Opinion ID: 1319039
Heading Depth: 2
Heading Rank: 4

Heading: Reimbursement of registration fees is excludable from the taxpayer's gross income.

Text: Certain amounts included in the assessment were amounts paid to foreign governments to file, register, or maintain patents in those jurisdictions. Such fees are excludable under Rules 111 and 207 (WAC 458-20-111 and WAC 458-20-207). [1] Payments of such fees by the taxpayer are clearly advances within the meaning of Rule 111 because the taxpayer has no liability for them except to the extent it has promised to advance these fees. Further, these patent filing, issuance, and maintenance fees are in the nature of court costs which are expressly excluded from the income of an attorney upon reimbursement by the client or recovery of the amount in an action at law under Rules 111 and 207. After giving other examples, the pertinent portion of Rule 111 states as follows: Likewise, where an attorney pays filing fees or court costs in any litigation, such fees and costs are paid as agent for the client and should be excluded from the gross income of the attorney. (Italics ours.) This example illustrates that Rule 111 was intended to exclude from gross income the reimbursement of advances to pay costs such as the present patent filing, issuance, and maintenance fees. The State of Washington, through the promulgation of Rule 111, has chosen to exempt reimbursements from gross income. The Washington Supreme Court has described Rule 111 as follows: If a taxpayer performs services as an agent rather than an independent contractor, and receives a reimbursement from the principal for the funds expended, then WAC 458-20-111 excludes the reimbursement from taxation. John H. Sellen Constr. Co. v. Department of Rev., 87 Wn.2d 878, 884-85, 558 P.2d 1342 (1976). Fees for services added on draftsman's bills are part of taxpayer's gross income and are subject to the business and occupation tax. The parties' Stipulation of Facts pertaining to draftsman's bills provides: 26. Only with respect to draftsman's bills, the taxpayer pays those bills and then seeks payment from the taxpayer's clients for the amount of the bills plus $1.00 per hour of draftsman time in addition in order to compensate the taxpayer for its costs of dealing with the draftsman and the client on drafting matters. (Italics ours.) Rule 111, in pertinent part, provides for taxation of fees in the following language: On the other hand, no charge which represents an advance payment on the purchase price of an article or a cost of doing or obtaining business, even though such charge is made as a separate item, will be construed as an advance or reimbursement. Money so received constitutes a part of gross sales or gross income of the business, as the case may be. It is clear that services that the taxpayer adds on draftsman's bills are not costs but are fees and should be included within the taxpayer's gross receipts for purposes of assessing business and occupation taxes.