Article Archives: Joe Haberzetle

Posted by: Joe Haberzetle

Updated 9/18/2019, 9:15 PM

What Changed?

The Washington legislature recently enacted legislation that dramatically changes aspects of the state’s Real Estate Excise Tax (REET). Unless real property is classified as timberland or agricultural land, the REET rate structure will be changing on January 1, 2020. The current flat rate of 1.28% for the state portion of the REET will be replaced with a graduated rate.

The new rates will be:

  • 1.1% on the first $500,000 of the selling price;
  • 1.28% on the portion of the selling price between $500,000 and $1.5 million;
  •  2.75% on the portion of the selling price between $1.5 million and $3 million;

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Posted by: Joe Haberzetle

In a previous article, we discussed how expense reimbursements could present a B&O tax trap for real property lessors. Since publishing the article, we have learned that the Washington Department of Revenue (DOR) is aggressively targeting property management fees and payroll reimbursements on audit.  In certain cases, property managers have been assessed sales tax (as well as B&O tax) on management fees and payroll reimbursements the DOR recharacterizes as consideration for sales taxable services.

Payment structures for property management services run the gamut.  For example, property managers may charge a flat fee or a percentage of rental income,

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Posted by: Joe Haberzetle

Originally posted on June 20, 2017

UPDATED OCT. 2017: On June 28, 2017, the Massachusetts Department of Revenue issued Directive 17-2, revoking its earlier Directive 17-1 (below), which would have required remote sellers to collect sales tax on Massachusetts sales beginning July 1, 2017.

On September 22, 2017, Massachusetts adopted a new regulation, 830 CMR 64H.1.7 that requires remote sellers to collect tax from their Massachusetts customers on the same terms outlined in Directive 17-1.  830 CMR 64H.1.7 was made effective immediately upon adoption.

July: it typically marks the start of the dog days of summer,

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Posted by: Joe Haberzetle

Come 2018, many not-for-profit organizations with unrelated business income (UBI) could either be smiling or groaning over the shift in their Oregon tax bills.

Oregon recently followed the direction of many other states in attempting to collect more tax revenue from out-of-state businesses. The shift will come into effect through changes in how sales of services and intangibles are sourced to the state. The changes to Oregon’s apportionment rules are effective on January 1, 2018.

​Not-for-profits with employees in Oregon may see a significant decrease in their tax bill if they provide taxable services to customers located outside of Oregon.

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Posted by: Joe Haberzetle

By Joe Haberzetle, JD, LLM

California nonresident investors have long complained about having to pay $800 annually in minimum corporate franchise tax or California LLC tax, merely for holding a passive investment in a California business and regardless of whether the investment generates income.  As it turns out, the law may have been on the investors’ side all along.

In January 2017, the California Court of Appeals held in Swart Enterprises, Inc. v. Franchise Tax Board that an out-of-state C corporation could not be required to file a California franchise tax return and pay the $800 minimum tax merely because it held a 0.2% interest in a manager-managed LLC that operated in the state.

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Posted by: Joe Haberzetle

By Joe Haberzetle, JD, LLM

April 21, 2020 update: To provide accounting relief and clarity during the COVID-19 crisis, the FASB published an exposure draft with proposals to delay the effective dates for Leases (Topic 842). Find more information here.

Unlike many jurisdictions, Washington provides no automatic exemption from state and local taxes for nonprofit organizations that enjoy federal tax-exempt status. However, state law provides tax relief to nonprofit entities that engage in a variety of specific public benefit activities. It does this by exempting real and personal property used by the organization from state and local property taxes.

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Posted by: Joe Haberzetle

By Joe Haberzetle, JD, LLM

Should retirement communities, assisted living facilities, and the like charge sales tax on the meals provided to their residents? The answer is not a simple yes or no, as guidance posted recently by the Washington Department of Revenue (DOR) on its website shows.

This guidance states that the taxability of meals provided by a senior living or care facility depends first and foremost on whether the facility provides healthcare services. It confirms that meals provided by “licensed boarding homes, hospitals, nursing homes and assisted living facilities” are not subject to sales tax. However,

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Posted by: Joe Haberzetle

By Joe Haberzetle, JD, LLM

Note: the information in this article had additional updates on February 19, 2018. View the updated article here.

In our May 2014 article, we discussed the difficulties commercial and residential landlords encounter in determining the extent to which amounts received from tenants are subject to Washington B&O tax. While rental income is generally exempt from B&O tax, receipts from ancillary fees and services provided to tenants may not be exempt. A recently published Department of Revenue administrative appeal determination provides new insight on this thorny issue.

The question presented in the determination was whether promotional dues received by mall owners from their tenants were subject to B&O tax.

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Posted by: Joe Haberzetle

By Joe Haberzetle, JD, LLM

Seemingly every year the Washington legislature makes a number of changes to the state’s tax laws, and 2015 was no different in this regard. Since 2011, Washington law has provided an exemption from Business and Occupation (B&O) tax and sales/use tax for complimentary meals provided by restaurants to employees. However, the 2015 legislature revised this exemption to significantly limit which employees are eligible.

Under the 2011 law, restaurant operators who provide complimentary meals to employees without a specific charge are allowed an exemption from sales tax, use tax, and B&O tax on those meals.

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Posted by: Joe Haberzetle

By Joe Haberzetle, JD, LLM

Many Washington not-for-profits benefit substantially from the various property tax exemptions provided in state law. Private schools, churches, hospitals, museums and performing arts centers are among the organizations that can be granted exemptions from property taxes on the land and buildings they use, as well as on their personal property such as equipment, furniture, fixtures and exhibits. However, a relatively obscure provision in these laws can lead to harsh results when exempt property is sold or converted to a non-exempt use.

Generally, when exempt property ceases being used for an exempt purpose (or is sold,

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Posted by: Joe Haberzetle

By Joe Haberzetle, JD, LLM

The ability of not-for-profit organizations to rent their tax-exempt property to others has long been an area of contention between such organizations and the Washington taxing authorities, as evidenced by last year’s uproar over the highly acclaimed Everett Sausage Festival. The rules in this area are detailed, varying and confusing, and the penalties for a violation can be severe – typically including the loss of the property tax exemption on the affected part of the property for at least the year in which the violation occurs.

Thankfully, the state legislature has brought much-needed simplification and uniformity to this issue with the enactment of Senate Bill 6405 during the 2014 session.

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Posted by: Joe Haberzetle

By Joe Haberzetle, JD, LLM

If you are a Washington-based professional services business with at least some of your clients located outside the state, how do you know whether (or to what extent) you’re required pay the state’s business and occupation (B&O) tax on your income from those clients?

That is a complicated question, and one that has frustrated businesses for many years. To try to alleviate this confusion (and to shift some of the tax burden to out-of-state companies, as explained below) the 2010 Washington legislature enacted significant reforms to the so-called “apportionment rules” for businesses earning income from services and intangibles.

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Posted by: Joe Haberzetle · Bob Heller

By Joe Haberzetle, JD, LLM and Bob Heller, JD, LLM

In recent years the Washington Board of Tax Appeals has developed a reputation as a difficult venue for taxpayers to achieve positive results, particularly with respect to excise tax and property tax exemption issues. However, the Board’s recent decision in St. Andrews Building Corporation v. Department of Revenue1 is a solid win for the taxpayer and may create opportunities for other Washington not-for-profit organizations to claim the public meeting hall property tax exemption.

Background

Washington law states that in order to be eligible for the public meeting hall exemption,

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