Washington Court Games the Sales Tax Trade-In Exclusion

The Washington Court of Appeals upheld the Washington Department of Revenue’s denial of a sales tax exclusion for trade-ins of software and hardware. GameStop provides customers with a trade-in credit for software and hardware and allows customers to apply these credits towards future purchases of software and hardware. The Department denied GameStop’s exclusion for two reasons: the Department relied on its interpretation of its regulation to conclude that software and hardware are “not of a like kind,” and GameStop violated the separate statement requirement on trade-in credits used for subsequent purchases. In reaching its decision, the court agreed with the Department’s interpretation of its regulation that “property of like kind” is based on the “nature of the property and its function or use,” because software and hardware do not perform the same function or use. The court also noted that “[w]e give great deference to the Department’s interpretations of its own regulations, especially where the legislature has silently acquiesced over a long period to the Department’s construction.” Wash. Dep’t of Revenue v. GameStop, Inc., 428 P. 3d 1269 (Oct. 30, 2018), withdrawn upon motion for reconsideration, No. 50409-0-II, 2019 WL 1247107 (Wash. Ct. App. Mar. 19, 2019).