Can a Washington funeral home deduct customer reimbursements paid to a commonly owned affiliate from its B&O-tax measure?

Plain-English summary

The Washington Department of Revenue denied a funeral home's B&O-tax deduction for customer reimbursements paid to a commonly owned affiliate. RCW 82.04.4296 permits a funeral home to deduct exact-cost, separately itemized reimbursements for goods or services supplied by an outside person—but expressly excludes a person employed by, affiliated with, or associated with the funeral home.

The taxpayer provided cremation and burial services and advanced expenses such as death certificates, filing fees, embalming, and cremation for its customers. It separately stated the expenses and received reimbursement at cost. The problem was the vendor relationship: the same owner controlled both the funeral home and the service provider. The determination therefore treated the companies as affiliated and associated and held that the special deduction did not apply.

The Department also emphasized Washington's broad B&O-tax base. Gross income generally is taxed without subtracting business costs, so a deduction must fit the statute's conditions. The taxpayer's arguments that the affiliate had already paid tax and that the funeral home earned no profit on the reimbursements did not overcome the affiliate exclusion. The petition was denied.

What this means for you

Funeral homes

Separately stating a third-party cost and passing it through without markup is not enough. For the funeral-home deduction, the supplier must also be outside the funeral home's employment, affiliation, and association. Common ownership or control can defeat the deduction.

Related companies

Washington's B&O tax generally applies to gross income rather than profit. Transactions between related legal entities do not become deductible merely because another entity paid tax or because the receiving company kept no margin. A specific statutory deduction must cover the transaction.

Accountants and tax professionals

Review both the billing mechanics and the supplier relationship. RCW 82.04.4296 and WAC 458-20-153 require exact-cost reimbursement and separate itemization, but those requirements do not cure an affiliated-provider problem.

Common questions

Q: Can a funeral home deduct every exact-cost customer reimbursement?

A: No. The statute covers qualifying amounts advanced for goods or services supplied by a person who is not employed by, affiliated with, or associated with the funeral home.

Q: Did separate itemization make these reimbursements deductible?

A: No. Separate itemization and exact-cost billing were necessary conditions, but the commonly controlled supplier was an affiliate and associate, so the deduction still failed.

Q: Does it matter that the funeral home made no profit on the payment?

A: Not under this determination. Washington measures B&O tax broadly by gross income, and business expenses are not deductible unless a statute supplies a deduction that the taxpayer satisfies.

Q: Is the PDF's headnote itself part of the legal determination?

A: No. The PDF expressly says the headnote is a reader convenience and is not part of the decision. The analysis and disposition control.

Citations and references

• RCW 82.04.080, .090, .140, .220, and .290 (B&O-tax base and related definitions)
• RCW 82.04.4296 (funeral-home accommodation reimbursement deduction)
• WAC 458-20-153(2)(a) (funeral-establishment reimbursements)
• Pilcher v. Department of Revenue, 112 Wn. App. 428, 49 P.3d 947 (2002)
• Rho Co. v. Department of Revenue, 113 Wn.2d 561, 782 P.2d 986 (1989)
• Bowie v. Department of Revenue, 171 Wn.2d 1, 248 P.3d 504 (2011)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 45WTD001.pdf
• Source archive: Volume 45 ZIP (member wtdvol45/45WTD001.pdf)

Original ruling text

Det. No. 22-0218, 45 WTD 001 (March 6, 2026)

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Cite as Det. No. 22-0218, 45 WTD 001 (2026)
BEFORE THE ADMINISTRATIVE REVIEW AND HEARINGS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition
Refund/Correction of Assessment of
...

for )
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)
)
)
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DETERMINATION
No. 22-0218
Registration No. . . .

RCW 82.04.4296; WAC 458-20-153: DEDUCTIONS FROM BUSINESS AND OCCUPATION (B&O) TAX FOR FUNERAL HOMES. A deduction from the measure of B&O tax for customer reimbursement of costs advanced by funeral homes does not apply to goods or services provided by individuals affiliated with the funeral home. 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. Kelly, T.R.O. – A funeral home petitions for review of the Department’s denying deductions from gross income for payments it made to a third party. While the law allows specific deductions for funeral homes’ payments to third parties, it does not allow such deductions for payments to affiliated entities. We deny Taxpayer’s petition. 1 ISSUE Do Taxpayer’s payments to an affiliate . . . for funeral services [qualify as] deductible from the measure of business and occupation (B&O) tax under RCW 82.04.4296 and WAC 458-20-153? FINDINGS OF FACT
. . . (Taxpayer) provides cremation and burial services to clients in . . . Washington and [another state]. Taxpayer sells urns, caskets, and other items to clients. Taxpayer pays outside vendors for related expenses as an accommodation to customers. Commonly accommodated expenses include death certificates, state filing fees, and outsourced embalming and cremation services. Taxpayer separately states these expenses on the customer contract. Customers reimburse Taxpayer for the actual cost billed by the vendor. The Department’s Audit Division (Audit) reviewed Taxpayer’s business activities for the period of January 1, 2018, through December 31, 2021 (Audit Period). During the Audit Period, Taxpayer

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

Det. No. 22-0218, 45 WTD 001 (March 6, 2026)

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reported gross income under the retailing B&O tax classification and service and other activities B&O tax classification. Taxpayer made many of its accommodation payments during the Audit Period to [Affiliate]. Audit disallowed deductions from gross income for payments made to [Affiliate] totaling $. . . , because
[Owner] owns both [Taxpayer] and [Affiliate].
As [Owner] controls both entities, Audit did not believe the law allowed pass-through deductions for the accommodations paid to its affiliate. On May 17, 2022, the Department issued Taxpayer notice of balance due . . . (assessment), which included $. . . of tax and $. . . of interest. Taxpayer timely petitioned for review and disputes the assessment of $. . . of disallowed deductions for customer reimbursement of accommodation costs. Taxpayer does not dispute the assessment of $. . . of deferred sales tax. Taxpayer argues that Washington’s affiliate definition is too broad, that given the affiliate status the accommodation amounts would be subject to double taxation because taxes have already been paid by the affiliate, and Taxpayer would be subject to tax on amounts for which it made no additional profit. ANALYSIS Washington imposes B&O tax upon the privilege of engaging in business activities in this state. The measure of the tax as well as the tax rate vary depending upon the nature (or classification) of the activity. RCW 82.04.220. B&O tax is calculated based on the “gross income of the business.” RCW 82.04.290. “Gross income of the business” is broadly defined and means:
[T]he value proceeding or accruing by reason of the transaction of the business engaged in and includes gross proceeds of sales, compensation for the rendition of services, gains realized from trading in stocks, bonds, or other evidences of indebtedness, interest, discount, rents, royalties, fees, commissions, dividends, and other emoluments however designated, all without any deduction on account of the cost of tangible property sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense whatsoever paid or accrued and without any deduction on account of losses. RCW 82.04.080 (emphasis added). The phrase “value proceeding or accruing” is defined as “the consideration, whether money, credits, rights, or other property expressed in terms of money, actually received or accrued.” RCW 82.04.090. “Business” includes “all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly.” RCW 82.04.140. Under this broad definition, a taxpayer may not deduct any of its costs of doing business from its gross income. See Pilcher v. Dep’t of Revenue, 112 Wn. App. 428, 436, 49 P.3d 947 (2002) (citing Rho Co. Inc. v. Dep’t of Revenue, 113 Wn.2d 561, 570, 782 P.2d 986 (1989)). Thus, unless a specific exemption, deduction, or exclusion applies, all of Taxpayer’s gross income is subject to B&O tax without any deduction for overhead or other expenses.

Det. No. 22-0218, 45 WTD 001 (March 6, 2026)

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RCW 82.04.4296 allows a deduction from the measure of B&O tax for customer reimbursement of costs advanced by funeral homes. Specifically: In computing tax there may be deducted from the measure of tax that portion of amounts received by any funeral home licensed to do business in this state which is received as reimbursements for expenditures (for goods supplied or services rendered by a person not employed by or affiliated or associated with the funeral home) and advanced by such funeral home as an accommodation to the persons paying for a funeral, so long as such expenditures and advances are billed to the persons paying for the funeral at only the exact cost thereof and are separately itemized in the billing statement delivered to such persons. RCW 82.04.4296 (emphasis added). The Department’s administrative rule clarifies RCW 82.04.4296 and states: Reimbursement for accommodation expenditures. Amounts received by a funeral establishment as reimbursement for goods or services provided by persons not employed by, affiliated, or associated with the funeral establishment may be deducted from the measure of the B&O tax if these amounts have been reported as gross income on the funeral establishment's excise tax return. These amounts are deductible if advanced to accommodate the customer and separately itemized on the billing statement or invoice in the exact amount of the expenditure. WAC 458-20-153(2)(a) (emphasis added). However, RCW 82.04.4296 and WAC 458-20-153 do not allow for deduction of customer reimbursements for accommodation expenses if the goods and services are provided by persons “employed by, affiliated, or associated” with the funeral home. An “affiliate” is defined in RCW 82.04.290(2)(f)(i) as, “a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another person.” The law further defines “control” as, “the possession, directly or indirectly, of more than eighty percent of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise.” RCW 82.04.290(2)(f)(ii). Though the definition of “affiliate” in RCW 82.04.290(2)(f) is for the purposes of RCW 82.04.290(2) and does not specifically provide it applies for RCW 82.04.4296, other definitions of “affiliate” and “affiliated” throughout chapter 82.04 RCW are similar, if not identical. See RCW 82.04.29004(2)(a); RCW 82.04.293(3)(a)(i); RCW 82.04.299(1)(f)(ii); RCW 82.04.4292(4)(a)(ii)(A); RCW 82.04.43393(2)(a); RCW 82.04.628(2)(a); RCW 82.32.655(7). 2 In addition, not only are payments to persons affiliated with the funeral home ineligible for deduction under RCW 82.04.4296, but also payments to persons “associated” with the funeral home. “Associated” is defined more broadly than “affiliate.” Where a statutory term is undefined, we generally look to the dictionary to determine the plain meaning of the term. Bowie v. Dep’t of See also Affiliate Definition, Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriamwebster.com/dictionary/affiliate (accessed November 10, 2022). 2

Det. No. 22-0218, 45 WTD 001 (March 6, 2026)

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Revenue, 171 Wn.2d 1, 11, 248 P.3d 504 (2011). Webster’s Dictionary defines “associated” as “joined together often in a working relationship” and “related, connected, or combined together.” 3 In the instant case, . . . the same individual owns both companies and thus the same individual controls both companies. Because Taxpayer is under common control with the entity providing the services, they are affiliated (and associated), and RCW 82.04.4296 does not authorize a deduction in this circumstance. As Taxpayer does not satisfy all necessary conditions, we deny Taxpayer’s petition. DECISION AND DISPOSITION Taxpayer’s petition is denied. Dated this 22nd day of November 2022.

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Associated Definition, Merriam-Webster.com Dictionary,
webster.com/dictionary/associated (accessed November 10, 2022).

Merriam-Webster,

https://www.merriam-