22 Feb 2008
1 min read

If You Call It Sales Tax, You Must Remit

What happens if something is labeled as tax and is not remitted? Discover how this situation was handled in a Washington case.
Table of contents

A Washington Case

There was a recent case in WA that illustrates an important concept in sales tax. That is, once you have nexus in a state, they can force you to be their agent tax collector. As their agent, you collect taxes in trust, and bear the burden of those taxes until they are remitted.

In this case, the retailer sold nontaxable services and claimed they meant to charge "handling fees". Instead, they labeld the charges as "taxes". Washington audited them and set up the sales as taxable. I say "claimed" because of the following as reported by CCH.

"Under an objective interpretation of the invoice, it was determined that the taxpayer was collecting sales taxes in the name of the state and, therefore, these amounts were held in trust and had to be remitted. The word "tax" was written below the subtotal for services, and this amount used the same rate as the sales tax. Any amount charged and collected as a tax must be remitted to the state."

It seems far-fetched indeed to say, under these circumstances, that this was a "handling" charge.

There is relief for the customers who actually paid this tax. The taxpayer's customers have the ability to claim a refund of the incorrectly collected sales taxes remitted by the taxpayer. Fortunately, for this retailer, the DOR did not charge the fraud penalty.

We have a copy of this case and can send it to you if you would like.


This case from Washington underscores the critical concept in sales tax: once nexus is established in a state, a business can be compelled to act as an agent tax collector, holding and remitting taxes in trust. The lesson here is the importance of precise and accurate labeling in sales transactions to avoid unintended tax obligations. Customers, however, have the opportunity to claim refunds for incorrectly collected sales taxes, providing some relief.
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