Utility Excise Taxes Clarified

We wanted to clarify our interpretation of Washington State excise taxes rules as they relate to your enterprise/proprietary activities.  We are not the experts here and this is not to be considered definitive.  But, we get questions on excise taxes frequently and thought this might help.

Per WAC 458-20-189, Washington public entities are subject to excise tax for proprietary activities only, which are defined as operations which generate more than 50% of their revenue from user fees.  For cities and towns that means water, sewer, garbage, electric and possibly storm water services.

Excise tax is a broad category that encompasses the Public Utility Tax (PUT) and Business and Occupation Tax (B&O).  For most of our clients PUT applies only to water and electric services.  Solid Waste (WAC 458-20-250) and Sewerage (WAC 458-20-251) have their own WACS which offer guidance on the applicability of B&O taxes.  These are the taxes you pay (expense) to the Washington Department of Revenue, not your local B&O Taxes that you collect for your General Fund.

Using water as an example, most entities will pay PUT on most sales and B&O on others.  For example, direct and incidental charges for water are subject to the PUT if provided for existing customers.  This includes water sales, connection fees, and administrative fees.  Don’t forget to include the tax revenue you charge your customers as part of your utility sales revenue.  It is also subject to excise tax. However, services provided to a new customer, such as installing a meter or initial connections are subject to the lower B&O tax, not PUT.  See WAC 458-20-179 Sections  3(e) and 4 for further confusion.

Interdepartmental charges are not subject to excise tax.  This means the water, sewer, garbage or electric services that you sell to your parks, pools or city buildings are not subject to excise tax. (WAC 458-20-189 section 3(d))

Late fees and charges are subject to B&O taxes, but not PUT.  (WAC 458-2-179 section 4 paragraph 2).  Surcharges for capital contributions are no longer exempt from excise tax.  (WAC 458-20-179 section 8).  These surcharges are frequently seen for water, sewer and storm water.

Capital contributions and late fees and penalties for Local Improvement Districts (LIDs) are still exempt from both PUT and B&O, as they are considered an exercise of taxing authority.

See the following references for more information

WAC 458-20-189 Sales By Cities and Towns

WAC 458-20-179 Public Utility Tax

WAC 458-20-250 Solid Waste Collection Tax

WAC 458-20-251 Sewerage Collection