United States

Washington: No Waiver of Penalty for Improper Use of Reseller Permit

Aug 24, 2015
From KPMG TaxWatch

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The Washington State Department of Revenue, Tax Appeals Division recently addressed whether it could waive penalties for improper use of a resale permit because a taxpayer acted in good faith. The taxpayer, a building subcontractor, purchased materials for use in constructing a floating dock at a naval base.  Under Washington law, contractors and subcontractors are generally not considered the consumer of the materials they purchase for use on projects and therefore do not owe sales or use tax on their purchases. However, government contractors and subcontractors are treated as consumers of the materials they use, and must therefore pay sales tax on purchases of materials. The taxpayer, acting as it usually did when it made purchases of construction materials, purchased items for use in the Navy contract without paying sales or use tax. On audit, the Department assessed use tax, interest, and a 50 percent reseller permit misuse penalty. The taxpayer did not dispute the assessment of use tax, but asserted that it was acting in good faith by issuing a reseller permit as it always did as a subcontractor and therefore not be subject to penalties.

Under Washington law, the Department must assess a 50 percent penalty against a buyer who improperly uses a reseller permit number, reseller permit, or other documentation to purchase items or services at retail without payment of sales tax that was legally due. However, the Department must waive the penalty if it finds that misuse of the reseller permit was due to circumstances beyond the taxpayer’s control. Per the statute, the Department must define by rule the circumstances under which a misuse is considered beyond the taxpayer’s control. The rule specifies that a penalty will not be waived merely because the buyer was not aware of either the proper use of the reseller permit or the penalty. In all cases, the burden of proving the facts is upon the buyer.

The ALJ did not dispute the taxpayer’s claim that it acted in good faith. However, per the rule, the penalty cannot be waived because the buyer was unaware of the proper use of the reseller permit. Thus, the taxpayer’s penalty waiver request was denied. For more information on Washington Det. No. 14-0404, 34 WTD 337 (July 31, 2015), please contact Steve King at (206) 913-4881 or Michele Baisler at (206) 913-4117.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.