Was an event-merchandise consignee acting as an agent, or was it the retail seller responsible for remitting collected Washington sales tax?

Plain-English summary

The Washington Department of Revenue held that an event-merchandise vending company was the retail seller—not merely the consignors' agent—and was personally liable for retail sales tax it collected but did not remit to the state.

The company possessed and sold merchandise at concerts and entertainment events. Washington presumes a consignee selling property is the seller unless it proves otherwise. Most consignor relationships were informal, and the one written contract produced called the company an independent contractor without clearly creating a principal-agent relationship. The company also lacked contemporaneous receipts and books showing that transactions were made in each consignor's name, the owner of the merchandise, gross sales, commissions, incidental income, and sales tax. Post-audit reconstructions did not cure those failures.

Because the company did not establish agency, it had to report the gross consignment sales under retailing B&O and retail sales tax without a consignment deduction. The Department therefore upheld the unpaid sales-tax assessment and directed an adjustment for retailing B&O tax that the audit had not assessed. Sending collected tax to consignors did not satisfy the company's duty to remit it to the Department on this record.

The Department did grant classification relief. Since the company was treated as buying from the consignors and reselling in its own name, it had no separate commission income subject to service and other activities B&O tax. Credit-card service fees were part of the retail selling price and likewise belonged in the retail sales tax and retailing B&O bases, not the service classification. Only the company's separate security-service income remained subject to service and other activities B&O tax.

The 50% evasion penalty was upheld only on retail sales tax collected but not remitted. A prior audit had informed the company of its obligation, yet it backed retail sales out of its records and failed to report the collected tax even under the reporting method it claimed applied. The evidence did not establish evasion of the tax on security services, and the other service-tax adjustments were canceled. Penalties were to be recalculated using the corrected assessment. The petition was granted in part and denied in part.

What this means for you

Consignment businesses

An informal understanding is not enough to overcome Washington's seller presumption. Use a contract that clearly establishes principal and agent, and make sales in the principal's name if that is the intended tax treatment.

Event and merchandise operators

Possessing goods, making the sale, and collecting sales tax can make the consignee responsible for remittance. Ownership of a credit-card terminal or the destination of card proceeds does not by itself establish agency.

Bookkeepers and accountants

Maintain contemporaneous records showing whose name each sale used, the merchandise owner, gross sales, commissions, incidental income, and collected tax. Reconstructed spreadsheets after an audit may not satisfy Rule 159.

Businesses collecting sales tax

Collected sales tax is held in trust for Washington. Intentionally excluding collected tax from returns can support an evasion penalty, especially after the Department has previously explained the same obligation.

Common questions

Q: Did calling the consignee an independent contractor establish an agency relationship?

A: No. The contract did not expressly identify the parties as principal and agent, and its mixed provisions did not clearly establish the required consent and control.

Q: Could the consignors report and remit the sales tax instead?

A: Only if the governing consignment and agency requirements were met and the sales and remittances were properly documented and reported. This company did not prove those conditions for the audited sales.

Q: How were the company's receipts classified for B&O tax?

A: Gross merchandise sales and credit-card fees were retailing receipts. The company had no separate commission income because it failed to establish agency. Its distinct security-service income remained under service and other activities B&O tax.

Q: Why did the evasion penalty apply?

A: The company knew from a prior audit that collected sales tax had to be reported and remitted, but it backed sales out of its records and did not report the tax. That supported intent to evade as to the unremitted sales tax.

Q: What relief did the company receive?

A: The Department canceled service B&O tax on purported commissions and credit-card fees and limited the evasion penalty to unremitted retail sales tax. Retailing B&O tax and other penalties had to be recalculated on the corrected amounts.

Citations and references

• RCW 82.04.480 and WAC 458-20-159 (consignee seller presumption and agency proof)
• RCW 82.08.040(2) and .050 (collection and remittance of retail sales tax)
• RCW 82.04.250(1) (retailing B&O tax)
• RCW 82.08.010(1)(a)(i), RCW 82.08.020, and WAC 458-20-108(5) (selling price and credit-card fees)
• RCW 82.04.290(2)(a)(ii)(B) (service income)
• RCW 82.32.090(7) and WAC 458-20-228(5)(f) (evasion penalty)
• Rho Co. v. Department of Revenue, 113 Wn.2d 561, 782 P.2d 986 (1989)
• Kitsap-Mason Dairymen's Association v. Washington Tax Commission, 77 Wn.2d 812, 467 P.2d 312 (1970)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 45WTD091.pdf
• Source archive: Volume 45 ZIP (member wtdvol45/45WTD091.pdf)

Original ruling text

Det. No. 22-0048, 45 WTD 091 (June 9, 2026)

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Cite as Det. No. 22-0048, 45 WTD 091 (2026)
BEFORE THE ADMINISTRATIVE REVIEW AND HEARINGS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition for Correction of
Assessment of
...

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DETERMINATION
No. 22-0048
Registration No. . . .

[1]
WAC 458-20-159; RCW 82.04.480: B&O TAX – CONSIGNMENT –
AGENCY – CONTRACT TERMS. A contract for a consignment relationship that designates the consignee as an independent contractor and makes no mention of a principal-agent relationship will not satisfy WAC 458-20-159’s requirement that the contract “clearly establishes the relationship of principal and agent.”
[2]
WAC 458-20-159; RCW 82.04.480: B&O TAX – CONSIGNMENT –
REPORTING. When a consignee makes retail sales in its own name, those sales are reportable under the retailing B&O tax classification and not the service and other activities B&O tax classification. Likewise, credit card service fees to process the retail transactions are reportable under the retailing B&O tax classification.
[3]
WAC 458-20-228(5); RCW 82.32.090(7): EVASION – NOT
REPORTING OR REMITTING RETAIL SALES TAX COLLECTED. When a
taxpayer collects retail sales tax but does not remit it to the Department, and fails to report it after backing it out in its own records, the taxpayer has demonstrated an intent to evade under WAC 458-20-228(5). 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. Willette, T.R.O. – An event-merchandise vending company (Taxpayer) protests an assessment by the Department of Revenue (Department). The Department’s assessment included adjustments for unpaid retail sales tax and service and other activities business and occupation (B&O) tax. The Department also imposed an evasion penalty on Taxpayer for not remitting to the state the retail sales taxes it collected. Taxpayer contends that, as a consignee, it collected the retail sales tax on behalf of consignors, and it was not obligated to remit the retail sales tax to the state. Taxpayer failed to meet its burden to rebut the presumption that as the seller of tangible personal property it was required to collect and remit retail sales tax. As Taxpayer neither reported nor remitted the retail sales taxes it collected, the Department’s imposition of the evasion penalty was appropriate.

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However, some adjustments with respect to the assessment and in favor of Taxpayer, are warranted. We deny the petition in part and grant in part. 1 ISSUES

1. Whether, under RCW 82.04.480 and WAC 458-20-159 (Rule 159), Taxpayer met its burden
   to demonstrate that it made sales as an agent and was thus relieved of its statutory duty to remit retail sales tax it collected.
2. Whether, under RCW 82.04.290, the Department properly imposed the service and other
   activities B&O [tax] on commissions and credit card fees.
3. Whether, under RCW 82.32.090(7) and WAC 458-20-228(5)(f) (Rule 228), the Department
   properly imposed the evasion penalty.
   FINDINGS OF FACT
   Taxpayer sells merchandise and retail food items (collectively merchandise) at concerts and various entertainment events. Third parties (Consignors) provide the merchandise, and generally what is not sold is returned to the Consignors. At certain larger events, Taxpayer provides security in addition to selling merchandise. It is not in dispute that Taxpayer collected retail sales tax on all sales of merchandise that occurred from January 1, 2016, through June 30, 2019 (Audit Period). The Department’s Audit Division discovered significant discrepancies between Taxpayer’s excise tax filings and its bank statements for the Audit Period. Although Taxpayer made $. . . in deposits during the Audit Period, Taxpayer only reported a total of $. . . in retail sales during the same. Taxpayer’s excise tax returns did not reflect the actual deposits in the bank account because it did not report the income and then take a consignment deduction, as it claims it is entitled to. Instead, Audit Division determined that Taxpayer backed out the retail sales amounts in its records, thus only reporting purported commissions from the retail sales. As such, although Taxpayer collected
   $. . . in retail sales tax on the amount of gross sales verified by Audit Division, Taxpayer only remitted $. . . in retail sales tax to the state. Audit Division assessed an outstanding balance of retail sales tax due of $. . . . At the outset of the audit, Taxpayer attempted to file amended returns and included a payment of
   $. . . . The Department rejected the filings because the audit was ongoing. Because the amended returns were not accepted, the Department applied the amount to the assessment liabilities. Division Response at 5. Audit Division also assessed the service and other activities B&O tax against portions of Taxpayer’s income. Audit Division levied the service and other activities B&O [tax] against credit card service fees collected by Taxpayer totaling $. . . for the Audit Period. Audit also levied the service and other activities B&O tax against income Taxpayer received for providing security while working certain events. The total unreported income for security was $. . . . Finally, Audit 1

Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410.

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Division determined that Taxpayer failed to report commissions, totaling $. . . , for consignment sales made during the Audit Period. Taxpayer asserts that the retail sales of merchandise were made on behalf of the Consignors. Some of the Consignors, such as [Consignor 1], [Consignor 2], and [Consignor 3] are businesses that are registered as making retail sales in the state. Some of the Consignors are artists and performers, but Taxpayer does not provide evidence that any in this latter group of Consignors are registered to do business in Washington or file excise tax returns. Also, Taxpayer did not provide receipts from sales of merchandise made at events. Taxpayer asserted that the receipts from the credit card sales made on behalf of [Consignor 1] indicated the sales were made in [Consignor 1]’s name. Taxpayer, however, did not provide any receipts to verify this assertion. Taxpayer states that the business relationship is informal with most of the Consignors and that a principal/agency relationship is understood between the parties. Taxpayer provided a consignment agreement with one Consignor, [Consignor 1] ([Consignor 1] Contract), to demonstrate the agency relationship. The [Consignor 1] Contract states that Taxpayer is an independent contractor and there is no employer or employee relationship for any purpose. [Consignor 1] Contract §12. Additionally, Taxpayer agrees that [Consignor 1] will not be responsible for any claims arising from Taxpayer’s performance of the contract. Id., §9. The contract does state, though, that
[Consignor 1] will be responsible for “attend[ing] to the administrative details of paying over to the appropriate taxing authorities the sales taxes collected by [Taxpayer] and paid over to [ Consignor 1].” Id. §3(c). Also, Taxpayer must use the [Consignor 1] approved credit-card machines. Id. §5. Nothing in the contract states that Taxpayer is the agent of [Consignor 1]. See generally Id. Taxpayer states that it did not collect all of the retail sales tax because two of the Consignors,
[Consignor 1] and [Consignor 2], own the credit card machines used by Taxpayer to make retail sales at events. Taxpayer states that it does not have access to those funds because those payments go directly to [Consignor 1] and [Consignor 2]. When sales at [Consignor 1] or [Consignor 2] events are made in cash, Taxpayer collects the cash and deposits all proceeds into its own account. Taxpayer collected all monies for sales, credit card and cash, made of merchandise it received from [Consignor 3] and the various artists. Because Taxpayer essentially receives the merchandise on credit, it then forwards payment for merchandise it sold to the Consignors after the events. Taxpayer asserts that this amount includes the retail sales tax collected, and that those amounts are then remitted by the Consignors to the state. Taxpayer did not provide receipts from any sales made at events, so Audit Division could not confirm whether sales were made in the name of the Consignors or Taxpayer. 2 Audit Division reviewed Taxpayer’s books and records to account for the retail sales taxes collected during the Audit Period. Audit was unable to reconcile Taxpayer’s books and records with its assertions. Specifically, Taxpayer’s books and records lacked detailed accountings of retail sales, retail sales tax collected, and commission if acting as an agent, so Audit Division could not verify Taxpayer’s assertions that its payments to Consignors included retail sales taxes to then be Taxpayer asserts that the receipts from sales made using [Consignor 1] credit card machines stated the sales were made in [Consignor 1]’s name. Although offered an opportunity to provide such receipts following the hearing, it did not.

2

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paid by the Consignors to the Department. For example, Taxpayer’s records would show amount totals for cash sales and credit card sales, but there were no data columns specifically addressing retail sales tax, commission, or other incidental income. Although Taxpayer’s records reflected payments to Consignors, those payments, which were made in one lump sum, were based on calculations that were unclear to Audit. 3 Thus, because Taxpayer did not keep its books and records in a manner that was satisfactory to the Department, Audit Division assessed retail sales tax on Taxpayer’s gross proceeds of sales during the Audit Period. Audit Division also assessed the evasion penalty. In making its assessment, Audit Division stated the following: The auditor reconciled retail sales tax for the Audit Period. Your company did not report any taxable retail sales for the first two quarters of 2016. In addition, for the remaining Audit Period, you underreported taxable retailing income and retail sales by an average amount of $. . . per quarter. . . . Your prior company (a sole proprietorship) was previously audited by the Department of Revenue for the period January 1, 2007, through December 31, 2010.
. . . During that audit, your company was assessed the 50 percent evasion penalty for non-reporting income from the sales made at the . . . Arena in [City]. The previous auditor explained in detail why your company was assessed the evasion penaltysubstantial underreporting of income. The auditor reviewed historical reporting records from the Department of Revenue. This current registration for your company was opened in January 2013. Your company collected $. . . in sales tax during the Audit Period. Your company only remitted $. . . of the collected sales tax. This is a net difference of $. . . that was not remitted to the Department. Audit Division Letter at 4-5. The evasion penalty totaled $. . . and was assessed against $. . . – the
$. . . unremitted retail sales tax and $. . . in service and other activities B&O tax. 4 Taxpayer timely filed a petition for administrative review (Petition). Taxpayer’s argument against the assessment on unreported retail sales tax is that the Consignors are deemed the sellers of the merchandise and the Consignors file excise tax returns and remitted the sales tax collected by Taxpayer to the Department. See, e.g., Petition at 6 (“Under RCW [82.08.040(2)(b)], [Consignor 1] is the seller of the merchandise, [Consignor 1] filed during the audit period Washington excise tax returns, and remitted sales tax on its retail sales.”). Taxpayer asserts that it only acts as a service provider and that the Department incorrectly included sales tax in Taxpayer’s assessment that the Consignors remit. As such, Taxpayer protests “all adjustments and penalties except for use tax.” Petition at 7. Taxpayer also asserts that it is a small business and unsophisticated in tax or financial matters and that some of the recordkeeping duties were delegated to employees. In briefing and at the hearing, Taxpayer’s representative attempted to clarify the bookkeeping deficiencies and ambiguities. 4 The Department credited Taxpayer for retailing B&O [tax] that accounts for the difference. . . . Rounding inconsistencies may be present. 3

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Taxpayer asserts the five percent, substantial-underpayment penalty was improperly assessed. In Taxpayer’s estimation, the Department miscalculated the amount of tax due by requiring it to remit retail sales tax when, as it alleges, Consignors have also remitted the retail sales tax. Taxpayer argues that it paid the proper amount due on its reported commissions, so there was no substantial underpayment. Taxpayer acknowledges that it kept inadequate recordkeeping and may not have contractual agency agreements with Consignors. Taxpayer’s Third Response at 2 (stating its recordkeeping was “weak”). However, Taxpayer takes a position that it need not formally comply with Rule 159 and agency can be deduced without a formal agreement and cites Det. No. 16-0243, 36 WTD 467 (2017), Det. No. 17-0147, 36 WTD 588 (2017), and Det No. 08-0301, 28 WTD 68 (2009) in support of its argument. See Taxpayer’s Third Response. In support of its position that it had no obligation to remit retail sales tax to the Department and that the Consignors instead remitted the taxes collected, Taxpayer provided, among other things: copies of [Consignor 2]’s efiling statements of its excise tax returns, Excel spreadsheets of sales from [Consignor 1] events to demonstrate sales 5, nine merchandise sales reports for [Consignor 1] consignments, settlement reports, transaction reports indicating wire transfers to Consignors, accounting reconciliations created by Taxpayer’s accounting representative, copies of processed checks from Taxpayer to
[Consignor 3], letters from [Consignor 1] and [Consignor 3] stating they filed excise tax returns and paid retail sales taxes, and a summary of amounts of retail sales tax it asserts are due to the Department. Taxpayer’s argument against the evasion penalty is that the failure to remit the retail sales taxes could not have been intentional because the Consignors were responsible for remitting and the Consignors did in fact remit the retail sales taxes. Taxpayer asserts that the Department would be collecting the retail sales tax twice if it were to also pay the taxes. However, Taxpayer “acknowledges that it did not follow the procedures outlined in WAC 458-20-159[.]” Petition at

10. Even though Taxpayer had been audited for the same issue previously and knew it was
    responsible for remitting the retail sales tax collected as consignee, Taxpayer stated it was merely trying to comply with the business model required by Consignors. Taxpayer also alleges that certain Consignors owned the credit card machines used to make the sales, and it never actually had possession of those funds. Taxpayer states that, as set forth in Det. No. 92-133, 12 WTD 171 (1993), a prior imposition and payment of an evasion penalty does not establish a pattern of evasion necessary to impose an evasion penalty in a subsequent audit. Petition at 11. In its response to the Petition, Audit Division states that the amounts with regards to retail sales tax collected by Taxpayer are not at issue. Additionally, at no time during the audit process, did Taxpayer raise the issue that the Consignors had remitted the sales tax to the Department. Audit Division’s position is that Taxpayer has not remitted the retail sales tax collected to the state nor has it met its burden to show that the retail sales taxes were paid to the Consignors and then to the state. 5

For example, the spreadsheets included the following data:
Item
Total Return Sold
Price
. . . Black Youth Tee 68
44
24
$ ...

Gross
$ ...

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ANALYSIS

1. Seller and Seller’s Obligations
   Washington imposes a retail sales tax on every retail sale of tangible personal property in the state. RCW 82.08.020(1). “Sale” means any transfer of the ownership of, title to, or possession of property for a valuable consideration. RCW 82.04.040(1). The term “retail sale” includes every sale of tangible personal property, subject to certain exclusions, none of which apply here. RCW 82.04.050(1). Sellers must collect the full amount of the retail sales tax payable from buyers. RCW 82.08.050(1). If the seller fails to collect retail sales tax from the buyer or collects the tax and fails to “pay it in the manner prescribed” to the Department, the seller becomes personally liable for the amount of the tax whether the failure is the result of the seller’s actions or acts or conditions outside of its control. RCW 82.08.050(3). The term “seller” is a person “making sales at retail or retail sales to a buyer, purchaser, or consumer, whether as agent, broker, or principal.” RCW 82.08.010(2). Here, Taxpayer asserts that it is not responsible for remitting the retail sales tax because it is a consignee. Under Washington’s tax code: Every consignee, bailee, factor, or auctioneer having either actual or constructive possession of personal property, or having possession of the documents of title thereto, with power to sell such personal property in that person's own name and actually so selling, is deemed the seller of such personal property within the meaning of this chapter. Furthermore, the consignor, bailor, principal, or owner is deemed a seller of such property to the consignee, bailee, factor, or auctioneer. RCW 82.04.480(1) (emphasis added). When the consignee is deemed the seller, the consignee “must collect and remit” the retail sales tax on each sale made. RCW 82.08.040(2)(a). Taxpayer does not dispute that it had actual possession of the personal property with the power to sell such personal property. Taxpayer argues that as a consignee it was not selling in its own name but as an agent of the Consignors. However, under the Department’s administrative rule implementing RCW 82.04.480, the “mere fact” that a consignee makes a sale “raises a presumption” that the consignee sold in its name, and the “presumption is controlling unless rebutted by proof satisfactory to the department of revenue.” Rule 159. Thus, “[t]he burden is on the taxpayer in every case to establish the fact that the taxpayer is not engaged in the business of making retail sales or wholesale sales but is acting merely as broker or agent in promoting sales for a principal.” RCW 82.04.480(2); see Det. No. 08-0301, 28 WTD 68, 71 (2009) (“Sellers of property are taxable on that activity unless they meet their statutory burden of proving that their status was something other than that of seller.”). Accordingly, unless Taxpayer met the statutory burden, Taxpayer was obligated to remit the taxes it collected to the state. As a threshold matter, remittance to the state by consignors instead of the consignee is only allowed when the consignor “is engaged in the business of selling tangible property” and the sale by the consignee was made in the consignor’s name and the consignor “continues to be in business.” Rule
2. Taxpayer asserts that the Consignors, generally, are remitting the retail sales taxes. Taxpayer,

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however, made sales on behalf of Consignors that were artists and performers, but Taxpayer provided no information to demonstrate that traveling artists were or continued to be engaged in the business of selling tangible property which would require them to file excise tax returns with the state. Consequently, insofar as the Consignors were artists and performers, Taxpayer does not meet its burden to show that the artists and performers may report and remit the retail sales tax collected by Taxpayer. We must then consider whether Taxpayer was acting as an agent for the Consignors who are in the business of selling tangible personal property, [Consignor 1], [Consignor 2], and [Consignor 3], as demonstrated by their filing of excise tax returns and paying retail sales taxes. The Department will allow an agency to claim when three circumstances are met. First, the taxpayer must demonstrate that “the contract or agreement between such persons clearly establishes the relationship of principal and agent.” Rule 159. Then, if a taxpayer has clearly established the relationship of principal and agent, the taxpayer/agent must comply with two bookkeeping requirements: (1) The books and records of the broker or agent show the transactions were made in the name and for the account of the principal, and show the name of the actual owner of the property for whom the sale was made, or the actual buyer for whom the purchase was made. (2) The books and records show the amount of gross sales, the amount of commissions and any other incidental income derived by the broker or agent from such sales. Rule 159 (emphasis added). Taxpayer’s claim that it was making sales merely as an agent of the Consignors fails under each of the three requirements. Taxpayer did not demonstrate that its agreements established an agency relationship Taxpayer has not met its burden to show it had agreements with the Consignors that clearly establish an agency relationship. Taxpayer states that it had informal relationships with most of the Consignors, and the principal/agent relationship was understood by the parties. For the sales on behalf of [Consignor 3], [Consignor 2], and the various artists and performers under which there was no formal contract, Taxpayer has not “clearly established” a relationship of principal and agent. See Rho Co. v. Dep’t of Revenue, 113 Wn.2d 561, 573, n.6, 782 P.2d 986 (1989) (“Taxpayers who buy or sell tangible personal property on behalf of another will not be treated as agents unless they have a contract expressly creating an agency relationship[.]”); Det. No. 160243, 36 WTD 467, 478 (2017) (stating, for the purposes of Rule 159, substantiation must be made through express language in written contracts). Taxpayer provided the [Consignor 1] Contract to demonstrate its principal/agent relationship with that Consignor. For the purposes of Rule 159, we may find an agency relationship has been created when it is expressly stated in the contract. See Det. No. 16-0243, 36 WTD 467, 478 (2017). See, e.g., Det. No. 08-0301, 28 WTD 68, 72-75 (2009) (determining an agency relationship did not exist for the purposes of Rule 159 when not made explicit in the bylaws of a non-profit dairy

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cooperative because the “Bylaws do not expressly use the term “agency” to classify the relationship”). Although the [Consignor 1] Contract does not explicitly state that Taxpayer is the agent of [Consignor 1] or [Consignor 1] is the principal of Taxpayer, terms in the agreement indicate an agency relationship may exist. An agent principal relationship “results from the manifestation of consent by one person that another shall act on his behalf and subject to his control, with a correlative manifestation of consent by the other party to act on his behalf and subject to his control.” Moss v. Vadman, 77 Wn.2d 396, 402-3, 463 P.2d 159 (1969). Consent and control are the essential elements of agency. Id. at 403; see also Washington Imaging Services, LLC. v. Dep’t of Revenue, 171 Wn.2d 548, 562, 252 P.3d 885 (2011). The relationship is created by law, but if no facts exist to satisfy both elements of control and consent, “then no agency exists despite the intent of either or both of the parties.” Moss, 77 Wn.2d at 403. There are provisions of the [Consignor 1] Contract that indicate consent and control that may imply agency. For example, the contract states that [Consignor 1] will attend to the details of paying the retail sales taxes collected by Taxpayer, and [Consignor 1] agrees to use only [Consignor 1] approved credit card machines. [Consignor 1] Contract §§ 3(c) and 5. Conversely, though, the contract expressly states that Taxpayer is an independent contractor and [Consignor 1] would not be responsible for any liabilities faced by Taxpayer as a result of performance of the contract. Id.
§§ 12 and 9. We find that the [Consignor 1] Contract does not offer clear evidence of the consent and control necessary to find an agent/principal relationship. Taxpayer’s failure to keep its books and records in accordance with Rule 159, discussed below, also leads us to this conclusion. Thus, Taxpayer has failed to clearly establish that it was an agent of [Consignor 1] under the strict requirements of Rule 159. 6 As an agency relationship was not clearly established with any of the Consignors, it is not necessary to determine whether Taxpayer met the bookkeeping requirements required of an agent required by Rule 159. See Det. No. 16-0243, 36 WTD 467, 478 n.10 (2017). However, in this case, we find it beneficial to address the bookkeeping requirements. Bookkeeping Requirements To comply with the first requirement, the books and records should demonstrate the transactions were made in the name and for the account of the principal and show the name of the actual owner of the property for whom the sale was made. The Department has previously determined that this requirement is satisfied when the receipts indicate the sales are made on behalf of the principal/consignor. See Det. No. 16-0243, 36 WTD 467, 478 n.10 (2017). Taxpayer did not provide the Department with receipts that indicate the retail sales during the Audit Period were made on behalf of the Consignors and not the Taxpayer. Taxpayer argues, however, that the fact that two of the Consignors provided the credit card machines is proof that the sales were made on behalf of the principals. Taxpayer’s argument only addresses who may have had access to the funds and does not directly address the bookkeeping requirements. Additionally, a significant portion of the retail sales during the Audit Period remain unaddressed by Taxpayer’s credit-card machine argument. Taxpayer did not provide books and records to show the transactions were

6

....

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made in the name and for the account of the principal and show the name of the actual owner of the property for whom the sale was made. Likewise, Taxpayer’s books and records did not show the amount of gross sales, the amount of commissions, and any other incidental income derived by Taxpayer from such sales to comply with the second bookkeeping requirement. In fact, it was only during the administrative review following the audit that Taxpayer’s accountant reconstructed the records to attempt to account for the required information. Most or all of the clarifying spreadsheets and accompanying documents were created in support of Taxpayer’s Petition by an accountant who did not work for Taxpayer during the Audit Period. During the audit, Audit Division found that Taxpayer backed out the retail sales tax, which resulted in the retail sales amounts not being reported on the excise tax returns during the Audit Period. Consequently, we agree with the Audit Division that Taxpayer did not keep books and records in accordance with the second bookkeeping requirement of Rule 159. Taxpayer’s failure to meet the three requirements of Rule 159 means that Taxpayer did not overcome the presumption in RCW 82.04.480(1) that it is by law the seller of the tangible personal property. See RCW 82.04.480(2). Unreported and Unremitted Sales Tax When a seller collects retail sales tax from customers, the amount “is deemed to be held in trust by the seller until paid to the department.” RCW 82.08.050(2). Furthermore: if any seller, . . ., having collected the tax, fails to pay it to the department . . ., whether the failure is the result of the seller’s own acts or the result or acts beyond the seller’s control, the seller is, nevertheless, personally liable to the state for the amount of the tax. RCW 82.08.050(3). Sellers are specifically prohibited from appropriating or converting the tax collected to the seller’s own use or to any other use other than remitting the tax to the Department. In Kitsap-Mason Dairymen’s Ass’n v. Wash. Tax Comm’n, the Washington Supreme Court explained the unique nature of the retail sales tax scheme and stated: Inherent in RCW 82.08 is the fact that taxes collected in the name of the state are not property of the seller. It is a misdemeanor to convert taxes collected to one’s own use. The integrity of the entire taxing system demands that funds collected as taxes be remitted to the state. 77 Wn.2d 812, 817, 467 P.2d 312 (1970). Taxpayer collected retail sales tax but appropriated the funds for its own use by remitting the taxes to the Consignors. As such, we uphold Audit Division’s assessment for unreported and unpaid retail sales tax during the Audit Period. 7

Taxpayer made an argument against the substantial-underpayment penalty required by RCW 82.32.090(2) based on its assertion that the Department incorrectly assessed retail sales tax. Having found the tax was properly assessed, it is not necessary to address Taxpayer’s argument against the substantial-underpayment penalty. We do note, however, that the tax assessed is corrected by this determination, and penalties will be calculated against corrected totals. 7

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Additionally, as a seller making retail sales, Taxpayer’s gross proceeds of those sales are subject to the retailing B&O tax. See RCW 82.04.250(1). Audit did not assess retailing B&O [tax], so an adjustment will have to be made on the amount due . . . . See WAC 458-20-230(7)(a).

2. Service and Other Activities B&O Tax
   Audit Division erred in imposition of service and other activities B&O tax on the purported commissions. When a consignee does not prove an agency relationship, it should file excise tax returns as follows:
   •
   •
   •

Report consignment sales under the Retailing B&O tax classification. You cannot take a deduction for consignment sales. Report consignment sales under the Retail Sales tax classification. You do not have to report commissions on such sales.

Special Notice, Tax Reporting for Consignment Sales, issued July 2017 at 2; see also RCW 82.04.480(1); Rule 159. Here, the Consignors made a sale to Taxpayer, and Taxpayer made retail sales in its own name. See RCW 82.04.480(1). Thus, there is no commission income to report. See Det. No. 17-0147, 36 WTD 588, 590-91 (2017). As such, we cancel the portion of the audit that assessed service and other activities tax against commissions. For similar reasons, Audit Division’s imposition of the service tax on the credit card fees collected is also in error. Retail sales tax is imposed on retail sales based on the selling price. RCW 82.08.020(1). “Selling price” is defined by RCW 82.08.010(1)(a)(i) to include, in relevant part:
[T]he total amount of consideration, . . . including cash, credit, property, and services, for which tangible personal property [is sold] . . . whether received in money or otherwise. No deduction from the total amount of consideration is allowed for the following: (A) The seller's cost of the property sold; . . . (B) the cost of materials used, labor or service cost, interest, losses, all costs of transportation to the seller, all taxes imposed on the seller, and any other expense of the seller[.] RCW 82.08.010(1)(a)(i). WAC 458-20-108 (Rule 108) addresses “selling price,” and in the context of credit card service fees, provides the following: Credit card service fees. When a seller allows a buyer to charge purchases on a credit card, the institution that issued the credit card charges a service fee to the seller. The service fee charge is a part of the seller's cost of doing business. Because the service fee is a cost of doing business, the seller may not deduct the fee when determining its B&O tax and retail sales tax liabilities. RCW 82.04.070 and 82.08.010. Rule 108(5). Because the fees are part of the selling price, they are subject to retail sales tax under RCW 82.08.020 and retailing B&O tax under RCW 82.04.250. Thus, we cancel the portion of the audit that assessed service and other activities B&O tax against credit card fees.

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The service and other activities B&O tax should only be assessed against the $. . . for unreported income received by Taxpayer for providing security. RCW 82.04.290(2)(a)(ii)(B).

3. Evasion Penalty
   The Department also imposed the evasion penalty against the unpaid retail sales tax and unpaid service and other activities B&O tax. A fifty percent penalty “must be” imposed when the Department finds that “all or any part of the deficiency resulted from an intent to evade” a tax due. RCW 82.32.090(7). The Department’s rule explains when the application of the penalty is warranted: The evasion penalty is imposed when a taxpayer knows a tax liability is due but attempts to escape detection or payment of the tax liability through deceit, fraud, or other intentional wrongdoing. An intent to evade does not exist where a deficiency is the result of an honest mistake, miscommunication, or the lack of knowledge regarding proper accounting methods. The department has the burden of showing the existence of an intent to evade a tax liability through clear, cogent and convincing evidence. Rule 228(5)(f). As such, there are two elements to establish with clear, cogent, and convincing evidence of an “intent to evade”: (1) knowledge of a tax liability and (2) an attempt to escape detection or payment through deceit, fraud, or other intentional wrongdoing. Id.; Det. No. 13-0329, 33 WTD 156, 158 (2013). Clear, cogent, and convincing evidence has been described as evidence convincing the trier of fact that the issue is “highly probable,” or, stated another way, the evidence must be “clear, positive, and unequivocal.” Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wn.2d 726, 735, 853 P.2d 913 (1993) (citation omitted). There is clear and convincing evidence of Taxpayer’s knowledge of the tax liability. Business or tax experience “tends to undercut or negate the possibility that a taxpayer was unaware that it was required to report and pay taxes.” Det. No. 04-0098, 23 WTD 331, 338 (2004) (internal citation omitted). Here, Taxpayer had business and tax experience, specifically a prior audit, that indicated it was aware or should have been aware it must report and remit the retail sales taxes collected. Taxpayer argues that there is not clear, cogent, or convincing evidence that it intentionally acted to escape detection or payment. We first note that the intentional act could be to escape either detection or payment. See Rule 228(5)(f). An intent to evade the tax exists when a taxpayer willfully fails to remit to the Department the retail sales taxes collected from customers. Rule 228(5)(f)(ii)(B). It is undisputed that notwithstanding the prior audit, Taxpayer collected retail sales tax and still did not remit to the state as obligated. Furthermore, Taxpayer’s excise tax filings are proof of its willfulness to evade detection or payment of the tax. Although Taxpayer asserts that it complied with the law because its intent was to report as a consignee making sales as an agent, that argument is undercut by its filings and recordkeeping. In its audit findings, Audit Division determined Taxpayer backed out retail sales, which obscured the tax liabilities on its excise tax returns. Filing as an agent making consignment sales requires the following:

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Report consignment sales under the Retailing B&O tax classification. A deduction may then be taken when calculating the retailing B&O tax in the amount of the sales. The deduction must be identified on the deduction detail as “Consignment Sales.” Report consignment sales under the Retail Sales tax classification. Generally, the Consignment Seller is responsible for remitting the sales tax to the Department. (However, if the owner of the goods is registered with the Department of Revenue and files excise tax returns, the seller can remit the sales tax to their customer to report to the Department with their excise tax return. In this case, the seller can take a deduction under “Other” then write in the explanation as “Sales tax remitted to owner.”) Report commissions earned from consignment sales under the Service and Other Activities B&O tax classification. Special Notice, Tax Reporting for Consignment Sales, issued July 2017 8 at 1. Taxpayer did not report the consignment sales under the Retailing B&O and then take its purportedly appropriate deduction under consignment sales. Taxpayer did not report the consignment sales under the retail sales tax classification and then take a deduction under Other, nor did it write an explanation of sales tax remitted to owner/Consignors. Instead, Taxpayer backed out the retail sales in its own records. The law requires that taxpayer report the retail sales tax collected whether filing as the seller or the agent. Thus, even under Taxpayer’s misguided argument that it was acting as an agent, it willfully failed to report the collected retail sales taxes. In light of the Department’s published rule that states failure to report and pay retail sales tax collected demonstrates an intent to evade, the evidence demonstrates that the Department has met its burden to show knowledge of a tax liability and the existence of an intent to evade detection or payment of the tax. Once the Department has clearly established the elements of evasion, a burden of production is imposed on the taxpayer to produce evidence of honest mistake, miscommunication, ignorance of law, lack of knowledge, or some other fact that tends to rebut the Department’s evidence. Det. No. 16-0066, 35 WTD 540 (2016). Taxpayer argues that it was honest mistake which caused its failure to remit the collected retail sales tax to the state. Taxpayer asserts its assumption that Consignors would file excise tax returns and pay the retail sales tax it remitted to them alleviated its need to remit the collected taxes to the state. In 33 WTD 156, we upheld an evasion penalty when the taxpayer put forth a similar argument. In that administrative review, the taxpayer argued that the mistake was that it filed in a manner similar to a predecessor-in-interest. However, it was undisputed that, like here, the taxpayer knowingly charged retail sales tax, willfully retained the amounts collected, and consciously did not report them as taxes due when filing its excise tax returns. Id. at 159. Although the reason for the honest mistake is different than in this case, the facts are similar in that Taxpayer collected the retail sales tax, willfully refrained from remitting, and consciously did not report them as taxes due in its Although this Special Notice was issued during the Audit Period, and not prior to, it merely compiled the law and rules and did not alter any taxpayer responsibilities. Additionally, Taxpayer had been made aware of its responsibility for remitting the retail sales tax collected by a prior audit.

8

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excise tax returns. And in that case, we determined that the Department met its burden of proof with regards to the evasion penalty. Finally, Taxpayer asserts that Det. No. 92-133, 12 WTD 171 (1993) stands for a Department policy that payment of a prior evasion penalty does not prove evasion in a latter case. In 12 WTD 171, there were two factors mitigating in the taxpayers’ favor that led us to cancel the evasion penalty. First, the taxpayers sought advice from a tax attorney in their attempt at legal tax avoidance of motor vehicle excise tax (MVET). Id. at 9. Second, because the . . . [taxpayers’] used the motor vehicle at issue only sparingly in Washington, there was clear and cogent evidence that the taxpayers may have been uncertain the MVET was due. Id. For those reasons, a prior evasion penalty imposed on the taxpayer’s failure to pay MVET on a different motor vehicle was not sufficient to again impose the evasion penalty. Id. Here, the mitigating factors are not present. There is no evidence that Taxpayer conferred with tax professionals on how to lawfully comply with Washington’s tax laws. It is also indisputable that Taxpayer was aware of its obligation to report and also remit the retail sales taxes collected. As such, we find that 12 WTD 171 does not provide a rationale for canceling the evasion penalty in this case. Having considered Taxpayer’s evidence, we do not find that Taxpayer has demonstrated an honest mistake, miscommunication, ignorance of law, lack of knowledge, or some other fact that tends to rebut the Department’s evidence. Furthermore, the Department has routinely upheld the evasion penalty where sales tax was collected but not remitted. See Det. No. 13-0329, 33 WTD 156, 159 (2013); Det. No. 14-0268, 33 WTD 637, 641 (2014); Det. No. 04-0098, 23 WTD 331, 339 (2004) (“Any attempt to evade payment of collected retail sales tax is a serious matter.”). Audit Division also imposed the evasion penalty against assessed service and other activities B&O tax. However, there is not clear and cogent evidence of evasion of the tax due on providing security, and we have cancelled assessment of the tax against commissions and credit card fees. Thus, we uphold the imposition of the evasion penalty only as assessed against the unremitted retail sales taxes collected but not remitted. See Rule 228(5)(f)(i) (stating the evasion penalty applies only to the specific taxes that the taxpayer intended to evade). DECISION AND DISPOSITION Taxpayer’s petition is denied in part and granted in part. Dated this 17th day of March 2022.