On January 1, 2022, Substitute Senate Bill 5628 went into effect in Washington state.
The bill implements a heavy equipment rental tax equal to 1.25% of the rental price of heavy equipment. There is close interplay between property rentals subject to the 1.25% tax and the new property tax exemption for heavy equipment rental property that must be claimed by April 30, 2022.
Overview of Heavy Equipment Rental Tax
Washington businesses that receive more than 50% of their revenue from the rental of heavy equipment must now charge customers a 1.25% tax on the price of each in-state rental of heavy equipment.
The tax applies to rentals of heavy equipment rental property that are:
- Mobile
- Customarily used for construction, earthmoving, or industrial applications
- Rented without an operator
Examples include:
- Earthmoving equipment, including but not limited to backhoes, loaders, rollers, excavators, bulldozers, and dump trucks
- Self-propelled vehicles that aren’t designed to drive on highways
- Industrial electrical generation equipment
- Industrial material handling equipment
- Equipment used on shoring, shielding, and ground trenching
- Portable power and heating, ventilation, and air conditioning (HVAC) generation equipment
- Attachments to heavy equipment rental property such as buckers, augers, hammers for backhoes, hoses, fittings, piping, chains, tools, and portable power connections
- Ancillary equipment such as generators, ground-thawing equipment, fluid transfer equipment, pumping equipment, portable storage, portable fuel and water tanks, and light towers
- Equipment or vehicles not subject to the vehicle license fees and not required to register with the Department of Licensing
Collecting and Remitting the Heavy Equipment Rental Tax
The heavy equipment rental tax is in addition to any applicable retail sales taxes. Businesses must enumerate the state retail sales tax and the heavy equipment rental tax when both apply.
This tax will be reported under the Heavy Equipment Rental Tax field in the Other Taxes section of the Combined Excise Tax Return. It will be remitted alongside retail sales tax and business and occupation tax.
Exceptions to the Tax
The tax generally doesn’t apply in the following circumstances:
- Rentals to the US 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 Considerations
There’s a new property tax exemption for heavy equipment rental property effective for the 2021 personal property tax assessment year. The exemption applies to the same types of equipment subject to the 1.25% heavy equipment rental tax.
To claim the personal property tax exemption, businesses must submit an Application for Exemption of Heavy Equipment Rental form, along with a personal property tax listing, to a county assessor by April 30, 2022.
Companies planning to claim a personal property tax exemption for certain heavy equipment should be aware of the 1.25% heavy equipment rental tax applied to each rental of that same property.
We’re Here to Help
For more information on how the new legislation may affect you, contact your Moss Adams professional.
You can also visit our State and Local Tax Services for additional resources.
Special thanks to Alex Pettibone, state and local tax senior, for his contributions to this article.