On June 28, 2018, the Washington Department of Revenue (DOR) released Excise Tax Advisory (ETA) 3210.2018. The ETA clarifies that the preferential aerospace business and occupation (B&O) tax rate is available to certain manufacturers and sellers of materials or components, including raw materials, if those items are treated in either of the following ways:
- They’re sold to another manufacturer for installation into commercial airplanes
- They’re used in components of commercial airplanes
Manufacturers and sellers of commercial airplane materials or components are eligible for the rate. This includes sellers of raw materials sold to other manufacturers or sellers, but only if the materials or components are:
- Certified by the Federal Aviation Administration (FAA)
- Sold for installation into a commercial airplane
- Purchased by another manufacturer that uses the materials to produce a component for installation into a commercial airplane
To qualify for the reduced B&O tax rates, taxpayers must document their activities, proving they qualify for the preferential aerospace rate.
The FAA certifies commercial aircraft and commercial aircraft parts. That means a manufacturer or seller of materials or components must document that its materials or components were installed into an FAA-certified commercial airplane.
Examples of acceptable documentation include purchase orders, sales invoices, or other records that identify the materials or components were sold to a company with one of the following FAA certificates:
- Type certificate. Proves the airworthiness of an aircraft design.
- Production certificate. Allows production of duplicate models of the aircraft for which the manufacturer already has a type certificate.
- Supplemental type certificate. Enables modification or repair to aircraft for which a type certificate was previously issued.
- FAA parts manufacturer approval. Permits replacement parts for installation into an existing commercial airplane.
If your company manufactures or sells materials or components for installation into commercial airplanes, it may be eligible for one or more aerospace incentives, including preferential B&O tax rates, credits, or exemptions.
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