring, according to the ETA, involves people, has an automated component, and is transferred electronically. This type of alarm monitoring, known as digital automated service (DAS), is defined as “… any service transferred electronically that uses one or more software applications.” If the service is not transmitted electronically, it is not considered a digital automated service.
Generally, a DAS is subject to sales tax. However, there is an exclusion from sales tax for digital automated services that “require primarily human effort.” RCW 82.04.192 reads: “… digital automated service does not include… any service that primarily involves human effort by the seller and the human effort originated after the customer requested the service.”
In other words, electronic alarm monitoring is a taxable service unless it isn’t—unless it’s performed using primarily human effort.
How much human effort makes a DAS exempt from sales tax?
According to the ETA, an average of the time a human spends performing the service and the cost of the human effort to provide the service is used to determine whether or not the service is performed by “primarily human effort.” It is “primarily human effort” (and therefore tax exempt) when the average human effort exceeds 50% of the time/cost factor.
How good are your math skills?
This means math skills are required to determine whether or not digital alarm services are subject to sales tax in Washington State.
The Washington Department of Revenue Excise Tax Adivsory on the Taxation of Alarm Monitoring provides several excellent examples of how to calculate the degree of human effort. Sharpen your pencils, grab an eraser, and good luck.
Or switch to an automated sales tax solution, and leave nightmares of math exams behind.
photo credit: Mister Kha via photopin cc
