Director's Rule 5-532
Real estate brokers and salesman
Real estate brokers and salesman
(1) Definitions.
(a) The terms "real estate broker" and "real estate salesman" mean, respectively, a person licensed as such under the provisions of chapter 18.85 RCW. A real estate broker is a person licensed by the State of Washington who acts for others, for commissions or other compensation or acting on their own behalf, sells or offers to sell, lists, buys or offers to buy, negotiates or offers to negotiate, real estate, business opportunities or mobile homes, or any interest therein. A real estate salesman is a person who works either directly or indirectly for a real estate broker in the performance of any of the acts permitted to a real estate broker.
(b) The term "gross income of the business" includes gross income from commissions, fees and other emoluments, however designated, which the person receives or becomes entitled to receive, but does not include amounts held in trust for others. SMC 5.30.035 (D) ("gross income of the business" defined).
(2) Business License Tax.
(a) A real estate broker is engaged in business as an independent contractor and is taxable under the service and other business activities classification upon the gross income of the business.
(b) A real estate salesman is presumed to be an independent contractor and is taxable under the service and other business activities classification upon the gross income of the business.
(c) Except as expressly provided for in this rule, no deduction or exclusion from gross income for real estate brokers or salesmen is allowed. For example, you may not deduct commissions, fees, salaries paid to another broker or salesman, dues, any charges to others, referral fees, or fees paid to multiple listing associations.
(3) Tax on Real Estate Commissions.
(a) The measure of the tax on real estate commissions earned by a real estate broker is the gross commission earned by the particular real estate brokerage office including that portion of the commission paid to salesmen or associate brokers in the same office. Where the broker has paid the tax on 100 percent of the gross commission earned by that office. from a particular transaction, salesmen and associated brokers in the same office are not required to pay tax on their share of the commission from that transaction. Where the brokerage office at which the real estate salesman or associate broker's license is required to be posted has not paid the tax on 100 percent of the gross commission earned by that office on a particular transaction, each real estate salesman or associated broker who receives a share of the gross commission shall pay tax on his or her share.
(b) Where there is an agreement between an originating brokerage office and a cooperating brokerage office to effectuate a particular transaction, each brokerage office shall pay tax only upon its respective share of the commission from that transaction (SMC 5.45.090 (AA)). Except as expressly provided in this subsection (3)(b), a broker may not exclude commissions from income.
(4) Shared Expenses.
(a) Where a broker charges salesmen or associate brokers for providing space and other facilities such as telephone, advertising, multiple-listing service, and office supplies, the broker is subject to business license tax on such charges, in addition to the tax on gross commissions, regardless of whether a fixed amount per month, a percentage of commissions, or a percentage of sales is used as the basis for the charges. The business license tax applies to the charges even if the broker is simply, without markup, attempting to recover the costs which are incurred by having the salesman or associate broker within the office. The recovery of these costs does not qualify as a nontaxable reimbursement unless the broker is acting as the agent of the salesmen or associate brokers in incurring the costs, and does not have either primary or secondary liability to pay the provider of the supplies or services. See SMC 5.45.040 (C) for provisions governing the exclusion of advances and reimbursements.
(b) A broker may enter into written agreements with salesmen or associate brokers where it is agreed that the broker is solely liable for all expenses incurred by the real estate brokerage office, and that the salesman or associate broker is under no obligation to reimburse the broker for expenses. ln.such cases, the broker is deemed not to have received income from the payment of expenses on behalf of the salesmen or associate broker if, and only if, such written agreement:
(i) provides that the salesman or associate broker is not entitled to any commission unless and until the broker has recouped its expenses;
(ii) provides that the salesman or associate broker has no liability to pay the broker's expenses even if the gross commission is not adequate to pay them; and
(iii) contains a predetermined amount of any net commission to which the salesman or associate broker is entitled, which commission amount may be determined on a formulary or percentage basis.
Effective: July 15, 2005
DIRECTOR'S CERTIFICATION
I, Kenneth J. Nakatsu, Director of the Department of Executive Administration of the City of Seattle, do hereby certify under penalty of perjury of law, that the within and foregoing is a true and correct copy as adopted by the City of Seattle, Department of Executive Administration.