Could a charter-fishing operator buy bait for resale without tax because customers paid sales tax on an all-inclusive fishing fee?

Plain-English summary

A Washington charter-fishing operator charged customers one fee for transportation to fishing areas, rods, reels, tackle, and bait, then charged retail sales tax on that all-inclusive price. The operator bought the bait without paying sales tax, reasoning that it was resold to customers as part of the taxable charter charge.

Washington treated the charter as an amusement and recreation service. Under WAC 458-20-183, providers of those services owe retail sales tax on equipment and supplies they buy, except merchandise they actually resell. The bait was consumed or used in providing the fishing excursion rather than resold in the regular course of business without intervening use.

Charging sales tax on the customer's charter fee did not make the operator's own bait purchase wholesale.

Result: the bait purchases were subject to retail sales tax, and the petition was denied.

What this means for you

Charter and recreation businesses

Separate merchandise actually sold to customers from equipment and supplies used to deliver a taxable service. An all-inclusive customer charge does not automatically convert every included input into inventory for resale.

Accountants and tax professionals

Review how the item is transferred and used. The resale exclusion requires resale in the regular course of business without intervening use; supplies consumed in performing the service remain taxable to the provider.

Common questions

Q: Did it matter that customers paid sales tax on the charter fee?

A: No. The taxability of the operator's bait purchase depended on whether the bait itself was actually resold without intervening use.

Q: Why was bait treated as a business supply?

A: The operator provided it as part of the fishing excursion along with transportation and fishing gear.

Q: Could separately sold merchandise be different?

A: Yes. The rule distinguishes merchandise actually resold from supplies used to provide the recreation service.

Citations and references

• RCW 82.04.050(1)(a) and (3)(a)
• RCW 82.08.020
• WAC 458-20-183(5)(c)
• Mayflower Park Hotel, Inc. v. Department of Revenue, 123 Wn. App. 628, 98 P.3d 534 (2004)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 31WTD90.pdf
• Source archive: Volume 31 ZIP (member 31WTD90.pdf)

Original ruling text

Det. No. 11-0313, 31 WTD 90 (November 7, 2012)

90

Cite as Det. No. 11-0313, 31 WTD 90 (2012)

BEFORE THE APPEALS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition For Correction of
Assessment of
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DETERMINATION
No. 11-0313
Registration No. . . .
Doc. No. . . . .
Docket No. . . .

RULE 183; RCW 82.04.050; RCW 82.08.020: RETAIL SALES TAX –
AMUSEMENT AND RECREATION SERVICES - PURCHASE OF BAIT NOT A PURCHASE FOR RESALE. The purchase of bait by a charter fishing boat business is subject to retail sales tax even though the business charges its customers retail sales tax on a flat fee for the fishing excursion, the use of fishing gear, and the provision of bait. The purchase of the bait by the business is not a purchase for resale in the regular course of business without intervening use. Headnotes are provided as a convenience for the reader and are not in any way a part of the decision or in any way to be used in construing or interpreting this Determination. De Luca, A.L.J. – A sole proprietor (the taxpayer) who operates a charter fishing business questions whether his purchases of bait should be subject to retail sales . . . . Holding: Fishing bait purchases by the taxpayer are subject to retail sales tax . . . . Petition denied.1 ISSUE Is the purchase of fishing bait by a charter boat operator for use by his customers subject to retail sales tax per RCW 82.04.050 and WAC 458-20-183 (Rule 183)? . . . FINDINGS OF FACT The taxpayer is a sole proprietor who operates a charter fishing boat business along the Washington coast. For a fee, the taxpayer will take customers to fish in the ocean. Included in 1

Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410. Nonprecedential portions of this determination have been deleted.

Det. No. 11-0313, 31 WTD 90 (November 7, 2012)

91

that fee is the transportation to the fishing areas, the fishing rod, reel, tackle, and bait that the taxpayer provides. The taxpayer adds sales tax to that all-inclusive charge. Occasionally, passengers will bring their fishing rods and equipment and the taxpayer will adjust the price and charge sales tax on the adjusted price. During the audit period the taxpayer purchased bait from a vendor without paying sales tax on the purchases. The Audit Division audited the taxpayer for the period, from January 1, 2006, through June 30, 2010 and assessed $. . . sales tax, retailing B&O tax, use tax, interest, and a 5% substantial underpayment penalty. . . . The assessment remains unpaid. . . . ANALYSIS The taxpayer argues that he should not have to pay sales tax on the bait because he charges his customers sales tax on the all-inclusive fee for the charter, which includes the bait. We disagree. The taxpayer operates a charter fishing boat in which he provides the boat, the fishing gear and bait. Consequently, he is in the recreation and amusement services business and subject to retail sales tax and retailing B&O tax. RCW 82.04.050(3)(a); Rule 183; Det. No. 94-118, 16 WTD 011 (1994). Rule 183(5) provides: c) The retail sales tax applies upon the purchase or rental of all equipment and supplies by persons providing amusement, recreation, and physical fitness services, other than merchandise that is actually resold by them. For example, the retail sales tax applies to purchases of such things as soap or shampoo provided at no additional charge to members of a health club. One of the supplies that the taxpayer purchased and provided to his customers was the fishing bait. See also Mayflower Park Hotel, Inc. v. Dep’t of Revenue, 123 Wn. App. 628, 98 P.2d 534 (2004) (hotel’s purchase of amenities like soap or shampoo is subject to sale tax). [The taxpayer did not purchase bait for resale in the regular course of business without intervening use. See RCW 82.04.050(1)(a).] Consequently, the taxpayer’s purchase of bait as a supply for his amusement and recreation services business was and is subject to retail sales tax. Rule 183(5). DECISION AND DISPOSITION Taxpayer's petition is denied. Dated this 27th day of October 2011.