Washington – Taxability of Domain Name Registration Services

3/1/2013

SALT Report 2203 – The Appeals Division of the Washington Department of Revenue issued a ruling regarding a Taxpayer’s sales of digital services.  The Taxpayer operates a data center in Washington State and provides the following services to its customers:  colocation solutions, data backup, dedicated servers, shared hosting, virtual private servers, hybrid computing, and domain name registration.

In 2010, the Taxpayer requested a written ruling from the Department regarding whether the purchase of domain names for the purpose of reselling them was subject to sales tax.  In their ruling, the Department stated that purchases of domain name registration services are considered taxable digital automated services under RCW 82.04.192(3)(a).  Therefore, when the Taxpayer resells the domain name the sale is subject to sales tax if sourced in Washington.  The Taxpayer appealed that decision.

Upon review of the case the Appeals Division confirmed that the Taxpayer purchases digital automated services at wholesale and resells them at retail.  Further, it was established that the customers to whom the digital automated services are resold are the consumers because they are “end users” of the digital product. Based on those decisions, the Appeals Division affirmed the Department’s ruling that the Taxpayer’s sales of digital automated services are “retail sales” under RCW 82.04.050(8)(a) and that the Taxpayer must collect sales tax on these transactions and pay B&O tax under the “retailing” classification.

For Further Information

Washington Department of Revenue – Tax Determination No. 11-0081