The Washington Department of Revenue recently issued guidance addressing whether paper bag fees charged by retailers are subject to sales tax in the state. The Taxability of Paper Bag Fees, Wash. Dept. of Revenue (Aug. 8, 2012). Several cities in Washington have passed local ordinances that require retail establishments to charge a minimum fee to customers for the use of certain carry-out bags. For tax purposes, these charges are treated as retail sales and are, therefore, subject to retail sales tax and the retailing Business and Occupations (B and O) tax. The charge for selling reusable bags is also subject to the retail sales and B and O tax.
Please note that certain cities, like Seattle and Bellingham, have recently passed ordinances that prohibit the use of plastic carry-out bags and authorize or require the retailer to collect a fee from customers who request paper carry-out bags. This fee is not remitted to the city. Because the retail establishment is not collecting the fee as an agent for the city, the fee is considered a retail sale, so it, too, is subject to the retail sales and B and O tax.