Proof Required for Sales Tax Exemptions
- Jan 3, 2015 | Gail Cole
Every state with a sales tax allows numerous exemptions from that tax—provided the exemptions are properly documented. Without proof that an exemption is valid, the retailer may be held liable for the uncollected tax. Such is the case in Washington State, where the Department of Revenue (DOR) was found to have properly assessed sales tax on vehicles said (but not proven) to be sold for use outside of the state.
The retailer of motor vehicles in this case protests the state’s assessment of retail sales tax, “asserting that it met the documentation requirements for tax-exempt sales of motor vehicles for use outside of the state… by providing proof of motor vehicle registration in the nonresident buyer’s state of residence subsequent to the sale.” The DOR respectfully disagrees.
Right idea, wrong form
The Department of Revenue Audit Division argues that the dealership failed to collect proper documentation of exempt sales throughout the audit period of August 1, 2010 through June 30, 2013. In order for such sales to be valid, the retailer should have collected at the time of sale a properly completed “Seller’s Certificate In-State Delivery” form from buyers who took possession of the vehicle at the dealership for use out-of-state.
Instead of the “Seller’s Certificate In-State Delivery” form, the seller collected "Buyer’s Out-of-State Delivery” and “Seller’s Out-of-State Delivery” certificate forms. As these “do not contain the same information as the in-state delivery forms,” they do not validate the exempt sales.
Exempt sales of motor vehicles, trailers or campers to non-residents for use outside of Washington are valid only when one of the following conditions is met:
- "The motor vehicles, trailers, or campers will be taken from the point of delivery in this state directly to a point outside this state under the authority of a vehicle trip permit issued by the department of licensing pursuant to RCW 46.16A.320, or any agency of another state that has authority to issue similar permits; or
- The motor vehicles, trailers, or campers will be registered and licensed immediately under the laws of the state of the buyer's residence, will not be used in this state more than three months, and will not be required to be registered and licensed under the laws of this state."
In order for the exemption from sales tax to be valid, the seller must collect and retain and make available to the DOR the following documents:
- “A copy of the buyer's currently valid out-of-state driver's license or other official picture identification issued by a jurisdiction other than Washington state;
- A copy of any one of the following documents, on which there is an out-of-state address for the buyer:
- A current residential rental agreement;
- A property tax statement from the current or previous year;
- A utility bill, dated within the previous two months;
- A state income tax return from the previous year;
- A voter registration card;
- A current credit report; or
- Any other document determined by the department to be acceptable;
- A witnessed declaration in the form designated by the department, signed by the buyer, and stating that the buyer's purchase meets the requirements of this section; and
- A seller's certification, in the form designated by the department, that either a vehicle trip permit was issued or the vehicle was immediately registered and licensed in another state as required under subsection (1) of this section.”
Under Washington State law, any seller making untaxed sales to a person who does not provide the above documentation “is personally liable for the amount of tax due.”
In this case, the seller attempted to document the exempt sales but used the wrong forms. Ultimately, the seller “admitted that the sales in question did not meet” the state requirements for the exemption. As a result, the seller “is personally liable for the uncollected tax.”
Read Washington Department of Revenue Determination No. 14-0191 for additional information.
Automated sales tax software as a service (SaaS) helps retailers properly document exempt sales, thereby facilitating sales tax compliance. Learn more.