Rev. Rul. 58-212

Advice has been requested as to the deductibility by the consumer, for Federal income tax purposes, of the State of Washington tax on retail sales of intoxicating liquor imposed under section 82.08.150 of the Revised Code of Washington, as amended.

The Revised Code of Washington, as amended, contains the following provisions with respect to the tax on retail sales and the tax on intoxicating liquors:

82.0.020 Retail sales tax imposed. There is levied and there shall be collected a tax on each retail sale in this state equal to three and one-third percent of the selling price. The tax imposed under this chapter shall apply to successive retail sales of the same property and to the retail sale of intoxicating liquor by the Washington state liquor stores.

82.08.050 Buyer to pay, seller to collect tax penalties. The tax hereby imposed shall be paid by the buyer to the seller, and each seller shall collect from the buyer the full amount of the tax payable in respect to each taxable sale in accordance with the schedule of collections adopted by the tax commission pursuant to the provisions of RWC 82.08.060. The tax required by this chapter, to be collected by the seller, shall be deemed to be held in trust by the seller until paid to the commission, and any seller who appropriates or converts the tax collected to his own use * * * shall be guilty of a misdemeanor.

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The amount of tax, until paid by the buyer to the seller or to the commission, shall constitute a debt from the buyer to the seller * * * and any buyer who refuses to pay any tax due under this chapter shall be guilty of a misdemeanor.

Where a buyer has failed to pay to the seller the tax imposed by this chapter and the seller has not paid the amount of the tax to the commission, the commission may, in its discretion, proceed directly against the buyer for collection of the tax, * * *.

82.08.120. Rebating or absorption of tax by seller prohibited.-Whoever, excepting as expressly authorized by this chapter, refunds, remits, or rebates to a buyer, either directly or indirectly and by whatever means, all or any part of the tax levied by this chapter, or makes in any form of advertising, verbal or otherwise, any statements which might infer that he is absorbing the tax or paying the tax for the buyer by an adjustment of prices, or at a price including the tax or in any other manner whatsoever shall be guilty of a misdemeanor. * * *.

82.08.150. There is levied and shall be collected from and after the first day of November 1951, a tax upon each retail sale of spirits, wine, or strong beer in the original package and at the rate of ten percent of the selling price, and the term `retail sale' as used herein shall include, in addition to the meaning ascribed thereto in chapter 82.04 RCW, any sale not for resale in such original package. The tax imposed in this section shall apply to the sale of spirits, wine, or strong beer by the Washington state liquor stores and agencies, including sales to Class H licensees. The tax imposed in RCW 82.08.020 shall not apply to sales subject to the tax imposed by this section. * * *.

Section 164(a) of the Internal Revenue Code of 1954 provides that in computing taxable income there shall be allowed as a deduction taxes paid or accrued within the taxable year, with certain exceptions not here material.

Section 1.164-1 of the Income Tax Regulations provides that, in general, taxes are deductible only by the person, upon whom they are imposed.

It is clear that it was the legislative intent to impose the tax provided in section 82.08.150 of the Revised Code of Washington, as amended, upon the purchaser and to make the seller, the Washington State liquor stores and agencies, the collector of the tax for and on behalf of the State. See, in this regard, Morrow v. Heneford , 182 Wash. 625, 47 Pac.(2d) 1016 (1935), in which the Supreme Court of Washington held that the sales tax authorized under the Laws of Washington of 1935 was imposed upon the buyer. See also, I.T. 2955, C.B. XV-1, 94 (1936).

Accordingly, it is held the tax imposed by the State of Washington upon the retail sale of spirits, wine, or strong beer in the original package under the provisions of section 82.08.150 of the Revised Code of Washington, as amended, is deductible under section 164(a) of the Internal Revenue Code of 1954 by the purchaser in computing taxable income, except that, in the case of an individual who elects to use the optional standard deduction, the tax is not deductible unless attributable to a trade or business carried on by him which does not consist of the performance of services by the taxpayer as an employee. In the latter event, the tax is deductible from gross income in computing adjusted gross income.