Washington State Heavy Equipment Rental Tax
Effective January 1, 2022 Washington has enacted a Heavy Equipment Rental Tax. The tax is paid by the customer to the dealer on the rental of heavy equipment rental property. If you are not a heavy equipment rental property dealer as defined below, you would not have an obligation to collect this new rental tax.
Examples of heavy equipment rental property are shown below. Exceptions to the tax are also listed, notably including that the heavy equipment rental tax is not due if the rental company is located outside of Washington state, but rents to consumers inside of the state.
The dealer should report the collected rental tax on their periodic Combined Excise Tax Return in the Other Taxes section. Retail Sales Tax will still be due on applicable taxable sales. This new tax does not replace Retail Sales Tax. Like sales tax, the rental tax is to be held in trust until it is paid to the Department of Revenue.
The rental tax applies to the pre-sales tax rental price charged to a customer. Similarly, retail sales tax does not apply to heavy equipment rental tax. Dealers should ensure that both taxes are separately stated on the invoice.
The heavy equipment rental tax applies only to heavy equipment that is exempt from property tax. To qualify for the property tax exemption for heavy equipment rental property, the dealer should apply by submitting the prescribed application form and personal property tax listing form to the relevant County Assessor(s) where the property is located.
For the purposes of the Heavy Equipment Rental Tax, a dealer is defined as having the same meaning as given in RCW 84.36.597(2)(b), which states:
“Heavy equipment rental property dealer means a person principally engaged in the business of renting heavy equipment rental property. For purposes of this subsection, “principally” means that the heavy equipment rental property dealer receives more than fifty percent of the dealer’s annual total revenue from the rental of heavy equipment rental property.”
Heavy equipment rental property is:
- Mobile, meaning that the equipment may not be permanently affixed to real property and may be moved among worksites, if needed.
- Customarily used for construction, earthmoving, or industrial applications. This includes the constructing of new buildings or other structures, or the repairing, remodeling, or expansion of existing buildings or other structures, under, upon, or above real property; the repositioning of terrain using vehicles or vehicles or self-propelled equipment; and manufacturing or processing raw materials or other ingredients or components into new articles of tangible personal property.
- Rented without an operator.
The tax rate is 1.25% and is reported on the same Combined Excise Tax Return used to report Retail Sales Tax, but under a different section.
Examples of heavy equipment:
- Earthmoving equipment, including but not limited to backhoes, loaders, rollers, excavators, bulldozers, and dump trucks.
- Self-propelled vehicles not designed to be driven on the highway.
- Industrial electrical generation equipment.
- Industrial material handling equipment.
- Equipment used in shoring, shielding, and ground trenching.
- Portable power and HVAC generation equipment.
- Attachments to heavy equipment rental property, including but not limited to buckets, augers, hammers for backhoes, hoses, fittings, piping, chains, tools (such as jack hammers and cement chippers), and portable power connections.
- Ancillary equipment, including but not limited to generators, ground thawing equipment, fluid transfer equipment, pumping equipment, portable storage, portable fuel tanks, water tanks, and light towers.
- Equipment or vehicles not subject to the vehicle license fees and not required to be registered with the Department of Licensing. Heavy equipment rental property does not include small hand tools, chainsaws, and lawnmowers.
EXCEPTIONS TO THE TAX
The tax generally doesn’t apply in the following circumstances:
- Rentals to the U.S. government, state of Washington and its political subdivisions, and municipal corporations.
- Rentals of heavy equipment delivered to a consumer outside Washington.
- Rentals to enrolled tribal members with delivery to the reservation.
- A rental company outside of Washington renting to consumers in Washington.
PERSONAL PROPERTY TAX EXEMPTION
Dealers of heavy equipment rental property are allowed to take a personal property tax exemption for this same type of equipment. A heavy equipment rental dealer means a person “principally” engaged in the business of renting heavy equipment rental property. “Principally” means that the dealer receives more than 50% of the dealer’s annual total revenue from the rental of heavy equipment rental property.
Dealers must submit the following documents by April 30th to the County Assessor where the property is located.
- Application for Exemption of Heavy Equipment Rental form (Form 63 0035).
- Personal property tax listing form.
WE WELCOME YOUR QUESTIONS
If you are a taxpayer renting equipment in Washington, please contact the REDW State and Local Tax team regarding the Heavy Equipment Rental Tax.