Beginning in January of next year, the resale certificate used by retailers, wholesalers, manufacturers and contractors to purchase goods for resale without paying sales tax will no longer be valid. It is being replaced with a “reseller’s permit” issued free by the Department of Revenue. This change is a result of Senate Bill 6173, which passed the Legislature during the 2009 legislative session and was signed into law by the governor to improve sales tax compliance.
Amber Carter is the government affairs director for tax and fiscal policy for the Association of Washington Business (AWB), the state’s chamber of commerce. She serves on the Department of Revenue Reseller’s Permit Advisory Committee and answers some questions from Chris Mutchler, a local CPA, regarding the new reseller’s permit.
Chris Mutchler is a CPA, Certified Fraud Examiner (CFE) and Certified in Financial Forensics (CFF) with the Port Orchard accounting firm of Southard, Beckham, Atwater and Berry. He serves as a member of the AWB Board of Directors and on the Tax and Fiscal Policy Council.
Q: Why did the Legislature feel it was necessary to require businesses to have a reseller’s permit?
A: Research indicated that misuse of resale certificates was costing the state substantial revenue. The Legislature, facing a poor economy and decreased tax revenues, was looking at ways to raise revenue and improve compliance with tax reporting. Lawmakers knew the current system was the source of significant non-compliance. Replacing the self-issued resale certificates with department-issued resellers’ permits will make it more difficult for businesses that are not in the businesses of reselling to hold a permit or to claim sales tax exemptions on items that they do not intend to resell.
Q: How much additional unpaid sales tax revenue is this new permit projected to bring to the State of Washington per year and over what period of time?
A: The Department of Revenue estimates this new system will recover $102.7 million in state revenue and $27.3 million in local revenue during the 2009-11 biennium. Another $161.2 million in state and $47.8 million in local revenue will be generated by the permit during the full 2011-13 biennium.
Q: What types of businesses will automatically be issued the reseller’s permit?
A: Retailers, wholesalers, and manufacturers will automatically be issued permits. The department is still reviewing what other categories might be included, expects to notify taxpayers in September, and will start to issue the permits in October.
Q: If my business does not automatically receive a reseller’s permit, when will the application become available?
A: The department anticipates having an application process available in September for businesses that do not automatically receive a permit but believe they should qualify for one.
Q: How long does the DOR estimate the turnaround time is for the application?
A: The legislation allows 60 days for the agency to approve or deny an application. At the request of business, the agency is planning to process applications in a much shorter period; ultimately within 10 days. During the initial implementation when the agency expects to receive a large volume of applications, it may not be able to meet this 10-day goal.
Q: How long is a reseller’s permit valid?
A: Businesses registered before Jan. 1, 2009, will get a renewable permit valid for four years. Businesses registered on or after Jan. 1, 2009, will get a permit valid for two years that can be renewed for four years. Permits for qualifying contractors will be valid for 12 months.
Q: What if a business does not get a reseller’s permit but needs to make purchases for resale?
A: Buyers without resellers’ permits must pay retail sales tax on their purchases, but can take a Tax Paid at Source deduction on their tax return, or request a refund. The refund amount will equal tax paid, plus interest.
Q: What if I own a veterinary practice and purchase pet foods for resale, but occasionally use some of that pet food to feed animals in my care?
A: Most businesses that purchase goods for resale will be eligible to receive a reseller’s permit allowing them to purchase goods for resale without paying sales tax. If a buyer normally is engaged in both consuming and reselling certain types of products and is not able to determine at the time of purchase whether the product will be consumed or resold, the buyer may use the reseller’s permit for the entire purchase if the buyer principally resells the products according to the general nature of the buyer’s business. The buyer needs to keep track of the value of any product purchased with a reseller’s permit that is used by the buyer and remit the deferred sales tax on their next tax return. This is no different than how it should be done today when consumables are purchased with a resale certificate.
Q: Will there be a database accessible via the Internet where an individual could research whether a business held a valid reseller’s permit?
A: The legislation requires the department to create a system allowing sellers to verify through electronic means the validity of resellers’ permits. This system must be operational by Jan. 1, 2011. The department also may provide lists of valid and revoked resellers’ permits on its Web site. The department plans to have an online verification tool in place in January 2010. Sellers are not required to use the online tool, but it will be very useful for those sellers with large volumes of wholesale sales and others.
Q: Will business owners need to make copies of their reseller’s permit and provide one for every place they conduct business?
A: Yes. Copies of permits must be filed with every business from which a business purchases items for resale.
Q: Will the Department of Revenue be providing additional information to business owners on the reseller’s permit?
A: Yes. The Department has created a Web site, http://dor.wa.gov/sellerspermit, to keep businesses informed about the conversion. AWB will also provide its members with updated information on this issue in its print and electronic publications at www.awb.org.
