Recent audits by the Washington Department of Revenue (DOR) in Washington State have raised questions about an Excise Tax Advisory (ETA) issued on March 7, 2014 regarding the sales tax implications for alarm monitoring companies and dealers. At the center of the interpretation is the definition and application of a “Digital Automated Service” or DAS, which is subject to sales taxes. DAS is defined as “…any service transferred electronically that uses one or more software applications . . .” As explained in the ETA, an exception to a DAS is for services that require “primarily human effort.” Recent audits by the Washington Department of Revenue (DOR) in Washington State have raised questions about an Excise Tax Advisory (ETA) issued on March 7, 2014 regarding the sales tax implications for alarm monitoring companies and dealers. At the center of the interpretation is the definition and application of a “Digital Automated Service” or DAS, which is subject to sales taxes. DAS is defined as “…any service transferred electronically that uses one or more software applications . . .” As explained in the ETA, an exception to a DAS is for services that require “primarily human effort.”
The ETA then proceeds to provide three examples with calculations that it used to determine if the “primarily human effort” exception applies. In the first two examples the DOR indicated the alarm monitoring would be subject to sales taxes, yet in the third example, the DAS exception for “primarily human effort” would apply. In reality, all three examples point to the same type of monitoring service, yet they are interpreted differently in the ETA. Consequently, DOR audits of alarm monitoring companies have resulted in different determinations, subjecting at least one alarm monitoring company to sales taxes for all monitored accounts, and being subject to back taxes (and penalties) for up to three (3) years.
All alarm monitoring companies and dealers who operate in the State of Washington are urged to review this ETA carefully and seek the counsel of your tax advisor. Efforts are underway with ESA and TMA members in Washington to work with the DOR and prevent inconsistent determinations from individual audits in the future.
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