A recent Washington excise tax determination points out the need for sellers to be careful when bundling retail sales taxable and service taxable activities into a single package or bundle. In Det. No. 13-0059, 32 WTD 232 (2013) the Department of Revenue held that wedding packages were subject to retail sales tax despite the inclusion of non-taxable services within the wedding package.
The taxpayer sold wedding package that included facility rental, furnishings, decorations, linens and catering. The administrative law judge agreed with the taxpayer that amounts received for facility rentals are licenses to use real property that are subject to services B&O, but not retail sales tax. However, this facility rental was bundled with a number of other items that are clearly subject to retail sales tax, such as catering.
The determination notes that prior to July 1, 2008 Washington used a “true object” test to determine whether a bundle of items and services were subject to retail sales tax. For periods after July 1, 2008 there is a specific bundling rule that must be followed. This rule provides in general that if a bundle of property and services are sold for a single itemized price that includes items that are subject to retail sales tax and items that are not, the entire bundle is subject to retail sales tax.
While the determination does not delve into the various statutory exceptions to this general rule, which may be applicable in a number of circumstances, the determination does point out that items are not provided for “one non-itemized price” when the price for specific items within the bundle are separately identified by product “on binding sales or other supporting sales-related documentation made available to the customer in paper or electronic form.”
Taxpayers that are selling packages of services that include both retail sales taxable and exempt items should collect retail sales tax on the full itemized price, provide a schedule listing the exempt and taxable items separately or consider whether they can meet the requirements of an exception to the bundled transactions rule.