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Business Registration

Business Registration Requirements

Persons engaging in taxable business activity in Washington shall apply for and obtain a tax registration certificate with the Department of Revenue. Business activity creating a registration and/or reporting requirement includes:

  • value of products, gross proceeds of sales, or gross income of the business, from all business activities, totaling $12,000 or more per year;
  • persons required to collect or pay to the Department of Revenue any other tax which the department is authorized to collect (e.g. retail sales tax and commercial vessel tax);
  • persons required to obtain a license or registration subject to the Business License Application procedure provided in Chapter 19.02 RCW. The term "license or registration" means any agency permit, license, certificate, approval, registration, charter, or any form or permission required by law, including agency rule, to engage in any activity (e.g. Vessel Dealer License).

References: Chapters 82.04 and 82.16 RCW, WAC 458-20-101

Registration Process

The Unified Business Identifier (UBI) program simplifies Washington's registration and licensing requirements. Completion of the Business License Application enables the business person to register or apply for licenses with several state agencies, including the Department of Revenue, using a single form.

Business License Applications are available at any participating UBI agency office. The following agencies participate in the UBI program:

Revenue 1-800-647-7706
Secretary of State (360) 753-7121
Licensing (360) 902-3600
Employment Security (360) 902-9399
Labor and Industries (360) 902-5800

Display of Registration

Taxpayers must display the registration certificate in a conspicuous location at the place of business.

References: RCW 82.32.030, WAC 458-20-101

Multiple Locations

A registration certificate is required for each place of business at which the taxpayer engages in business activities.

A taxpayer wishing to report all tax liability on a single excise tax return may request a separate registration certificate for each location. All registration certificates will reflect the same registration number.

A taxpayer desiring to file a separate excise tax return covering a branch location may apply for and receive a separate Revenue registration number. A registration certificate will be issued for each registration number and will represent a separate account.

To obtain a separate registration certificate, Revenue registration number, or additional business license for a new location, a new Business License Application must be completed.

Reference: WAC 458-20-101

Change in Ownership

When a change in ownership or legal entity occurs, a new Business License Application must be completed and filed. The original certificate must be destroyed. Any further use of the prior owner's registration number after closing and final tax reporting is prohibited.

Address/Location Change

If a business moves to a new location or changes its mailing address, the taxpayer must notify the Department of the change. A new registration certificate will be issued to reflect the change.

Tax Return Reporting Frequency

Unless otherwise provided by the Department, a taxpayer shall report and pay taxes due according to the following schedule:

  • Monthly: Over $4,800 annual estimated tax liability
  • Quarterly: $1,050 to 4,800 annual estimated tax liability
  • Annual: Less than $1,050 annual estimated tax liability

The Department regularly reviews the frequency status of tax registrations and notifies taxpayers when changes are necessary. Taxpayers can also request a change of reporting frequency, although the Department must approve the change for it to be effective. The Department will provide at least 30 days advance written notice before your filing frequency is changed.

Reference: WAC 458-20-101

When to File a Tax Return

Small businesses may be relieved from filing tax returns when they meet certain requirements. Although these businesses are not required to file a tax return they still must register their business. Businesses meeting the requirements listed below may request to be put on an active nonreporting status. Also the Department may convert qualifying taxpayers to this status and inform the taxpayers of such action. Businesses assigned a non-reporting status must review their records once a year to ensure compliance with the Department's reporting methods.

Businesses will be exempted from filing tax returns if they meet the following requirements:

  • Business activity does not require sales tax to be collected.
  • Gross income or value of products sold, subject to business and occupation tax, is less than $28,000 per year.
  • Gross income or value of products sold, subject to Public Utility Tax, is less than $24,000 per year, and
  • No other tax or fee is required to be collected or paid to the Department of Revenue.

References: WAC 458-20-101 and WAC 458-20-104

Reseller Permits & Resale Certificates

Reseller Permits (Effective 01/01/2010)

Effective January 1, 2010, the resale certificate was replaced with a reseller permit issued by the Department of Revenue.  Reseller permits are free and are issued to businesses that make wholesale purchases, including qualified repair businesses. The permits allow businesses to purchase items or services for resale without paying retail sales tax.

How do I get a reseller's permit?

Apply online.

How long is a reseller permit valid?

The length of time a permit is valid will depend on when a business registered with the Department:
Businesses registered:

  • before January 1, 2009, will get a permit valid for 4 years.
  • on or after January 1, 2009, will get a permit valid for 2 years that can be renewed for 4 years.


Resale Certificate (valid through 12/31/09)

What is it? 

A resale certificate is a separate piece of paper or card given by a buyer to a seller of tangible personal property which says the goods:

  1. Are for resale in the regular course of business, without intervening use; or
  2. Will become a component of goods being resold in the regular course of business; or
  3. Are chemicals used in processing an article produced for sale.
  4. For use as feed, seed, seedlings, fertilizer, or spray materials in its capacity as a farmer

What is on a resale certificate?

The resale certificate states the buyer's:

  1. Name
  2. Address
  3. Type of business
  4. Tax Registration/UBl number (if required to be registered in Washington)
  5. Type of goods purchased
  6. Effective date
  7. Signature of the authorized buyer
  8. A statement about being responsible for the purchase and understanding the 50% penalty for misuse
  9. Name of the seller

If no certificate

  • The seller must receive a resale certificate for goods purchased for the reasons listed above or charge retail sales tax on the purchase.

When received

  • The resale certificate must be received at the time of sale. Certificates received after the sale may not be accepted during an audit.

Are faxed certificates acceptable?

  • A seller may accept a facsimile copy of a resale certificate, but should get an original as soon as possible.

Tax Registration/UBI number on invoice

  • The tax registration/UBI number on an invoice is not sufficient. The seller must receive a signed certificate.

Update/how long to keep/retention

Blanket resale certificates are valid for as long as the buyer and seller have a recurring business relationship.  A “recurring business relationship” means at least one sale transaction in a twelve month period.

Single use resale certificates are valid for a single transaction between buyer and seller.

Sellers must retain copies of resale certificates on file for 5 years from the date of sale.

Possible reclassification of sale

  • During an audit, failure to have a valid, current resale certificate on file may result in the reclassification of the sale from Wholesaling to Retailing B&O tax by the auditor. This will cause the business to owe the retail sales tax for that sale.


Washington Administrative Code (WAC) 458-20-102
Excise Tax Advisory (ETA) 3005.2009 (pdf)



Retail Sales Tax

Retail Sales Tax - State and Local

Retail sales tax applies to the selling price of taxable transactions and must be separately stated on the billing to the customer.

Reference: RCW 82.08.040

When a Retail Sale Occurs

Sales tax is imposed when tangible personal property is sold and delivered from the seller to the buyer (consumer). Additionally, sales tax applies when retail services are performed for or provided to a consumer, including the improvement or repair of real or personal property, amusement and recreational activities and certain other services and activities.

Reference: RCW 82.04.050

Who Collects Retail Sales Tax

Sales tax shall be paid by the buyer to the seller, and each seller shall collect from the buyer the full amount of the tax. Vessel brokers and dealers are defined as sellers under RCW 82.08.050. Therefore, brokers/dealers are required to collect and remit sales tax to the Department of Revenue with their returns.

Question 1: Is a Washington dealer/broker required to collect sales tax if a boat is delivered to a Washington resident at an out-of-state location?

Answer 1: The seller, agent or broker is not required to collect Washington sales tax when delivery is made (delivery occurs) at an out-of-state location. Sellers must maintain documentation of out-of-state delivery. Refer to Out-of-State Delivery Sales.

Question 2: Are escrow agents required to collect and remit sales tax?

Answer 2: No. The vessel broker or dealer is considered the seller and is the one responsible for the collection and remittance of the sales tax. Generally, an escrow agent is not required to collect and remit sales tax because they are not defined as a "seller" under RCW 82.08.010.

Question 3: When a third-party acts as a closer in a vessel sale and collects and remits sales tax on the sale at the time of registration, is the vessel dealer/broker relieved of the tax collection liability?

Answer 3: If the vessel dealer/broker can document conclusively that another party has collected and remitted the correct amount of sales tax to the Department of Revenue, the dealer/broker will not be held responsible for the tax.

However, if the closing agent that is acting as an agent of the vessel broker/dealer pays use tax to the Department of Licensing (instead of sales tax to the Department of Revenue) and this results in an underpayment of tax, the vessel dealer will be held responsible for the underpaid tax.

Retail Sales Tax Rates

Brokers/Dealers must collect sales tax based on the sales tax rate for the place of sale.

The Department mails businesses a quarterly location code sheet that lists all local jurisdictions, their location codes, and the current local tax rates. If you are unsure about which local code should be used, take advantage of the Departments Tax Rate Lookup Tool (GIS) lookup feature.

Place of Sale

With regard to sales of watercraft, the place of sale is the place at which or from which delivery of the goods is made to the buyer.  Please note that vessel sales are specifically excluded from destination based sales tax.

The location of a third party closer does not affect the place of sale.

Example: The dealer or broker and vessel are located in Seattle. An Anacortes resident purchases and takes delivery of the vessel in Bellingham. The current Seattle sales tax rate is collected on the sale of the vessel because the origination of the vessel was Seattle.

Out-of-state sellers:

When the vessel is delivered into Washington from a point outside the state and a local in-state facility, office, outlet, agent or other representative (even though not formally characterized as a "salesperson") of the seller participates in the transaction in some way, such as by taking the order, then the location of the local facility, etc., will determine the place of sale for purposes of the local sales tax.

However, if the seller, the seller's agent or the seller's representative maintains no local in-state facility, office, outlet or residence from which business in some manner is conducted, the local tax must be determined by the location of the customer.

Reference: WAC 458-20-145

Freight and Delivery Charges

Freight and delivery costs charged to the buyer are considered part of the selling price. These charges are subject to the retail sales tax and B&O tax.

Sales Tax Exemptions

Various exemptions and deferrals to retail sales tax exist.

Use Tax

Use tax is imposed for the use of goods in Washington where sales tax has not been paid. Goods used in this state are subject to either the sales or use tax, but not both, regardless of where or from whom the property was purchased or acquired.

References: Chapter 82.12 RCW and WAC 458-20-178

When Use Tax is Due

Use tax applies at the time of first use within this state if retail sales tax was not due at the time of acquisition.

If goods were acquired in a manner where sales tax should have been paid, but was not paid, deferred sales tax is due instead of use tax.

Amount Subject to Use Tax

Generally, use tax applies to the fair market value of the goods when they are first put to use in Washington. The use tax applies to the value of the article used which as of June 1, 2002 includes any charges paid to the seller for freight, delivery or shipping. (WAC 458-20-110)

First use will generally be considered the time at which property first comes to rest in Washington (e.g., moorage location). Items which are purchased without payment of the retail sales tax and are immediately put to use in Washington are generally subject to the use tax measured by the purchase price. The purchase price includes any freight, shipping and delivery charges paid to the seller.

For use tax purposes, the value of the goods is the current fair market value when use occurs prior to entering Washington. When the item is used immediately in Washington upon purchase outside this state, the taxable value is generally the purchase price. In some instances, the purchase price does not represent fair market value. In such cases, the taxable value will be adjusted upward to reflect the fair market value. Value is generally determined by comparison of selling price to similar products of like quality and character, valuation guides, or appraisal of the property.

The value subject to use tax for vessel dealers and vessel manufacturers for their intervening use of a vessel held exclusively for sale is the fair rental value of the vessel for the time of such intervening use.

References: WAC 458-20-178, RCW 82.12.802

Sales or Use Tax Previously Paid

When tangible personal property is purchased and used out-of-state and sales or use tax has been paid at the location where the purchase occurred, a dollar-for-dollar credit may be taken to reduce the amount of use tax liability incurred in Washington.

Reference: RCW 82.12.035

Rate of Use Tax

Like retail sales tax, use tax is a combination of state and local rates. The Department mails to businesses a quarterly location code sheet that lists all local jurisdictions, their location codes and the current local tax rates.

Intervening/Personal Use

Property purchased without payment of sales tax is subject to use tax (or deferred sales tax) when there is intervening use of the property as defined in the glossary even if such property is subsequently sold.

Use Tax on Supplies

Use tax (or deferred sales tax) applies on items of tangible personal property acquired without payment of sales tax for which there is intervening use. This is true even when the cost for the property is itemized or subsequently billed to the customer. Examples include such items as shop rags and masking tape.

Use Tax on Display Merchandise

Use tax does not apply "to the brief and superficial use which occurs when articles held for sale are displayed in single trade shows (boat shows, home shows, auto shows, agricultural fairs, conventions, etc.) for short periods, or are used in floor or window displays, and are then sold as new merchandise. As a general guide, such articles will be deemed to have been substantially used, and subject to the use tax, when carried in the taxpayer's books of account as demonstrator or display merchandise, or when so extensively used for demonstration or display purposes that they can no longer be sold as new merchandise."

Reference: ETA 3005

Reporting and Paying Use Tax

Use tax on property required to be licensed (i.e., vehicles and vessels) will be collected at the time of licensing or registration. It is important to note that tax use tax is paid in this way only when the property is acquired in a way that Washington sales tax does not apply.

Generally, consumers should pay use tax on unlicensed property on their Excise Tax Return (if they are a registered businesses) or by using a Consumer Use Tax Return (if they are an individual). Some out-of-state sellers will collect and remit Washington use tax from customers. The buyer should maintain documentary evidence of the use tax payment.

Use tax applies if a vessel is acquired in a way that sales tax did not apply. This may include any vessel acquired outside of Washington, or a vessel purchased from a private party in a transaction that did not involve a vessel broker. Since vessels are required to be licensed, in these situations the use tax is paid to the Department of Licensing upon registration.

Vessels and Nonresident Individuals Tax Exemptions and Use Permit

This discussion explains the new one-year retail sales tax exemption for certain vessels purchased in this state by nonresident individuals. A comparable use tax exemption is also available for vessels brought into this state by nonresident individuals. (RCW 82.08.700 and RCW 82.12.700)

Vessels Purchased in Washington by Nonresident Individuals

  • Vessel purchased from a licensed dealer
    A nonresident individual may purchase a vessel 30 feet or longer without paying retail sales tax if they purchase a use permit from the dealer.
  • Vessel purchased from a licensed dealer
    A nonresident cannot first purchase a qualifying vessel in this state from one dealer and then later purchase a use tax permit from another dealer.  RCW 82.08.700 does not allow a nonresident individual who purchases a vessel 30 feet or longer from a vessel dealer to separately purchase a use permit from another vessel dealer.  The purchase of the vessel and the purchase of the use permit are to occur at the same time.  A purchaser at the time of purchase must make an irrevocable election to purchase the use permit or to take the exemption in either RCW 82.08.0266 (for residents of other states) or 82.08.02665  (for residents of foreign countries), both statutes provide (1) the vessel will not be used within this state for more than forty-five days and (2) an appropriate exemption certificate supported by identification as required by the department of revenue and signed by the purchaser or the purchaser's agent establishes the fact that the purchaser is a resident of a foreign country and that the vessel is for use outside of this state. A copy of the exemption certificate is to be retained by the dealer.
  • Vessel purchased by nonresident entities (non-natural persons)
    Use permits cannot be obtained for vessels owned by nonresident entities, such as, corporations, limited liability companies, trusts, partnerships, etc.
  • Vessel purchased from a private party
    A nonresident individual may purchase a vessel 30 feet or longer in Washington from someone other than a vessel dealer (for example, a private party sale) and claim the new use tax exemption, if they purchase a use permit from a licensed dealer within 14 days of the vessel purchase.

Nonresident Individuals Bringing a Vessel into Washington

A nonresident individual who acquired a vessel of 30 feet or longer outside Washington may also purchase a one-year use permit. The nonresident individual must, however, purchase a one-year use permit from a licensed vessel dealer within 14 days of first entering the state with the vessel.

Purchasing a Permit

When purchasing a use permit from a Washington-licensed vessel dealer that has also sold the vessel to the nonresident at the sale time, the nonresident individual must:

  • Show proof of current nonresident status (i.e., driver’s license),
  • Make an irrevocable election to take the exemption and purchase a 12-month use permit,
  • Complete an affidavit for the vessel dealer; and
  • Display the use permit on the vessel for which it is purchased.
  • The cost of the use permit is:
  • $500 for vessels 50 feet and less
  • $800 for vessels greater than 50 feet.

Use permits are valid for 12 consecutive months and may not be renewed.

Before the use permit expires, the vessel must be removed from Washington waters for a minimum of 24 months.

Vessel Dealer Requirements

Vessel dealers are not required to sell these use permits. However, a dealer who chooses to sell the permits to nonresidents purchasing vessels from them must also sell the permits to nonresidents who bring their vessels into the state.

When selling a use permit, a vessel dealer must:

  • Examine one piece of photographic ID to ensure the individual qualifies as a nonresident;
  • Identify the expiration date on the use permit (decal) using a permanent marking pen; and
  • Obtain a completed affidavit from the nonresident individual.

The vessel dealer must make two copies of the affidavit. The vessel dealer must give one copy to the nonresident individual and keep the other copy with the dealer’s business records. The vessel dealer must mail original affidavits to the Department of Revenue on a quarterly basis.

Dealers will remit permit fees collected to the Department with their excise tax returns that must be filed electronically.
Licensed Vessel Dealers may obtain use permits and affidavits by contacting Taxpayer Account Administration at (360) 902-7169 or (360) 902-7046..

Boat Sales - Dealers and Brokers

Boat Dealer

A boat dealer is one who is engaged in selling boats owned by the dealer.

Boat Broker

A boat broker is a person who, for a commission or fee, brings buyers and sellers together and assists in negotiating transactions between them.

Reference: WAC 458-20-159

Reporting Requirements

Reporting requirements of dealers selling vessels they own differ somewhat from that of brokers selling vessels owned by others.

Dealers making retail sales to consumers report under the retailing B&O tax classification and collect retail sales tax.

Dealers selling boats for subsequent resale (without intervening use by the buyer) may accept a valid resale certificate (through 12/31/09) or a reseller permit (effective 01/01/2010) from the wholesale buyer. In this case, the sale is reported under the wholesaling B&O tax classification and sales tax is not collected.

Brokers report their commissions under the service and other activities B&O tax. They may also have other reporting requirements based on the following:

Brokers selling property in their own name report such sales under either the retailing or wholesaling classification B&O tax (based on whether a valid resale certificate/reseller permit is received) on the full amount of the sale (selling price).

Brokers that make retail sales of property in the name of the boat owner and who maintain records distinguishing such transactions in accordance with WAC 458-20-159 (Consignees, bailees, factors, agents, and auctioneers), must report such income under the retailing B&O tax classification. Sellers in this case are allowed to take a deduction under the retailing classification for the same amounts (identify as "income reported as an agent"). The net effect is that only the commission income will be subject to the Service business and occupation tax.

In addition, these brokers must report sales to consumers under the retail sales tax classification (or the use tax classification if there was no instate participation in the sale).

Where the boat owner is otherwise engaging in business in this state and has a tax registration with the Department of Revenue, the broker may pay the collected sales tax to the boat owner who would be responsible for remitting it to the Department. In this case, the broker could take a deduction from retail sales tax for such charter income, identify as "sales tax reported by owner". See WAC 458-20-159.

In all cases, for the Department to recognize a valid broker or agent relationship, the books, records, and sales contracts or agreements must meet the conditions explained in WAC 458-20-159. These conditions are:

  • The books and records of the broker show the transactions were made in the name and for the actual 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; and
  • 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.

Exceptions to the Sales Tax Collection Obligation

Brokers will be relieved from liability for the collection of the sales tax from buyers in those cases where they receive a commission on the sale and the entire transaction is closed directly between the owner and the buyer, and such sales are reported to the Department via the broker's Transaction Report. After receiving compensation from the transaction, brokers have 10 days to report the sale to the Department. This provision applies to both listing brokers and selling brokers.

Brokers need to maintain in their records a copy of the Report of Sale, listing agreement, Department of Licensing records of purchase (per RCW 88.02.210 and 220), title documents or other such documents to be relieved of sales tax collection obligation.

NOTE: Sales which close in the presence, control or knowledge of the selling broker who receives compensation from the sale are not exempted from the obligation to collect retail sales tax.

Broker Sales and Trade-Ins

Valid like-kind trade-ins reduce the measure of the retail sales tax when the owner or the broker/dealer accepts the traded-in property as payment or consideration.

Out-of-State Brokers

Brokers located outside of Washington, but with Washington nexus, must register and report in the same manner as in-state businesses.

Reference: WAC 458-20-193


Co-brokering means a sale which is facilitated between two or more boat brokers. The commission fee is taxed according to the pre-determined conditions of the listing agreement.

When no special commission splits/arrangements (either by percentage or set dollar amount) are authorized by the owner prior to the time of granting authority to sell as a broker, the person entitled to the commission pursuant to the listing agreement must pay B&O tax on the full amount of the commission even if they subsequently disburse a portion of the funds to another broker outside of contract requirements. (See co-broker example below.) (Chapter 82.04 RCW)

For tax purposes, the owner of the boat must authorize a split commission in order for the listing broker to report only the actual amount of commission retained. An example of suitable language for listing agreements that authorizes a split commission is:

If a cooperative Brokerage situation occurs, whereby the Listing Broker is not the Selling Broker, the Owner agrees to pay the Listing Broker and the Selling Broker a total commission, not to exceed XX percent (XX%) of the gross selling price of the vessel. The commission split shall be determined at the time of negotiating the sale. This agreed commission split shall be disclosed in writing, and this written disclosure shall become a part of this Agreement. These fees shall be paid directly to each independent Broker at the time the sale is closed.

Co-Brokers and Retail Sales Tax

Generally, either the listing broker or the selling broker can be responsible for collecting and remitting the sales tax on a boat sale due to the cooperative nature of their relationship to the sale. See Broker's Transaction Report sample at the end of this section.

Reference: WAC 458-20-221

Co-Broker Example

Example: Broker A is the listing agent for a $100,000 motor boat. Broker B has a buyer for the vessel and therefore becomes the selling agent. Both Brokers are located in Washington. The listing agreement/contract and any amendments authorizes Broker A to enter into co-brokerage agreement with other Brokers to facilitate the sale of the vessel. In this example, the percentages which may be negotiated are specified, in this case 7% for Broker B and 3% for Broker A (a total of 10% of the selling price). XYZ Title Services handles the documentation and disburses funds. Broker B receives a commission for $7,000 and Broker A gets $3,000.

Each broker reports the commission they each actually retain.

Vessel Repairs by Brokers

At times a broker will make repairs or have others make repairs to an owner's vessel. A broker may use a resale certificate (through 12/31/09) or a reseller permit (effective 01/01/2010) to make these purchases. In such situations, the broker must collect retail sales tax from the selling watercraft owner for the amount of the repairs. The fact that the watercraft will be sold to a new owner, who pays sales tax on the watercraft purchase price, does not relieve the seller from the obligation to pay sales tax on the repairs.

An exception would apply if the prior owner was a licensed and registered vessel dealer authorized to purchase for resale. In this event, they must provide the broker with a valid resale certificate/reseller permit.


Bare Boat Charter

A bare boat charter occurs when a vessel is rented or leased to others and total dominion and control is provided to the customer. This means that the boat owner or the charter business cannot provide a captain or crew or otherwise be present on the vessel during the charter.

Vessel owners can place some general restrictions on vessel operation, such as requiring the lessee to hire a licensed skipper, limiting the number of passengers on board, and limiting where the vessel can be operated. To avoid a tax liability for intervening use, the boat owner cannot be on board as a skipper, crew member, or a guest.

Reference: WAC 458-20-211

Lease or Rental

The terms "leasing" and "renting" are used interchangeably and refer generally to the act of granting to another the right of possession to, and use of, tangible personal property for consideration.

Tax on Boats Purchased Bare Boat Charter

Vessels purchased solely for bare boat charters are for purchases for resale and are exempt from sales tax.

Sellers must retain a resale certificate/reseller permit (effective 01/01/2010) in their records documenting the exempt sale.

The purchaser will be subject to use tax (based on the total value of the boat) if they engage in intervening use of the boat. Charter boat owners or businesses are not treated as vessel dealers. Therefore, intervening use of a charter boat is subject to tax on the full value not the rental value.

NOTE: Intervening use does not include activities in support of a bare boat charter business such as bona fide maintenance, fueling or delivery activities. Such activities will not trigger use tax liability. This is consistent with "dealer use" as identified in Section 7.

Purchaser Requirements

Purchasers of documented vessels for bare boat charter are generally required to register the vessel with the Department of Revenue, Special Programs Division and obtain a business registration from the Department of Revenue, Excise Tax Division.

Bare Boat Charter Tax Reporting

Typically, charter businesses operate in one of two ways. The following scenarios represent the most common business methods and how the activities are reported.

1. Company A leases boats from their owners then sub-leases them to the public.

  • Company A collects and remits sales tax on bare boat charter fees and reports their gross receipts under retailing B&O tax.
  • Vessel owners report wholesaling B&O tax on gross income from the lease to Company A.
In the above scenario, the owner may lease back the vessel from Company A, and pay sales tax on the fair market rental rate consistent with other consumers.

2. Company B is an agent (but not lessee) for the vessel owner and provides charter management services.
  • Company B collects and remits sales tax on the bare boat charter fees and reports its commission earned under the service and other activities B&O tax classification. The charter fees are reported under the retailing B&O tax classification, however, a deduction is allowed as "Other - Consignment Sales" on the deduction page of the Excise Tax Return.
  • When Company B acts as an agent for a vessel owner, the owner cannot use the vessel without incurring a use tax liability. Additionally, the owner may not allow employees of the owner to use the vessel for their pleasure at no charge, or for a charge below fair market value. This will be considered intervening use by the owner.

References: WAC 458-20-159, WAC 458-20-178


The charter boat owner may personally use the boat and not owe use tax based on the value of the boat is only under the following circumstances: at the time of purchase or first possession in this state (if acquired out of state), the owner must immediately lease the boat to a third party on a long term basis. The owner/lessor may then lease back the boat for shorter periods of time. In this case, the owner pays sales tax (to the third party) based on the fair rental value for the period of personal use.

In this case, the boat owner can use a resale certificate (through 12/31/09) or a reseller permit (effective 01/01/2010) to purchase the boat. The owner would then lease the boat to the third party (obtaining a resale certificate/reseller permit from the third party).

The boat owner would report income from leasing the boat to the third party under wholesaling B&O tax.

The third party would report its income under retailing B&O tax and retail sales tax.

Skippered Charters

A skippered charter is the rental of a vessel with a captain and/or crew. The purchase of a vessel for skippered charters is subject to sales tax. A resale certificate/reseller permit cannot be used to purchase of vessels for skippered charter. (See resale certificate/reseller permit sections.)

Charter Boat Repairs

Parts and labor for the repair and maintenance of charter vessels are taxed in the same manner as the vessel to which they are affiliated. If a vessel is operated for bare boat charter, the vessel was tax exempt at time of purchase. Therefore, repair/maintenance charges will also be considered to be purchased for resale, and exempt from sales tax.

Charter Examples

Example 1: John Doe purchased a vessel which will be rented to others as a bare boat rental. The rentals will be arranged through an agent at a marina.

This is not a leaseback situation. If it is anticipated that the boat owner will occasionally use the boat for personal pleasure, a resale certificate/reseller permit cannot be used to purchase the boat. Just because an agent is used to arrange charters, does not make this a leaseback situation.

Example 2: Jane Smith purchases a vessel to create a bare boat charter business and immediately signs an exclusive lease agreement with WWW Charter Company. WWW Charters sub-leases the vessel to members of the public. Ms. Smith occasionally rents the vessel from WWW for the same rate and terms as anyone else.

This is a leaseback situation. The vessel may be purchased by Ms. Smith with a resale certificate (through 12/31/09) or a reseller permit (effective 01/01/2010).

Timeshare transactions are treated in the same manner.

Dealer Use and Demonstration

Registration Required

A vessel dealer must register with the Department to operate as a business. See Business Registration for more information.

The dealer must also be licensed and certified by the Department of Licensing. The Department of Licensing will issue a dealer license number and decals to use in operating inventory vessel which have a month and year expiration date. The license and decals are not to be permanently affixed to a vessel.

References: RCW 82.32.030, RCW 88.02.023, WAC 458-20-101, WAC 308-90-70

Inventory Purchases

Vessel dealers may purchase items for resale without paying retail sales tax. To make tax exempt purchases for resale, the buyer must regularly engage in selling the type of property purchased and be registered with the Department of Revenue. (See resale certificate/reseller permits statement in Section 2.)

CAUTION: Improper use of resale certificates or reseller permits for purchases shall result in a penalty of 50% of the tax due on the item(s). Plus other penalties and interest.

Reference: WAC 458-20-102

Tax on Dealer Use of Inventory

Any purchase of tangible personal property for use by the dealer as a consumer is subject to deferred retail sales or use tax.

"If a vessel held in inventory is used by a vessel dealer or vessel manufacturer for personal use, use tax shall be due based only on the reasonable rental value of the vessel (based on the number of days used), but only if the vessel dealer or manufacturer can show that the vessel is truly held for sale and that the dealer or manufacturer is and has been making good faith efforts to sell the vessel. The Department [of Revenue] may by rule require dealers and manufacturers to provide logs or other documentation showing that vessels are truly held for sale."

References: RCW 82.12.800 - 802

When Use is Permitted

Use tax shall not apply to the following uses of a vessel by a dealer registered under Chapter 88.02 RCW:

a) Activities to test, set-up, repair, remodel, evaluate, or otherwise make a vessel seaworthy, if the vessel is held for sale;

b) Training activity of a dealer's employees, agents, or subcontractors involved in the sale of the dealer's vessels, if the vessel is held for sale;

c) Activities to promote the sale of the dealer's vessels, to include photography and video sessions to be used in promotional materials; traveling directly to and from promotional vessel events for the express purpose of displaying a dealer's vessels for sale, provided it is displayed on the vessel that it is, in fact, for sale and the identification of the registered vessel dealer offering the vessel for sale is also displayed on the vessel;

d) Any vessel loaned or donated to a civic, religious, nonprofit, or educational organization for continuous periods of use not exceeding 72 hours, or longer if approved by the Department; or to vessels loaned or donated to governmental entities;

e) Direct transporting, displaying, or demonstrating any vessel at a wholesale or retail vessel show;

f) Delivery of a vessel to a buyer, vessel manufacturer, registered vessel dealer as defined by RCW 88.02.010, or to any other person involved in the manufacturing or sale of that vessel for the purpose of the manufacturing or sale of that vessel; and

g) Displaying, showing, and operating a vessel for sale to a prospective buyer to include the short-term testing, operating, and examining by a prospective buyer.

Also currently qualifying for exemption from use tax are: trailers or other similar apparatus used to transport, display, show, or operate a vessel, which is held for sale.

These lists assume that use is limited to the stated purpose. Examples of "use" which may be disallowed in an audit or investigation are:

  • operating an "employee training" session during a sporting event;
  • stopping overnight at an island resort before returning an inventory vessel to it's storage location;
  • conducting sea trials or operating tests which include activities or ports of call above and beyond testing needs; and/or
  • "fueling" a vessel on a holiday then participating in festivities before returning.
With these types of activities, the specifics of each situation will determine the application of tax on a case by case basis.

NOTE: Vessel dealer decals shall only be used to demonstrate vessels held for sale when operated for a prospective customer holding a dated demonstration permit, and shall be carried in the vessel at all times it is being operated by such individual.

References: RCW 88.02.023, RCW 82.12.800 - 802

Documenting Valid Dealer Use

A number of records are available to document exempt use of inventory vessels. Examples can include vessel logs, earnest money agreements and demonstration permits.

Demonstration permits must be dated and carried on board when a prospective buyer is being shown the vessel offsite.

NOTE: RCW 88.02.023 (2) states that vessels may be used for dealer business, by an officer of a corporation, or proprietor, or by a bonafide employee of the firm if a card so identifying any such individual is carried during the time the vessel is operated. This is a Department of Licensing exemption and does not provide an exemption for sales or use tax.

Dealer Use Examples

Example 1: XYZ Yacht Manufacturer has scheduled the annual "rendezvous" for owners and potential buyers at Port Angel, a popular resort area. The manufacturer will not be displaying any vessels but will organize some training sessions and social events. The local dealer of XYZ Yachts has decided to display three inventory vessels at Port Angel during the rendezvous with hope of encouraging current owners to "buy up", or to "hook up" with potential buyers. The largest of the vessels has an office set up in it for business activities and the employees will all sleep in another vessel.

All three vessels were moved directly from moorage to the display location. Because one vessel is used as a business office and another provides living accommodations, use tax is due on these two based on the market rental value. The third vessel is merely displayed and/or demonstrated to potential buyers and is not taxable.

Example 2: During Neptune Days in the area, many vessel dealers "lend" inventory to media for broadcasts during the model sailboat races. This activity results in free publicity for the dealer. The vessel is subsequently sold as new to a buyer.

The dealer owes use tax on the rental value of the vessel. Although the dealer did not use the vessel directly, they owe tax as the bailor of the boat. Taxable "use" was created with the dealer loaned the boat to the media.

Miscellaneous Income

Other Income

Miscellaneous fees and charges should not be overlooked. Even though these revenues are not directly associated with a broker or vessel dealer's primary business, they may still constitute taxable income for tax purposes. Identified below are some examples of broker or dealer activities that may create miscellaneous income that is taxable.

Marine Survey Fees

Charges for a marine survey only, with no repairs, are reported under the service and other B&O classification. If a repair is performed in conjunction with the survey, the entire charge will be subject to retailing B&O and retail sales tax. Repairs performed for a customer providing a valid resale certificate (through 12/31/09) or a reseller permit (effective 01/01/2010), are reported as wholesale sales, subject to the wholesaling B&O tax.

Advances and Reimbursements

An advance or reimbursement deduction from gross sales applies when the customer or client alone is liable for the payment of the fees or costs and when the broker/dealer making the payment has no personal liability for these payments, either primarily or secondarily, other than as agent for the customer or client. Examples would include title or conveyance fees, registration fees and license fees.

Reference: WAC 458-20-111

Freight and Delivery Charges

Generally, freight and delivery charges are part of the selling price. See WAC 458-20-110 for additional information.

Financing Fees, Penalties and Interest

Interest for financing sales, accounts receivable, late payments, or other penalties, are subject to the service and other B&O tax classification. Interest related to a lease payment is an exception. Amounts categorized as interest in a lease payment are generally taxable as part of the total lease payment under retailing B&O and retail sales tax classifications on leases to consumers.

References: WAC 458-20-109, WAC 458-20-211

Finder Fees

Finder fees are taxable under the service and other B&O tax classification. This fee is taxable even though the other broker/dealer may have reported the gross commission received.

The selling broker generally reports the full commission received and cannot deduct the portion paid to the "finder" for the referral. The "finder" making the referral must report the fee they receive from the selling broker/dealer.

Joint or Multi-State Finder Fees

If the selling broker is located in another state or country and does not render services in Washington, the commission earned by the selling broker is not taxable in this state. However, if the referring broker is located in Washington and provided services in Washington which contributed to the sale, then the referring broker's portion of the commission is taxable.

Launch Fees

Fees for the use of a boat launch facility or ramp are taxable under the service and other B&O tax classification.

Moorage and Storage

The taxability of moorage and storage fees is dependent on the rental agreement contract. The rental of a boat moorage slip is considered to be a rental of real estate (exempt from excise tax) if a specific space, slip, or site is assigned and the rental is for a period of 30 days or longer. Rental fees for less than 30 days, or unassigned moorage for any period of time, are taxable under the service and other activities B&O classification.

The same applies to a mini-storage type of facility which moors or store boats.

Reference: WAC 458-20-118


Charges to customers for supplies and other consumable items are subject to retail sales tax even though the dealer paid sales or use tax at the time of purchase or acquisition. Since the items are used before sale to the customer (intervening use) they do not qualify for the resale exemption. See section 4, use tax on supplies.

Casual Sales

A casual sale is a sale of tangible personal property by a registered taxpayer who does not normally sell the type of property involved.

B&O tax does not apply to casual sales. On sales to consumers, the amount of the sale must be reported under the B&O tax, but a deduction may be taken on the deduction detail sheet for casual sales.

The retail sales tax must be collected on all casual sales made to consumers by businesses registered with the Department of Revenue.

References: RCW 82.04.040, WAC 458-20-106

Casual Sale Example

A vessel dealer upgrades their computer system and sells the old computer to an employee. The dealer is not in the business of selling computers, therefore, no B&O tax is due.

The dealer must charge the employee retail sales tax on the selling price of the computer.

Commercial Vessels

Personal Property Tax

Commercially operated vessels exempted from the Watercraft Excise Tax are subject to the state school levy portion of the personal property tax. Vessels used exclusively for commercial fishing purposes and U.S. Coast Guard documented vessels used primarily for commercial purposes such as charter and time-share boats, tugs and barges are subject to this tax. The tax rate is limited to no more than $3.60 per one thousand dollars ($1,000) of market value.

Vessel Listing Requirements

Vessels subject to the personal property tax are listed with and assessed by the Special Programs Division of the Department of Revenue. All vessels are taxable for the entire year unless they are apportionable. Through apportionment, an owner may deduct those days the vessel is out of state. They may also deduct those days that the vessel is in state exclusively for repairs. The tax is a personal property tax and is based on the status of the vessel in the state. It is not based on use, like the Watercraft Excise Tax for pleasure craft.

Each January, the Department sends a Watercraft Personal Property Notice of Value to the vessel owner of record. This documents the market value, and asks each apportionable vessel to report how many days the vessel was in the state the previous year.

Tax Based on Ownership

The Department of Revenue bills and collects personal property tax. The tax is based on who owns the vessel as of January 1st of a given year. This is the assessment year.

In the year following the assessment year, the vessel owner is mailed a tax statement in mid-February. Full payment is due April 30th.

Example: Commercial vessel Z is purchased on August 14, 1995. The new owner's first taxable year is 1996, as January 1, 1996 is his first January 1 of ownership. The 1996 tax will be collected by April 30, 1997, and the tax is based on the number of taxable days the vessel was in the state in 1995.

Vessel Sold or Converted to Pleasure Use

If the vessel is sold or converted to pleasure use in the middle of the year, the personal property tax is still the responsibility of the owner of record on January 1 of that year. If selling the boat, include the tax responsibility in the contract and contact the Commercial Vessel Tax unit, at (360) 534-1503, option 5, for the amount of tax due. If converting the vessel to pleasure use, contact the Commercial Vessel Tax unit for guidance. Payment in these instances can be made two ways: either wait for the bill next year or pay in advance.

Use tax is due on vessels converted to personal use.

Property Tax Decal Requirements

Vessels listed with the Special Programs Division on the personal property tax rolls receive a permanent orange decal that is to be displayed on the hull evidencing that the vessel is registered. (It is also the account number of the vessel with the Department of Revenue.) Commercial vessels that have the look of pleasure craft and are U.S. Coast Guard documented are also required to display a second, annual decal whose color changes each year in coordination with the Department of Licensing Watercraft Excise Tax decal color.

How to Register

To list your vessel, complete and return a Commercial Watercraft Personal Property Listing Of Ships And Vessels form to the Commercial Vessel Tax Program, Special Programs Division, Department of Revenue. The listing form requests basic information about you, your business and your vessel.

Should you need assistance completing the form, call the Commercial Vessel Tax unit at (360) 534-1503, option 5.

Out-of-State Delivery Sales

When property such as vessels, trailers and parts are sold under a condition that they will be delivered to the purchaser out-of-state and they are so delivered, no retail sales tax or retailing B&O tax is due. This includes situation where goods are delivered in this state to a for-hire carrier, consolidator or forwarder for delivery outside of this state, this is considered an exempt interstate or foreign sale.; See RCW 82.32.730

The following documentary proof is required to sustain the exemption:

  • The contract or agreement of sale (if any); and
  • Shipped Through a For-hire Carrier-a Waybill, Bill of Lading, or other contract of carriage which indicates the seller has delivered the goods to the for-hire carrier for transport to the purchaser (or purchaser's agent) at a point outside the state. (The contract of carriage must reflect designations for the seller and purchaser such as consignor and consignee.) OR,
  • Delivered via Seller's Own Transportation Equipment-a trip-sheet signed by the person making delivery for the seller which records seller's name and address, purchaser's name and address, place and time of delivery to purchaser, and signature of the purchaser acknowledging receipt of goods outside of Washington.

(Broker commissions earned in Washington are still subject to service and other B&O, even though delivery may be out-of-state.)

Nonresident Sale and Use

A nonresident of Washington is a person who enters the state on a transitory or temporary basis and does not maintain a legal presence or a residence (a place in which one lives) on a full or part time basis.

Persons who reside in more than one state including Washington are generally considered residents of this state for sales/use tax purposes.

Exempt watercraft sales discussed in this section includes residents of foreign countries.

References: RCW 82.08.02665 and WAC 458-20-238

Vessel Sales to Nonresidents

Nonresidents of Washington may purchase vessels here without payment of sales or use tax when the vessel is US Coast Guard documented or pre-registered by the state or country in which the vessel will be principally used subsequent to sale and the vessel will be removed from Washington within 45 days of delivery.

There is no prescribed time that a boat must stay outside of Washington in order to fulfill the 45-day requirement for nonresidents to remove a boat.

Customs, moorage, fueling or other documentation may be used to show a boat has been removed from the state if it identifies conclusively the particular boat in question and the date it entered into or was in another state or country. The date must be within 45-days of the boat having been purchased in Washington.

Sellers must document a nonresident sale by obtaining the following:

  • completed exemption certificate from the buyer (see individual and non-natural person examples); and
  • a record of the required identification issued by the correct out of state jurisdiction (one piece must be a current operator's license or state identification with a photograph).

In addition, the seller should watch for indications of Washington residency, and should remind the nonresident buyer that the vessel must be removed from Washington waters within 45 days of the date of purchase.

References: RCW 82.08.0266, WAC 458-20-238

Nonresident Delivery / Sea Trials

If acceptance by the buyer is conditioned on the boat being seaworthy, delivery does not occur until the sale is finalized and accepted by the buyer. If the seller and the buyer participate in a sea-trial to determine its acceptability of the buyer, delivery has yet to occur until it has been accepted as seaworthy. Sea trials are limited to day trips of, generally, 2 to 3 hours. No overnight trips will be allowed as sea trials.

Nonresident Vessel Use

Nonresidents may use their properly registered vessel in Washington for a period not to exceed 60 days.

A properly registered vessel is

  • one that has been registered or numbered under the laws of a country other than the United States; or
  • having a valid United States customs service cruising license issued pursuant to 19 C.F.R. Sec. 4.94, or
  • has been issued a valid number under federal law or by an approved issuing authority of the state of principal operation.

After the 60th day, a vessel owned by a nonresident becomes subject to registration in this state and also becomes subject to use tax based on the current value thereof with the following exception:

Vessels owned by nonresident individuals are allowed to have their vessel in Washington for a period not to exceed 6 months in any consecutive 12 month period without incurring a registration and use tax obligation if before the 61st day of use in this state, the vessel has been issued a once-renewable 60-day cruise permit by the Department of Licensing indicating when the vessel first came into the state. Taken together, nonresident individuals are allowed to have a vessel in this state for 60 days without registration. After that, they may obtain a once-renewable 60-day cruise permit from DOL. This totals 180 days of instate use without use tax being due. (RCW 88.02.030)

NOTE: Vessels purchased in Washington by nonresidents must still be removed within 45 days of purchase. Once removed from Washington waters, the vessel can return for the rest of the statutorily allowed nonresident use period. The vessel owner must prove that these requirements are met to sustain the exemption.

Nonresident Temporary Use Q&A

Question 1: For nonresidents, how is the time that a boat is in Washington for "commissioning" treated for purposes of the 45-day period and the temporary use period.

Answer 1: "Commissioning" is the activity of providing upgraded instrumentation, equipment, appointments, etc. If a buyer contracts with a dealer to buy a certain boat, and the dealer contracts with a third party to "commission" it (e.g., add the necessary electronics gear), the 45-day period does not begin until the boat is delivered to the buyer (i.e., after the commissioning).

If the boat is first delivered to the customer and the customer hires a third party to do the commissioning, then delivery has occurred and the clock starts prior to commissioning. However, if the nonresident files a repair affidavit for the time that it is being commissioned, the clock would stop on the 45-day period within which a nonresident buyer must remove the boat from Washington for the purchase to be exempt from retail sales tax. The commissioning in this situation would be considered a repair activity for the purposes of the nonresident vessel repair affidavit.

Question 2: A nonresident purchases a boat from a Washington dealer/broker. Upon taking delivery of the boat, he needs two months of work done on the vessel for commissioning. He files a "Nonresident Out-of-State Vessel Repair Affidavit" with DOR. Does this stop the count down on the 45 days by which time he must have removed the boat from Washington waters? Does the 45-day count down then pick up again at the expiration of the "Nonresident Out-of-State Vessel Repair Affidavit" or whenever the repairs are complete, whichever comes first?

Answer 2: Yes, the repair affidavit stops the 45-day clock for the period of time for which the affidavit is valid and the boat is being exclusively repaired. The clock starts again when the affidavit expires or the repairs are (substantially) completed, whichever date comes first.

Question 3: Is the temporary use period for nonresidents computed on a calendar year basis or on a consecutive 12-month basis?

Answer 3: This time frame is based on any consecutive 12-month period.

Question 4: Are boats owned by nonresident trusts considered as being owned by an individual (natural person) or by a fictitious entity (non-natural person)?

Answer 4: Boats that have been irrevocably contributed to a trust are treated, as being owned by a fictitious entity (non-natural person) not an individual (natural person). Therefore, such boats owned by a trust that are nonresidents of Washington are not eligible for the extended temporary use accord vessels owned by natural persons.

Boats that have been contributed to a trust where the individual has the right to revoke that contribution and retake ownership of the boat are treated as being owned by an individual. Therefore, if the person that contributed the boat to the trust is a nonresident of Washington, the vessel is treated as being owned by a natural person.

Nonresident Vessels Held for Sale

Nonresident vessels in Washington solely for the purpose of sale and held and/or controlled by vessel dealers or brokers are not subject to the statutory time limit for nonresident use. However, if the nonresident owner uses the vessel in Washington while it is held for sale, use tax is due. Generally, to avoid use tax, a crew may not remain on the vessel during the time it is held for sale in this state.

Boat Trailers Sold to Nonresidents

Boat trailers sold to nonresidents are exempt from retail sales tax if the dealer obtains a completed exemption certificate which establishes:

  • the purchaser is a bonafide nonresident of this state with the requisite identification and the trailer is for use outside of Washington; and
  • the trailer will be removed from their premises under the authority of either a trip permit or valid license plates issued to that property by the state of the purchaser's residence (such plates must be affixed to the trailer upon final delivery).

Reference: WAC 458-20-177

Parts Sold to Nonresidents

Component parts which are installed by the vessel dealer prior to its delivery and acceptance by the buyer are taxed in the same manner as the vessel itself.

Sales of unattached component parts to residents of jurisdictions which do not impose a retail sales tax of three percent or more are exempt when they are purchased for use outside Washington and nonresident status can be satisfactorily proved. However, the seller is not obligated to make such a tax exempt sale. (RCW 82.08.0273)

Refer to Excise Tax Advisory 3054 (pdf) for further information.

Parts Sold to Nonresident Corporations

Nonresident corporations are required to obtain a Corporate Nonresident Permit from the Department prior to making tax exempt purchases. These steps will ensure the timeliest response to a permit request:

  • Send a written request bearing the signature of a Corporate Officer which certifies; "All tangible personal property purchased in connection with the use of this permit will be purchases for the use and consumption outside of Washington State. The Corporation will agree to make its records available to representatives of Washington State Department of Revenue for verification of purchases.";
  • Attach a copy of the Corporation's Certificate of Incorporation OR the first page of the Articles of Incorporation; and
  • Mail the original copy of request and attachment(s) to:

      Attention: Business Registration Team
      Department of Revenue
      PO Box 47476
      Olympia, WA 98504-7476.

Rush requests can be faxed to (306) 902-7064. An original copy must still be mailed.

NOTE: Repair labor is not exempt from sales/use tax.

Reference: WAC 458-20-238

Nonresident Vessel Repairs

The following examples identify a number of facts and then state a conclusion. These examples should be used only as a general guide. The tax results of other situations must be determined after a review of all of the facts and circumstances. In all examples, retailing B&O tax is due from the seller for all sales of watercraft and parts, and all charges for repair parts and labor.

Example 1: Company A sells a vessel to Jane Smith, a Canadian resident. Company A examines Jane Smith's driver's license to verify Jane to be a resident of Canada, and retains the proper exemption certificate at the time of sale. Delivery is made in Washington and Jane removes the vessel from Washington waters within 45 days of delivery. The sale of the vessel is not subject to the retail sales tax because all requirements for exemption under RCW 82.08.02665 have been satisfied.

Example 2: Mr. Jones, a California resident, contracts with Company B to manufacture a pleasure yacht. Mr. Jones purchases a boat motor from Company Y with instructions that delivery be made to Company B for installation on the yacht. The yacht is required to be registered with the state of California, which has assumed the registration and numbering function under the Federal Boating Act of 1958. Company B examines Mr. Jones' driver's license to verify Mr. Jones is a nonresident of Washington, and retains the proper exemption certificate at the time of sale. Delivery is made in Washington, and Mr. Jones removes the vessel from Washington waters within 45 days of delivery.

The sale of the yacht by Company B to Mr. Jones is not subject to the retail sales tax, as the requirements and conditions for exemption have been satisfied. Retail sales tax does, however, apply to the sale of the motor by Company Y to Mr. Jones. The exemption provided by RCW 82.08.0266 does not extend to a separate seller of unattached component parts, even though the parts are installed in the watercraft prior to delivery.

Example 3: Mr. Smith, a resident of California, brings his yacht into Washington for repair. Extensive repairs and testing require the yacht to remain in Washington waters for 90 days. Mr. Smith extends the exemption period by filing a "Nonresident Out-of-state Vessel Repair Affidavit" with the Department of Revenue prior to end of the initial 60 exemption period. An employee of the repair facility is on board the yacht during all testing, and there is no personal use by Mr. Smith during this period. Upon completion of the repairs and testing, Mr. Smith takes delivery at the repair facility and promptly removes the yacht from Washington waters.

Mr. Smith has not incurred a use tax liability on his yacht. The conditions and requirements exempting the yacht from use tax during the period of repair and testing have been met. However, retail sales tax is due, and must be paid, on all charges for repair parts and labor. The exemption from sales tax for purchases of vessels does not extend to repairs.

Reference: WAC 458-20-238

Nonresident Military

See Military Exemptions for more information.

Nonresident Sales Example

Example 1: John Blair is a resident of another state and has no known ties to Washington. Mr. Blair purchases a vessel from OK Boats, a dealer in Port Angeles. Mr. Blair intends to finish his visit with friends in the area for another three weeks before returning to his home state with his new boat. OK Boats obtains a completed nonresident exemption certificate from Mr. Blair, records Mr. Blair's home state driver's license (which has his picture on it) and informs him that having the boat in Washington beyond 45 days could create a tax liability.

OK Boats reports the sale amount on the retailing B&O and retail sales tax lines takes a retail sales tax deduction for the amount of this sale. The exemption certificate and related documentation must be retained by the dealer in the event of review/ verification by the Department.

Sale to Native Americans

Qualifying as a Native American

For tax purposes, a Native American is a person duly registered on the tribal rolls of the tribe occupying a Native American reservation and, for retail sales tax purposes, a person duly registered on the tribal roles of the reservation.


A partnership consisting only of Native American partners is considered "Native American." (When some partners are non-Native American, it is not considered "Native American.")


Corporations formed under the authority of the tribe will be considered "Native American."

Marital Communities

Marital communities consisting of Native Americans or a Native American and a non-Native American will be considered "Native American" if all other qualifications are met.

Sales Tax Exemption

Retail sales tax must be collected on transactions when Native Americans are the customers unless delivery of the property being sold occurs in Indian Country. See WAC 458-20-192 for the definition of "Indian Country"

The following information must be documented in the seller's records: tribal affiliation or tribal identification information and the customer's name.

Currently Recognized Native American Tribes in Washington

Chehalis Confederated Colville Confederated
Cowlitz Hoh
Jamestown S' Klallam Kalispel
Lower Elwha Klallam Lummi Nation
Makah Muckleshoot
Nisqually Nooksack
Port Gamble S'Klallam Puyallup
Quileute Quinault Nation
Samish Nation Sauk-Suaittle
Shoalwater Bay Skokomish
Snoqualmie Spokane
Squaxin Island Stillaguamish
Suquamish Swinomish
Tulalip Upper Skagit
Yakama Nation

When a vessel sale is made to an enrolled tribal member and delivery is made on that enrolled tribal member's reservation, the sale is exempt from state sales tax or use tax. To receive this exemption, the Retail Sales/Use Tax Exemption Certificate for Enrolled Tribal Members (pdf) must be completed. An original signed copy must be submitted to the Department of Licensing with the title application. The seller and buyer should maintain copies of the exemption certificate.

NOTE: In order to be granted the exemption for delivery on tribal land, the tribe must have land designated as reservation land.

Interstate and Foreign Carriers

Exemption Eligibility 

Persons engaged in the business of operating as a private or common carrier by water in interstate or foreign commerce are eligible for an exemption to retail sales tax on the vessel and component parts when transporting property or persons for hire.

Eligible Watercraft

As defined for this exemption, watercraft includes every type of floating equipment which is designed for the purpose of carrying persons or cargo. It includes tow boats, but not floating dry docks, dredges or pile drivers or any similar equipment.

Component Parts

Component parts include all tangible personal property that is attached to and a part of the carrier property. It also includes spare parts designed for ultimate attachment to the carrier property

Exemption Certificate Required

Persons selling vessels and parts or performing services within this exemption, are required to obtain from the purchaser, or his authorized agent, a Interstate or Foreign Commerce Exemption Certificate evidencing the exempt nature of the transaction. (WAC 458-20-175.) Income from selling vessels, component parts or making repairs to persons engaged in interstate commerce is reported under the Retailing of Interstate Transportation classification of the business and occupation (B&O) tax.

Deep Sea Fishing Vessels

Commercial Deep Sea Fishing    

 Commercial deep sea fishing is fishing done for profit outside the territorial waters of the state of Washington. It excludes sport fishing, operating charter boats for sport fishing, kelping, purse seining and gill netting because such fishing methods can be performed only within the territorial waters of this state.

Reference: WAC 458-20-176

Sales Tax Exemption

Retail sales tax does not apply to sales of watercraft or component parts, labor and services for constructing, repairing, cleaning, altering or improving vessels which are primarily used in conducting commercial deep sea fishing. However, these sales are subject to the Retailing of Interstate Transportation classification of the business and occupation tax.

Component Parts

Component parts include all types of tangible personal property which are attached to or a part of the watercraft. They includes dories, gurdies and accessories, bait tanks, baiting tables and turntables and spare parts designed for ultimate attachment to the watercraft. Equipment or furnishings which are not permanently attached to the vessel are not included, (i.e., bedding, utensils, fishing nets, hooks, ice, floats, and hand tools).

Documenting an Exempt Sale

Sellers of watercraft or component parts and/or related services are required to obtain from the purchaser a certificate evidencing the exempt nature of the transaction. The certificate must identify the purchaser by name and address, the vessel name, and contain a statement to the effect that the property purchased or repaired is for use primarily in commercial deep sea fishing operations.

Military Personnel

Military personnel stationed in Washington on more than a temporary basis are subject to sales/use tax on vessels and other property in the same manner as nonmilitary residents, regardless of any official "home of record" outside of Washington. Therefore, if a member of the armed services purchases a vessel or watercraft from a local dealer or broker, the dealer or broker must collect retail sales tax on the transaction. Sales made by United States government (i.e., the Post Exchange) to an authorized purchaser (military identification card holder) are not subject to retail sales tax. The authorized purchaser is also exempt from use tax.

Vessel Sales to Nonresident Military Personnel

These vessel sales will be taxed or exempted consistent with nonresident guidelines.

Temporary Military Orders

Personnel who meet the following three requirements can make purchases and avoid a sales tax liability on vessel trailers:

  • The vessel and/or trailer will be licensed, documented and/or registered in the buyer's official "home state" and displays a valid registration or is removed from the premises with a 45 day permit (obtained from the dealer or the Department of Licensing);
  • The vessel and/or trailer will not be used in Washington for more than 45 days; and
  • The vessel and/or trailer is not required to be licensed or registered in Washington.

Documenting an Exempt Trailer Sale

To document a valid nonresident military sale, the seller must obtain and retain:

  • Affidavits for trip permits or nonresident license plates (see section on sales to nonresidents); and
  • A copy of current military orders showing that the customer is temporarily stationed in Washington (90 days or less), or a copy of military orders showing that the customer is permanently reassigned to a new duty station outside Washington and will leave within three months of date of purchase.

Government Sales

City, County and State Entities     

Retail sales tax is due upon sales of vessels to the state of Washington, its departments and institutions and to counties, cities, school districts and all other municipal subdivisions of the state. There is no deduction to B&O tax provided for these types of sales.

Reference: WAC 458-20-189

Federal Government

Retail sales tax is not due when the sale of a vessel or parts is made directly to the United States, its departments, institutions and instrumentalities, or agencies directly operated and controlled by the federal government. (There is no deduction of B&O allowed for these types of sales.)

The sales tax exemption does not apply to sales to institutions which have been chartered or created under federal authority but which are not directly operated and controlled by the government for the benefit of the general public.

Sales to federal employees or representatives are fully subject to the retail sales tax even though the federal government may reimburse them for all or part of such expenses/purchases incurred. (See also Exemptions, Military.)

Reference: WAC 458-20-190

Exempt US Entities

To determine eligibility, see WAC 458-20-190.

Foreign Diplomats

Sales to Foreign Diplomats or Missions     

Ambassadors or foreign consuls are exempt from the retail sales tax, with limitations. Diplomatic Tax Exemption Cards are issued by the U.S. Department of State. These cards use four distinct images on the cards (owl, buffalo, eagle, and deer) to indicate the level of tax exemption authorized by a particular Diplomatic Tax Exemption Card.

Please note that the exemption under this program may not apply to all types of purchases. See below for procedures for purchasing all motorized vehicles (including vessels) under this program.

See our Special Notice: Diplomatic Tax Exemption Program for more information.

Purchase of vessels under the Diplomatic Tax Exemption Program

The Office of Foreign Missions (OFM) enforces the exemption of eligible foreign missions and their members from payment of any taxes when purchasing, leasing, registering or titling a vessel. ALL official and personal vessel purchases by eligible foreign missions and their members must be authorized by OFM.

The purchaser must request that the vessel dealer contact either the Tax and Customs Program Office of the Department of OFM or the appropriate OFM Regional Office for a determination of the tax-exempt status of the purchaser. These requests will only be accepted during normal business hours. A vessel dealer will have two options for contacting OFM:

  1. Email: Dealers in Washington, Oregon, Idaho, and California should send an email to OFM San Francisco - OFMSFCustomerService@state.gov. Emails must include the following information:
    1. Buyer's name
    2. Type of purchase - official or personal
    3. Buyer's Driver License Number, Personal Identification Number (PID) or date of birth
    4. The mission or organization to which the buyer is assigned
    5. The dealership's name, mailing address, and phone and fax numbers
    6. The Vehicle Identification Number (VIN) assigned to the vessel the mission or person is planning to purchase or lease
  2. Telephone: Dealers in Washington, Oregon, Idaho, and California should contact OFM San Francisco at (415) 744-2910.

OFM will determine the tax-exempt status of the purchaser and provide a letter to the vessel dealer stating whether the purchaser is eligible for a sales or use tax exemption. If the inquiry is made by email, OFM will respond to the dealer's email with a letter, confirming the sales or use tax exemption. If the request is made by phone, OFM will fax the dealer a similar letter concerning the foreign mission or member's tax-exempt status. If the tax exemption is denied, the purchaser must pay sales tax on the purchase of the vessel.

Types of Vessels or Other Vehicles Included under the Diplomatic Tax Exemption Program
These tax exemption procedures discussed above apply to ALL motorized vehicles purchased or leased by foreign missions or their members. This includes, but is not limited to, the following vehicles: automobiles, vans, trucks, RVs, trailers, motorcycles, mopeds, buses, sailboats, motor boats, yachts, "jet skis," personal water crafts, airplanes, and helicopters.

Vessel Registration
Diplomatic missions and their members, including dependents, are required to register all motorized vehicles that they own or lease with the OFM Diplomatic Vehicle Office. At the time or purchase, all original ownership documents must be submitted to the Diplomatic Motor Vehicle Office for proper vessel registration. Dealers should treat this transaction as an out of state registration. OFM will issue a registration card and federal license once proper documentation is received. Also, a title will be sent to the indicated lien holder to protect the interest of the lender.

Tax Reporting

B&O tax under the retailing classification is still due for these transactions. The retail sales tax deduction may be shown as "sales to nonresidents or other" and explained as "exempt foreign diplomat."

Documenting Exempt Sales

Proof of valid exemption must be recorded by the seller and maintained for possible review by the Department. All such records shall be kept and preserved for a period of five years.

References: RCW 82.32.070, WAC 458-20-254


Trade-in of Like Kind Property

A trade-in of like kind property reduces the measure of retail sales or use tax by the value of the property traded in. A valid trade-in is a transaction between a buyer and seller (either dealer or broker). A wrecked vessel may be traded-in toward the purchase of a working vessel

Value of Property Traded-in

The seller and buyer establish the value of property traded-in. However, the parties may not overstate the value of the property traded-in in order to artificially lower the amount of sales or use tax due. Absent proof of a higher value, value must be determined by the fair market value of similar property of like quality, quantity, and age, sold or traded under comparable conditions.

Reference: WAC 458-20-247

Documenting a Valid Trade-in

"The property traded-in must be specifically identified and clearly indicated as "trade-in" by model, serial number and year of manufacture where applicable, and the full trade-in value must be shown on the sales agreement or invoice given to the purchaser, with a copy retained in the seller's permanent sales records."

Any and all documents or accounting entries created by a sale are subject to examination and review by the Department. To substantiate the validity of a trade-in for sales tax credit, the broker or dealer should retain documents/records for five years. These records should include copies of documentation verifying that the traded vessel, and all underlying obligations associated with it, were transferred to the party accepting the trade-in.

Vessel dealers and brokers are to retain bills of sale for traded in boats and are not required to transfer title while it is held for resale.

Acceptable documentation includes, but is not limited to, copies of the following:

  • sales agreements between parties;
  • bill of sale;
  • commission or listing agreements between parties;
  • financing agreements and transfers of obligation by lending institutions;
  • title and transfer documents required by government agencies;
  • evidence of transfer fees being paid; and
  • evidence of funds being transferred between parties or through escrow accounts.

References: WAC 458-20-247, RCW 82.32.070

Encumbered Property

Encumbered property can be a trade-in provided that it will actually be transferred to the seller of the new or used property for which it is traded. The value of the trade in property will be the fair market value regardless of liens.

Reference: WAC 458-20-247

Reporting Requirements

The vessel dealer's measure of gross receipts for the B&O tax is the full amount of the sale. The trade-in credit does not apply to the B&O tax. Retail sales tax is collected on the adjusted value of transactions after applicable trade-ins.

Vessel brokers report their gross commissions or fee earnings under the service and other activities classification of B&O tax. Retail sales tax is collected and remitted by the broker, on the adjusted value of a transaction after applicable trade-in or other exemptions or deductions.

Reference: WAC 458-20-224

Tax Paid on Trade-in

To qualify for the sales tax trade-in exclusion, there is no requirement for tax to have been paid on the item traded-in.

Valid Trade-in Examples

Example 1: Broker enters into a consignment sales contract with Susan Smith to sell her Boat A. John Doe contacts Broker expressing interest in purchasing Boat A, provided his Boat B is accepted as a trade-in on the purchase. John Doe executes a purchase agreement with Broker which specifically identifies both Boat A being purchased and the trade-in. Susan Smith declines to accept the trade-in, but Broker accepts delivery and ownership of Boat B and places Boat B into Broker's own inventory. In turn, Broker arranges delivery of the craft purchased to John.

The buyer (John Doe) has delivered the trade-in property (Boat B) to the Seller (Broker), who takes ownership of Boat B. There is no requirement that Broker purchase Boat A from Susan (thereby becoming the owner) prior to selling Boat A to John Doe and accepting Boat B as trade-in property because, as a broker, Broker is a seller under RCW 82.08.010. John Doe is entitled to the trade-in exclusion because Boat B was delivered to Broker as consideration paid towards the purchase of Boat A.

Example 2: Broker 1 enters into a consignment sale contract with Susan Smith to sell her Boat X. John Doe contacts Broker 2 expressing interest in purchasing Boat X, provided his Boat Y is accepted as a trade-in on the purchase. Broker 2 contacts Broker 1 about the possibility of entering into a Co-brokerage Agreement on the sale of Susan Smith's Boat X. John Doe executes a purchase agreement with Broker 1 which specifically identifies both Boat X being purchased and the trade-in Boat Y. Susan Smith declines to accept the trade-in, but Broker 1 accepts delivery and ownership of Boat Y and places it into Broker 1's own inventory. In turn, Broker 1 arranges delivery of Boat X to John Doe.

The buyer (John Doe) has delivered the trade-in property (Boat Y) to the Seller (Broker 1), who takes ownership of Boat Y. There is no requirement that Broker 1 purchase Boat X from Susan (thereby becoming the owner) prior to selling Boat X to John Doe and accepting Boat Y as trade-in property.

This situation qualifies for the trade-in allowance.

Example 3: Sally Jones decides to upgrade from her existing sailboat to a new, larger sailboat. The salesperson at the local sailboat dealership explains that while the dealership does not currently have on hand a sailboat meeting Sally's needs, it can order one for her from the manufacturer. The salesperson also explains that if Sally trades in her sailboat at the time she enters into the purchase contract, the dealership will accept the sailboat as one of three payments needed before the delivery of the new sailboat. Sally executes a purchase contract with the salesperson which specifically identifies both the new sailboat being purchased (valued at $250,000) and the trade-in of her current boat (valued at $55,000). Sally signs the purchase contract, and the dealership orders the new sailboat, with a proposed delivery date of eight months hence. Sally makes a down payment of $50,000. Four months later, Sally delivers the trade-in to the dealership. They agree the value of the trade-in is now $50,000. The dealership accepts delivery of the trade-in sailboat as a second payment of $50,000. Four months later, Sally takes delivery of her new sailboat and pays the dealership a final payment of $150,000.

Sally is entitled to the trade-in exclusion of $50,000 because the sailboat was delivered to the sailboat dealership as consideration paid towards her purchase of the new sailboat.

Example 4: Broker 1 enters into a consignment sales contract with Susan Smith to sell her Boat X. John Doe contacts Broker 2 expressing interest in purchasing Boat X, provided his Boat Y is accepted as a trade-in on the purchase. Broker 2 contacts Broker 1 about the possibility of entering into a Co-brokerage Agreement on the sale of Susan Smith's Boat A. John Doe executes a purchase agreement with Broker 1 which specifically identifies both Boat X being purchased and the trade-in Boat Y. Susan Smith declines to accept the trade-in of BOAT Y, but Broker 2 accepts delivery and ownership of Boat B and places Boat B into Broker's own inventory. In turn, Broker 1 arranges delivery of Boat A to John Doe. The buyer (John Doe) has delivered the trade-in property (Boat Y) to the Seller (Broker 2), who takes ownership of Boat Y. There is no requirement that Broker 2 purchase Boat X from Susan (thereby becoming the owner) prior to selling Boat X to John Doe and accepting Boat Y as trade-in property.

If pursuant to a sales contract, Broker 2 is authorized to receive a sales commission on selling Boat X, Broker 2 can take Boat Y into inventory as a trade-in against the purchase of Boat X and have the transaction qualify for the trade-in allowance.

Example 5: Broker enters into a consignment sales contract with Susan Smith to sell her Boat A valued at $100,000. John Doe contacts Broker expressing interest in purchasing Boat A, provided his Boat B, valued at $50,000, is accepted as a trade-in on the purchase. John Doe executes a purchase agreement with Broker which specifically identifies both Boat A being purchased and the trade-in.

Susan Smith agrees to take the trade-in, and accepts delivery of Boat B from John Doe. In turn the Broker arranges delivery of Boat A to John.

The buyer (John Doe) has delivered the trade-in property (Boat B) to the Seller (Susan Smith), who takes ownership of Boat B. She may either sail off into the sunset with Boat B or she may enter into a new consignment arrangement with Broker for the sale of Boat B. John Doe is entitled to the trade-in exclusion of $50,000 because Boat B was delivered to Susan Smith as consideration paid towards his purchase of Boat A.

Example 6: Is "constructive possession" required to gain the trade-in allowance?

The requirements for a valid trade-in are established in WAC 458-20-247. One of the requirements to gain the trade-in allowance (for application of retail sales tax), is that the original boat owner must accept the like-kind property as a reduction in the selling price of the original boat being sold. It is not necessary for tax purposes that a boat, accepted by a seller as a trade-in against the price of another boat, be registered with the Department of Licensing before that traded-in boat is resold.

Example 7: Broker A has a 40' sailboat listed for $65,000. Broker B has a potential buyer for this vessel, but his client wants to trade-in an older motor boat as part of the consideration. The sailboat owner is reluctant, but agrees to the transaction. Both parties agree on a value for the trade-in. All transaction records and ownership transfers occur.

Broker A's customer may place the vessel up for sale or keep it.

Example 8: Broker A has a buyer (Customer Y) for a listed vessel, but the selling owner (Customer X) is unwilling to accept a trade-in as part of the payment. The sale will not occur unless Broker A purchases Customer X's vessel and then accepts Customer Y's trade-in. Both customers agree to carry promissory notes as financing/flooring on the vessels involved, but Broker A has complete risk of loss/gain while in his possession. Broker A wants to make the sale and so decides to proceed with the transaction.

Broker A has become a vessel dealer. The sale to Customer Y is taxable on the full amount under the retailing B&O classification. Retail sales tax is measured against the sale amount after the trade-in value which has been negotiated between the broker/dealer and customer. Broker A has the traded-in vessel in inventory.

Example 9: Broker A has Customer JO's $100,000 vessel listed for sale. Customer SAM offers to buy the vessel but wants to trade-in his vessel worth $125,000. SAM is willing to accept a $25,000 promissory note on the balance due for the vessel. JO agrees to the trade-in knowing that he/she has complete liability for the note regardless of how much the larger vessel eventually sells for.

This is a trade down for SAM, but is a trade-in for JO who owes retail sales tax on the $25,000. The result is the same if the $25,000 was a cash payment.

Example 10: Customer Q owns a 50' motor boat and wants to trade it in on the purchase of a new boat from Dealer Z. The purchase agreement is created and both parties agree on a trade-in value of $50,000. The purchase balance is due in full at time of delivery of the new vessel, estimated to occur in six months.

Title (or assumption of risk, underlying liability) to Customer Q's fifty footer must pass to the dealer prior to delivery of the new vessel as agreed within the purchase contract. It must become part of Dealer Z's inventory. The trade-in value was agreed upon when the transaction was negotiated and cannot be contingent on its subsequent sale. Sales tax is due on the purchase cost of the new vessel less the $50,000 trade-in value.

SPECIAL NOTE: Once a vessel is in a dealer's inventory, allowing the owner to use it is considered "bailment."