Director's Rule 5-065

Taxes — deductible and nondeductible

Download a pdf of this rule

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:


Tax on communications services (telephone and teletype-writer exchange services)

26 U.S.C.A. Sec. 4251

Tax on transportation of persons

26 U.S.C.A. Sec. 4261

Tax on transportation of property

26 U.S.C.A. Sec. 4271


Aviation fuel tax collected from buyers by a distributor as defined by RCW 82.42.010

chapter 82.42 RCW

Leasehold excise tax collected from lessees

chapter 82.29A RCW

Oil spill response tax collected from taxpayers by marine terminal operators

chapter 82.23B RCW

Retail sales tax collected from buyers

chapter 82.08 RCW

Solid waste collection tax collected from buyers

chapter 82.18 RCW

State enhanced 911 tax collected from subscribers

chapter 82.14B RCW

Use tax collected from buyers

chapter 82.12 RCW


City admission tax

SMC 5.40.070

City parking tax

SMC 5.35.060

County admissions and recreations tax

chapter 36.38 RCW

County enhanced 911 tax collected from subscribers

chapter 82.14B RCW

Local retail sales and use taxes collected from buyers

chapter 82.14 RCW

(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:


A.A.A. compensating tax

7 U.S.C.A. Sec. 61 5(e)

A.A.A. processing tax

7 U.S.C.A. Sec. 609

Aviation fuel

26 U.S.C.A. Sec. 4091

Distilled spirits, wine and beer taxes

26 U.S.C.A. chapter 51

Diesel and special motor fuel tax for fuel used for purposes other than motor vehicles and motorboats

26 U.S.C.A. Sec. 4041

Employment taxes

26 U.S.C.A. chapters 21-25

Estate taxes

26 U.S.C.A. chapter 11

Firearms, shells and cartridges

26 U.S.C.A. Sec. 4181

Gift taxes

26 U.S.C.A. chapter 12

Importers, manufacturers and dealers in firearms

26 U.S.C.A. Sec. 5801

Income taxes

26 U.S.C.A. Subtitle A

Insurance policies issued by foreign insurers

26 U.S.C.A. Sec. 4371

Sale and transfer of firearms tax

26 US.C.A. Sec. 5811

Sporting goods

26 U.S.C.A. Sec. 4161

Superfund tax

26 US.C.A. Sec. 4611


26 U.S.C.A. Sec. 4071

Tobacco excise taxes

26 U.S.C.A. chapter 52

Wagering taxes

26 U.S.C.A. chapter 35


Ad valorem property taxes

Title 84 RCW

Alcoholic beverages licenses and stamp taxes (Breweries, distillers, distributors and wineries)

chapter 66.24 RCW

Aviation fuel tax when not collected as agent for the state

chapter 82.42 RCW

Boxing, sparring and wrestling tax

chapter 67.08 RCW

Business and occupation tax

chapter 82.04 RCW

Cigarette tax

chapter 82.24 RCW

Gift and inheritance taxes

Title 83 RCW

Insurance premiums tax

chapter 48.14 RCW

Hazardous substance tax

chapter 82.21 RCW

Litter tax

chapter 82.19 RCW

Pollution liability insurance fee

RCW 70.149.080

Parimutuel tax

RCW 67.16.100

Petroleum products - underground storage tank tax

chapter 82.23A RCW

Public utility tax

chapter 82.16 RCW

Real estate excise tax

chapter 82.45 RCW

Tobacco products tax

chapter 82.26 RCW

Use tax when not collected as agent for state

chapter 82.12 RCW


Local use tax when not collected as agent for cities or counties

chapter 82.14 RCW

Municipal utility taxes

SMC 5.48.050

Municipal and county real estate excise taxes

chapter 82.46 RCW

Employee hours tax

SMC 5.37.030

City business license tax

SMC 4.45.050

Effective: May 15, 2007

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.

City Finance

Jamie Carnell, Interim Director
Address: 700 Fifth Ave., 4th Floor, Seattle, WA, 98104
Mailing Address: P.O. Box 34214, Seattle, WA, 98124-4214
Phone: (206) 684-8484
Hours: 8:30 a.m.-4 p.m.

Newsletter Updates


Sign up for the latest updates from City Finance

City Finance manages the financial operations of the City of Seattle and oversees the City’s financial controls and enterprise reporting while working to achieve the goals set by the Mayor and the City Council.