matthew37
New Member

In Washington State are software and web services exempt from state Use tax payments?

Self Employed / Contractor who does 3D Animation and uses many web services and software applications that are located out of state.
ThomasM125
Expert Alumni

State tax filing

Digital products such as downloaded goods, streamed and accessed digital goods and digital automated services are subject to sales tax in Washington State. As such, such products purchased out of state and therefore not taxed would be subject to use tax in Washington.

 

You can learn more about that here:

 

https://dor.wa.gov/get-form-or-publication/publications-subject/tax-topics/digital-products-includin...

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matthew37
New Member

State tax filing

The reason I ask is I have several types of purchases in the digital realm:

 

Software application services from Adobe, Autodesk and similar companies.  These are subscription based, rather than one-time purchases, and much like Amazon they do charge sales tax.  However I have no easy way to know if this is for California or WA state...

 

I also have a variety of web hosting services and related digital services/products that support that.  Web hosting , data storage and etc are directly listed as not subject to B&O tax.  This likely means other services like dropbox, google drive and such aren't taxed, which is good as i use those too.

 

But I'm unsure about Microsoft office (now that it's including a lot of similar functionality) or even Adobe CC, as these services are used both for hosting files and for generating advertising which is one of the activities listed as not B&O taxed.

 

Lastly I also have a lot of audio & video software that I use in the support of my business, as I earn my income entirely off of doing such activities.

 

So while I see web hosting, backup etc aren't taxed, it's these three other services I'm unsure of:

 

Software suites like Adobe CC & Microsoft Office that are used to not only generate digital goods that I could sell but also for creating advertising and so on.  I generally do not sell my products to the public, but others might sell products that utilize my services in say package design or an internet video advertisement for their products.


Part of the reason I ask is because I think I need to start segmenting my operations into 3 business entities:
One that handles hosting, advertising and the like.

One that retails merchandise, music and etc to the end user (I've marketed merchandise in the past under musical entities)

And one that creates product packaging, merchandising design, musical works and etc (graphic design and audio production as services, not the end products themselves).

 

Any input on these points is appreciated, I haven't had a lot of clarity from the legal counsel I've sought and it costs a considerable sum to keep asking them questions only to get vague answers (the city I live in doesn't have many 3d animators aka audio producers aka etc).

DMarkM1
Employee Tax Expert

State tax filing

For Washington, there is a Business and Occupation (B&O) tax which is a tax on services in Washington.  This is different from a sales tax and the use tax which is on items that you purchase and didn't pay WA sales taxes on.  

 

Generally, if you perform a service you should pay some type of B&O tax.  On most of those actions you will also collect from your clients and subsequently pay a sales tax.  Finally, if you buy something and bring it into or use it in WA without paying a sales tax you owe use tax.  

 

Buying something online and paying the sales tax on it satisfies the use tax aspect.   

 

The link provided by ThomasM125 above provides great descriptions and definitions.  You will notice that most services that you provide are subject to B&O, but some may be excluded from Sales tax. 

 

Here is another helpful link.

 

 

 

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