Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-20 - Excise tax rules › Section 458-20-199 - Accounting methods

Current through Register Vol. 24-14, July 15, 2024
(1)
Introduction.
In computing tax liability under the business and
			 occupation tax and the retail sales tax, one of the following accounting
			 methods must be used. This is true for all businesses, whether their activity
			 involves the sale of tangible personal property or the rendering of services.
			 (See WAC 458-20-197 for an explanation of
			 when tax liability arises under the accrual method versus the cash receipts
			 method.)
(2)
Method one, cash
			 basis.
A taxpayer may file excise tax returns in each reporting period
			 with figures based upon cash receipts only if the taxpayer's books of account
			 are regularly kept on a cash receipts basis. (See
			 RCW
			 82.04.090.) A taxpayer whose books of account
			 recognize income at the time a sale is made or a service is rendered,
			 regardless of when payment is received, is keeping its records on an accrual
			 basis and must report and pay tax on the accrual basis. For those taxpayers who
			 maintain formal accounting records, the department of revenue will generally
			 look to the revenue accounts of the general ledger of the taxpayer and to the
			 method of accounting used for reporting of federal income taxes to determine
			 when the income is recognized. However, all records of the taxpayer will be
			 considered by the department in determining whether the records are being kept
			 on an accrual basis, particularly for those taxpayers who do not maintain
			 formal records such as a general ledger.
The fact that a taxpayer makes sales "on account" and has
				records to identify the accounts receivable does not preclude the taxpayer from
				reporting on a cash receipts basis. Taxpayers can have accounts receivable and
				still report on the cash basis, provided the accounting records, such as the
				general ledger or federal income tax returns, do not record the sales on
				account as income until the cash is actually received. If a taxpayer keeps a
				general ledger on an accrual basis and federal income tax returns on a cash
				basis, the taxpayer may elect to report state tax returns on either the cash
				basis or the accrual basis. However, once a reporting basis is selected, the
				reporting basis may not be changed without authorization from the department
				unless the method for reporting federal taxes changes or the method used in
				keeping the records changes. A taxpayer who maintains its records throughout
				the year on a cash basis, including a general ledger, and elects to make a
				worksheet adjustment at year-end to report federal taxes on an accrual basis,
				will be permitted to report state taxes on a cash basis.
(3)
Method two, accrual basis.
A taxpayer who does not regularly keep books of account on a cash receipts
			 basis must file returns with figures based on the accrual method. These
			 taxpayers must report the gross proceeds from all cash sales made in the tax
			 reporting period in which the sales are made, together with the total amount of
			 charge sales during such period. The law does not require a taxpayer to use a
			 particular accounting system. However, the taxpayer must report based on the
			 system of accounting used by the business, regardless of the taxpayer's reasons
			 for selecting a particular accounting system. It will be presumed that a
			 taxpayer who is permitted under federal law or regulations to report its
			 federal income taxes on a cash basis and does do so is maintaining the records
			 on a cash basis. A taxpayer who maintains a general ledger on an accrual basis
			 and files federal tax returns on an accrual basis must also report state tax
			 returns on an accrual basis.
(a) Taxpayers who
			 make installment sales or leases of tangible personal property must use the
			 accrual method when they compute their tax liability. (See
			 RCW
			 82.08.090, WAC
			 458-20-198 and
			 458-20-211.)
(b) In the case of rentals or leases, the
			 income is considered to have accrued to the seller in the tax reporting period
			 in which the seller is entitled to receive the rental or lease
			 payment.