Taxable Amount For Tax Paid At Source Deduction
Taxable Amount for Tax Paid
at Source Deduction
Businesses that pay sales tax on purchases of material that they later resell may take
a “taxable amount for tax paid at source” deduction on their excise tax return. The deduction
is based on the amount paid for the materials, not including the sales tax. It’s important to
note that sales tax must still be collected on the total price of the item or contract when the
materials are resold.
Read through the following sample question and example to see how the
deduction works.
Q: I’m a custom contractor. I recently bought lumber and paid sales tax at the time
of purchase. Later, I built a fence with that lumber and collected sales tax. Is there a way
to get the sales tax I paid back from my purchase of that lumber?
A: Yes. In order to be paid back for the sales tax that you paid originally, you can take what
is called a “taxable amount for tax paid at source” deduction on your return.
Example:
ABC Company purchased lumber for $100 from a Seattle store, plus sales tax of $9.50
(rate of 9.5%).
State portion of sales tax: $6.50 ($100 x 6.5% or 0.065)
Local portion of sales tax: $3.00 ($100 x 3.0% or 0.030)
ABC was later hired to build a fence in Tacoma using the lumber purchased in Seattle.
The total amount earned for the contract was $500, plus $46.50 in sales tax (rate of 9.3%).
State portion of sales tax: $32.50 ($500 x 6.5% or 0.065)
Local portion of sales tax: $14.00 ($500 x 2.8% or 0.028)
This is how the deduction would look on your return.
1 Retailing B&O
1. Enter the gross amount of $500.00 in Column 1.
2. Enter the deduction amount of $0.00 in Column 2 (The taxable amount for tax paid at source deduction is only
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allowed on the Retail Sales tax line).
3. Enter the taxable amount of $500.00 in Column 3.
4. Enter the tax due of $2.35 in Column 5.
I STATE BUSINESS AND OCCUPATION TAX
Line
Column I
Col. 2 Deductions*
Column 3
Col. 4
Column 5
No.
Tax Classification
Code
Gross Amount
Totals from Pg. 3 & 4
Taxable Amount
Rate
Tax Due
16 Retailing
02
500
00
500 00 .00471
2
35
2 Retail Sales
1. Enter the gross amount of $500.00 in Column 1.
2. Enter the deduction amount of $100.00 in Column 2 (The amount paid for materials, not including the sales tax).
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3. Enter the taxable amount of $400.00 in Column 3.
4. Enter the tax due of $26.00 in Column 5.
Line
Column I
Col. 2 Deductions*
Column 3
Col. 4
Column 5
No.
Tax Classification
Code
Gross Amount
Totals from Pg. 3 & 4
Taxable Amount
Rate
Tax Due
II STATE SALES AND USE TAX
17 Retail Sales (also complete local tax section III)
01
500 00
100 00
400 00 .065
26 00
18 Use Tax/Deferred Sales Tax (also complete
05
Value of articles used by taxpayer as a consumer
local tax section III)
on which no Washington sales tax has been paid
.065
TOTAL STATE SALES & USE TAX
26 00
3 Itemize Deduction
1. On page 4 of the Deduction Detail, under Line 17 - Retail Sales Tax, enter the deduction amount of $100.00
next to Taxable Amount for Tax Paid at Source (I.D. 0130). If you do not have a copy of the Deduction Detail,
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go to dor.wa.gov or call 1-800-647-7706.
Line 17 – Retail Sales Tax
I.D.
Amount
Taxable Amount for Tax Paid at Source
0130
100 00
4 Local Sales Tax
1. Enter location code 1726, negative taxable amount of ($100.00), local rate of .030 and the negative tax due
of ($3.00) for the purchases in Seattle.
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2. On the next line, enter location code 2717, taxable amount of $500.00, local rate of .028 and the tax due
of $14.00 for the job in Tacoma.
3. Enter the total Taxable Amount of $400.00 and Total Tax Due City or Co. of $11.00.
III LOCAL CITY AND/OR COUNTY SALES AND USE TAX
Local Sales Tax (Enter applicable rate of tax.)
Code 45
Total Taxable Amount must be the same as line 17, column 3, Taxable Amount
Line
No. Location Code
Taxable Amount
Local Rate Tax Due City or Co.
19
1726
(100 00)
.030
(3 00)
20
2717
500 00
.028
14 00
21
22
TOTAL
TAXABLE
400 00
TOTAL
11 00
Questions? Visit dor.wa.gov or call 1-800-647-7706.
