Video Game Software and Hardware Not Like-Kind for Washington Trade-in Purposes

The Washington Board of Tax Appeals (BTA) erred when it reduced sales tax assessments against a video game software and hardware retailer due to customer trade-ins.

Property of Like Kind

Separately stated trade-in property of like kind is excluded from retail sales tax. However, in the present case, the retailer allowed customers to trade in video game hardware for software (and vice versa) Video game software and hardware are not property of like kind as software and hardware do not perform the same use or function. Video game software provides commands to hardware and directs its operation so a game may function. Video game hardware contains a computer system including a computer processing unit and graphics processing unit. Futhermore, Rule 247 explicitly states that computer hardware and computer software do not serve the same function.

Separately Stated Trade-in Property

When a customer trades in property but does not use the in-store credit until a later date, sales documents only state the amount of the store credit applied and do not identify the specific merchandise traded in. Though the BTA interpreted the statute to require only a separate statement of consideration, this conflicts with the wording of the statute. As the actual trade-in merchandise was not separately stated on the subsequent sales receipts, an accurate accounting of trade-in transactions could not be accomplished.

Single Transaction

Rule 247 is invalid to the extent it requires that a purchase and a trade-in be part of a single transaction. The statute does not contain any timing requirements and the department of revenue cannot enforce a regulation that amends a statute.

Department of Revenue v. Gamestop Inc., The Court of Appeals of Washington, Division Two, No. 50409-0-II, October 30, 2018, ¶204-408

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