Pivotal Law Group

Toll Free 866-884-2417

Recent Washington Tax Determinations Underscore the Need for Written Rulings

Posted Friday, November 1, 2013 by Michael A. Larson

alt textTwo recent published determinations of the Washington Department of Revenue underscore the need for taxpayers to obtain written rulings to support guidance received from the Washington Department of Revenue.

In Det. No 13-0034,32 WTD 220 (2013), the taxpayer was found eligible to use the manufacturing machinery and equipment exemption for equipment used in re-sharpening old saw blades. The taxpayer used equipment to sharpen newly manufactured saw blades and also to sharpen used blades. The equipment was found to be “used directly” in manufacturing when used in the activity of sharpening newly manufactured saw blades, but not when the equipment was used to sharpen old saw blades.

In order for manufacturing equipment to qualify for the manufacturing sales tax exemption, the equipment must be used a majority of the time in a manufacturing activity. Nonetheless, the taxpayer was allowed an exemption because the taxpayer had received a previous written determination that the activity of sharpening old blades was a manufacturing activity. Accordingly, the taxpayer was not required to prove if the equipment met the majority use test for direct use in manufacturing in order to qualify for the manufacturing exemption.

The taxpayer in Det. No 13-001, 32 WTD 213 (2013) was not as fortunate. The auditor determined that the taxpayer’s customization and assembly of engines, generators and related products, constituted manufacturing and assessed manufacturing B&O tax on these activities. The administrative law judge agreed with the auditor that the taxpayer’s activity constituted manufacturing. The taxpayer then argued that its activities had not changed from prior years and it should be allowed to rely on the characterization of its activities arrived at in prior audits of the taxpayer.

The administrative law judge held that the taxpayer was not eligible under the doctrine of equitable estoppel to rely on the tax treatment of its activities in the prior audit. “Where a taxpayer’s improper reporting was overlooked, the Department is not barred from asserting a tax liability because an auditor failed to find an error during an earlier audit.”

In many cases, auditors will examine specific issues during the course of an audit, making a decision in favor of the taxpayer. However, if this decision is not reduced to a specific reporting instruction, the taxpayer will be unable to rely on that tax treatment for future periods. This can be especially costly when the decision involves a question of whether an item or service is subject to retail sales tax. At the end of any audit, taxpayers should review their reporting instructions carefully. If a critical item is not discussed, taxpayers should consider obtaining a written ruling from the Washington Department of Revenue to confirm the tax treatment.

I regularly obtain tax rulings on behalf of clients from the Washington Department of Revenue. Knowing the critical information that must be disclosed in order to ensure that written guidance may be followed in future periods is critical. At Pivotal Law Group we can help you draft rulings that you can rely on when obtaining written advice from the Washington Department of Revenue.

For more information contact , Pivotal Law Group, PLLC today.

DISCLAIMER: This blog is not legal advice. This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice under any circumstances, nor should it be construed as creating an attorney-client relationship. The information on this blog is a general statement of the law and may not be up to date, accurate or applicable to your specific circumstances. Prior success in litigation is not an indication of future results; each case is unique and past results cannot predict future outcomes.

Pivotal Law Group, PLLC Pivotal Law Group, PLLC
47.6084840 -122.3330190
of vital or central importance; crucial