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Ext. PublicationMotor Fuels Tax Minute, Episode 103: Washington Rack-Removal Tax Rules Explained
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In this episode of Motor Fuels Tax Minute, Leanne Sobel and Kelly Grace break down how Washington applies motor fuel tax at the rack and why confusion has emerged around licensed suppliers and flash title transactions. They walk through the governing statutes, clarify misinterpretations in the state’s handbook and return schedules and outline what taxpayers should rely on to remain compliant.
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Detailed Description of Weaver’s Motor Fuels Tax Minute, Episode 103
00:00:00
Kelly: Welcome to this week’s Motor Fuel Tax Minute, where we talk all things motor fuel. As we discussed during our last episode and clarified, when product is pulled at a terminal at the rack, the product is subject to tax. It is subject to Washington tax regardless of license type.
Like we alluded to in our last episode, we’re going to dive in a little bit now into the conflict that we saw and how we got to the right answer.
00:00:26
Leanne: Yeah, that’s right, Kelly. So, Washington’s statute is very, very clear. It states that the tax is imposed when fuel is removed from a terminal at the rack into a rail car or a truck. There is nothing in the statute that makes any exemptions for license type.
So, whether you’re a licensed supplier or not, if you are pulling at the rack onto a rail car or a truck, then the tax is imposed.
00:00:53
Leanne: In order to accommodate the instance of a flash title sale that occurs at the rack, Washington’s tax information handbook included some language that does allow licensed suppliers to transact tax-free in the terminal for flash title only.
00:01:12
Leanne: However, the handbook itself says that licensed suppliers may transact tax-free on terminal grounds.
And this has been misinterpreted in some areas to mean that rack sales among licensed suppliers are tax-free. I said it before, I’m going to repeat it umpteenth times: this is not the case.
00:01:35
Leanne: And in fact, the tax policy handbook itself says that where this handbook conflicts with Washington’s statutes, the Washington statutes prevail because they are the primary source of the law.
In this case, the Washington statute does conflict with the policy handbook, so the statute prevails.
00:01:55
Leanne: So, if you are not doing flash title and you are removing at the rack, the tax is imposed. And now, Kelly, it wasn’t just the handbook that was causing this confusion. It was also Schedule 6 of the return. So walk us through that a little bit.
00:02:09
Kelly: The return itself kind of reminded me, honestly, of your typical distributor return as opposed to your rack state return.
And the reason why I say that is they had a Schedule 5 and a Schedule 6. Schedule 5 is for taxable sales, and Schedule 6 was for sales to licensed suppliers.
00:02:28
Kelly: Now, if I’m a little bit newer, if I’m just used to doing what I’m doing, I can look at that and assume sales to a licensed supplier are exempt. And they specifically say tax-free sales to licensed suppliers.
00:02:39
Kelly: Once again, what they were trying to capture were those flash title transactions. They were not trying to capture actual transactions that are being pulled from the rack. And not only with the flash title transaction should the first and the last person be licensed, but every party within that transaction needs to be a licensed supplier to be exempt.
And that is what that Schedule 6 was trying to capture. But without looking into the instructions and diving into the law, you might not have seen that right away.
00:03:07
Kelly: And then it gets a little more interesting because like you said, we have a conflict with the manual, which I think a lot of people would have defaulted to. And you and I both saw “on terminal grounds,” and we had the pleasure a few weeks ago of actually visiting a terminal. So that’s a very broad area. And we saw that very clearly. And we hadn’t seen that with other states either.
So, we knew that was a little bit of a red flag.
00:03:27
Leanne: It’s so easy to get confused, especially when things say lots of different things. And that’s why it’s really important to check. And that was something that we did do.
00:03:36
Kelly: Yes, yes. And you can also get additional verification from the state that kind of lets us gain that entire comfort.
Like we might have mentioned, the state is going to release some policy to clarify this as quickly as they can because they know this is an issue.
00:03:49
Kelly: They started getting a lot of calls because this involved a lot of different companies. So, I do think we’re going to see some clarification. But it was very interesting to dive into and figure out what the correct answer was.
00:04:01
Leanne: I think hopefully we’ve given lots of good information there. Hopefully, we haven’t confused anybody anymore. So I’ll just say it one more time: if you’re removing at the rack in Washington state, disregard what the manual says and disregard some of the confusion on the return. The tax is due unless it is flash title among licensed suppliers.
00:04:21
Kelly: And that is this week’s Motor Fuel Tax Minute. Thank you so much for joining us. And definitely feel free to reach out if you have any additional questions on this topic.
