Last Monday the Washington Department of Revenue (DOR) reversed its recent decision to require animal rescue groups to apply state retail taxes to adoption fees. The rule would also have required the groups to pay the taxes retroactively on past adoptions as well.
If the rule had not been reversed, Washington rescue groups would have had to come up with tens of thousands of dollars to pay the retail tax for past adoptions and lost a significant portion of their revenue on future adoptions. As nonprofit rescue groups don’t generally have large cash reserves, many of them would have had to shut down.
Image from Troll.me.
According to the DOR, a retail sale is the sale of tangible personal property. It is also the sale of services like installation, repair, cleaning, altering, improving, construction, and decorating. Other services include improving real or personal property, amusement and recreational activities, lawn maintenance, and physical fitness activities.
The issue of whether or not animal rescues should pay a retail tax on adoption fees started last February when, with no prior warning, the DOR sent a letter to Puyallup Animal Rescue in Eatonville saying it had to pay retail sales taxes on past and future adoption. Since 1985, the group has rescued and found homes for dogs and cats it pulled from animal shelters in Pierce County and eastern Washington.
According to an article on AnimalsNorthwest.com, the letter said:
“There is no exemption from tax for transfers (sales) of dogs and cats. The charge to transfer animals to new owners (often referred to as adoption fees) is subject to retail sales tax and the retailing business and occupation (B&O) tax.”
Exempted from these taxes are, “governmental or quasi-governmental organizations such as humane societies contracted with city or county governments to provide these services.”
Puyallup Animal Rescue’s VP and Secretary Sally Andrews estimated that the group would have had to pay the DOR $20,000 if the agency required her group to retroactively pay sales taxes on their adoption fees.
Image from Jantoo.com.
Rick Hall, who is with Save Washington Pets and has been working closely with the DOR to get clarification on the rule, told me the statewide retail tax is 6.5%. Counties and municipalities also have their own retail taxes, so rescues would have ended up paying close to 10% on their adoption fees.
That is not an insignificant amount of money, especially for smaller rescues that operate on very tight budgets.
No one knows exactly why the DOR decided to require the Puyallup Animal Rescue to pay sales tax on adoption fees. The DOR sent similar letters to a couple of other animal rescues. But dozens of other rescues in Washington never received the letter from the DOR, so the reason the agency sent notifications only to a handful of animal rescue groups is a mystery.
Because there doesn’t appear to be any rhyme or reason to the DOR’s action, animal rescue groups can’t be sure the agency won’t change its mind again and require them to pay sales taxes on past and future adoption fees. As a result, it is incumbent on the DOR state unequivocally, in writing, that animal rescue groups are not required to pay retail sales tax on adoption fees.
The statement from the DOR also mentions that nonprofit rescues have to pay the retailing business and occupation (B&O) tax, which is a gross receipts tax measured on the value of products, gross proceeds of sale, or gross income of the business.
Image from irishmanabroad.com.
The DOR didn’t say anything to Puyallup Animal Rescue about paying the retailing B&O tax, but since it was mentioned in the letter, the agency also needs to clarify, in writing, that animal rescues are exempt from that tax as well.
Save Washington Pets and other groups will be working with the DOR in the upcoming weeks to get explicit clarification on taxes that animal rescues must pay.
In my opinion, the DOR can’t suddenly decide to start collecting taxes from Washington animal rescues that the groups didn’t have to pay before.
I understand that the state is desperate to find new sources of revenue, but trying to extract taxes from nonprofit animal rescue groups while giving huge tax breaks to profitable industries like Boeing, which got $8.7 billion in tax breaks in 2013, the largest state subsidy to a private company in US history, is ridiculous and unfair.
Thank you, I appreciate it.