Director's Rule 5-065

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Taxes — deductible and nondeductible.                            

(1) Introduction. This rule explains the circumstances under which taxes may be deducted from the gross amount reported as the measure of tax under the business license tax and the utility tax. It also lists specific deductible and nondeductible taxes.

(2) Deductibility of taxes. In computing tax liability, the amount of certain taxes may be excluded or deducted from the gross amount reported as the measure of tax under the business license tax and the utility tax. These taxes may be deducted provided they have been included in the gross amount reported under the classification in which the deduction is sought, and have not been otherwise included in another allowable deduction, such as credit losses or interstate sales.

The amount of taxes which are not allowable as deductions or exclusions must always be included in the gross amount reported. License and regulatory fees are not deductible.

Questions regarding the deductibility or exclusion of a tax that is not specifically identified in this rule should be submitted to the Director for determination.

(3) Motor vehicle fuel taxes. RCW 82.04.4285 provides a B&O tax deduction for certain state and federal motor vehicle fuel taxes when the taxes are included in the sales price. These taxes include:

State motor vehicle fuel tax, chapter 82.36 RCW;

State special fuel tax, chapter 82.38 RCW;

Federal tax on diesel and special motor fuels (including leaking underground storage tank taxes), except train and aviation fuels, 26 U.S.C.A. Sec. 4041;

Federal tax on inland waterway commercial fuel, 26 U.S.C.A. Sec. 4042;

Federal tax on gasoline and diesel fuel for use in highway vehicles and motorboats, 26 U.S.C.A. Sec. 4081.

(4) Taxes collected as an agent of municipalities, the state, or the federal government. The amount of taxes collected by a taxpayer, as agent for municipalities, the state of Washington or its political subdivisions, or the federal government, may be deducted from the gross amount reported. These taxes are deductible under each tax classification in which the gross amount from such sales or services is reported.

This deduction applies only when the amount of such taxes is received by the taxpayer as collecting agent and is paid by the agent directly to a municipality, the state, its political subdivisions, or to the federal government. When the taxpayer is the person upon whom a tax is primarily imposed, no deduction or exclusion is allowed, since in such case the tax is a part of the cost of doing business. The mere fact that the amount of tax is added by the taxpayer as a separate item to the price of goods sold, or to the charge for services rendered, does not in itself, make such taxpayer a collecting agent for the purpose of this deduction. Examples of deductible taxes include:

FEDERAL

STATE

MUNICIPAL

(5) Specific taxes which are not deductible. Examples of specific taxes which may be neither deducted nor excluded from the measure of the tax include the following:

FEDERAL

STATE

MUNICIPAL

Effective: May 15, 2007

DIRECTOR'S CERTIFICATION
I Dwight D. Dively, Director of the Department of Finance of the City of Seattle, do hereby certify under penalty of perjury of law, that the within and foregoing is a true and correct copy as adopted by the City of Seattle, Department of Finance.