We develop financial software applications for companies throughout the country. We initially were based in Washington state and sold services there. However, we've since moved our operations. Do we still need to file tax returns in Washington for both income and sales tax?

ANSWER

The BIDaWIZ Team's Answer:

Washington state doesn't let most businesses leave their state without filing more returns for years. They have trailing nexus which obligates companies that move to another state to still report to Washington State for another year for B&O and 4 years for Retail Sales Tax.

The rules in Washington state are complex as software and development (whether custom or pre-written) can be taxable as per WAC 458-20-15502. Software written for one specific customer other than those which are considered canned is not taxed. Custom computer programs are not subject to sales tax but are subject to Washington business and occupation tax. Installation for canned software is tax exempt for sales tax purposes if it is a separately stated charge.

Thus, the custom software sold would be subject to service and other activities B&O tax. The sales tax would not apply though. This would mean a B&O tax form for 2014 and 2015 to meet trailing nexus requirements.

References: WAC 458-20-15502
State: Washington
Sales tax category: Product Taxability; Tax Compliance
Product/Service: Software