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Washington Department of Revenue requires to report all sales by Apple of my applications in the Washington state on my personal excise return. Then I must calculate sales tax and I should deduct the same amount because Apple pays sales tax. I'm absolutely confused how can I do that?

  1. Apple doesn't provide information about sales in the Washington state.
  2. Apple doesn't provide information about sales in each city in Washington state (they have different sales tax rates).
  3. Apple doesn't provide information about sales tax that they pay to deduct it.

How should I report earning from Apple App Store (from iTunes Connect) in Washington state?

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  • "because Apple pays sales tax" - what makes you say this?
    – littleadv
    Jul 31, 2016 at 23:07
  • @littleadv - purchases I make on the Apple store have sales tax added. OP only gets a cut of the sale. IMO, that's between him and Apple, so there's income, SE income to be specific, but sales tax isn't part of the picture. (A comment, because, no, I'm not sure)
    – JTP - Apologise to Monica ♦
    Jul 31, 2016 at 23:27
  • @JoeTaxpayer so the OP doesn't actually sell anything, his income is royalty? Then why should he care about sales tax?
    – littleadv
    Aug 1, 2016 at 4:29
  • @littleadv - right, if he had his own store, he'd personally collect and pay the sales tax. Here, he gets his profit only. Apple collects, where appropriate, and pays the sales tax. OP shouldn't be concerned about this.
    – JTP - Apologise to Monica ♦
    Aug 1, 2016 at 11:51
  • Apple sells applications on my behalf. It's not royalty. Department of Revenue requires to report sales tax from that income.
    – Dmitry
    Aug 1, 2016 at 16:34

2 Answers 2

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If you're waiting for Apple to send you a 1099 for the 2008 tax season, well, you shouldn't be. App Store payments are not reported to the IRS and you will not be receiving a 1099 in the mail from anyone. App Store payments are treated as sales commissions rather than royalties, according to the iTunes Royalty department of Apple. You are responsible for reporting your earnings and filing your own payments for any sums you have earned from App Store. – https://arstechnica.com/apple/2009/01/app-store-lessons-taxes-and-app-store-earnings

The closest thing to sales commissions in WA state seems to be Service and Other Activities described at http://dor.wa.gov/content/FileAndPayTaxes/BeforeIFile/Def_TxClassBandO.aspx#0004. When you dig a little deeper into the tax code, WAC 458-20-224 (Service and other business activities) includes:

(4) Persons engaged in any business activity, other than or in addition to those for which a specific rate is provided in chapter 82.04 RCW, are taxable under the service and other business activities classification upon gross income from such business. - http://apps.leg.wa.gov/wac/default.aspx?cite=458-20-224

I am not a lawyer or accountant, so caveat emptor.

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2

I would recommend reading through the WA Department of Revenue's page on the Taxation of Digital Products:

In particular, WAC 458-20-15502 suggests you should be paying the royalties B&O tax:

Example 3. GB Computers, Inc., develops engineering software. GB grants SE Computers, Inc., the right to reproduce and distribute copies of the prewritten computer software for sale to end users. GB retains all of its ownership rights to the software and delivers one copy of the software to SE to reproduce and sell. Amounts received by GB from SE for granting the right to reproduce and distribute prewritten computer software are subject to royalties B&O tax. Sales by SE to consumers are retail sales subject to retailing B&O tax and retail sales tax.

  1. You do not sell the product directly to the consumer, Apple does.
  2. You retain ownership rights of your software and deliver an electronic copy for Apple to distribute.
  3. Apple already pays retail B&O tax on their app sales, it does not make sense for you pay again.
  4. Apple send you a monthly payment for your percentage of the apps sold.

Based on these circumstances the royalties B&O tax appears to be the correct one. You should of course confirm with your own accountant.

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