Business and Occupation Tax. 
Washington's major business tax is the B&O tax.  The B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the costs of doing business.  Businesses must pay the B&O tax even though they may not have any profits or may be operating at a loss.
 
A taxpayer may have more than one B&O tax rate, depending on the types of activities conducted.  Major B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 percent or 1.75 percent, depending on gross receipts, for services and for activities not classified elsewhere.  Several preferential rates also apply to specific business activities.
 
Business and Occupation Surcharge on Financial Institutions. 
A surcharge is imposed on financial institutions with an annual net income of $1 billion or more for the previous calendar year.  The surcharge is 1.2 percent and applies to the business' income subject to the B&O tax under the service and other activities tax classification.  All receipts from the surcharge are deposited into the state general fund.  
 
Workforce Education Funding. 
The B&O tax has two rates under the service and other activities classification.  Businesses falling under the service and other activities classification with a gross income of $1 million or more are taxed at a B&O rate of 1.75 percent.  A portion of the revenue generated from the 1.75 percent B&O rate is deposited into the Workforce Education Investment Account to support higher education programs, state-funded student aid, and workforce development.  Businesses falling under the service and other activities classification with a gross income of less than $1 million are subject to a B&O tax rate of 1.5 percent.   
 
Tax Preferences. 
State law provides for a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer.  Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits.  Washington has over 700 tax preferences, including a variety of sales and use tax exemptions.  Legislation that establishes or expands a tax preference must include a tax preference performance statement that identifies the public policy objective of the preference, as well as specific metrics that the Joint Legislative Audit and Review Committee can use to evaluate the effectiveness of the preference.  All new tax preferences automatically expire after 10 years unless an alternative expiration date is provided.

Business and Occupation Tax Deduction for Payment Card Processing Fees. 
A B&O tax deduction is allowed for amounts received by payment card processing companies in the form of interchange fees or network fees.
 
Interchange fees are fees set by a payment network that an issuing bank retains from the amounts settled to a merchant.  The fees are compensation for the services the issuing bank provides for issuing a credit, debit, or prepaid card to a cardholder, advancing proceeds to settle a credit, debit, or prepaid card transaction, and incurring a portion of the risks relating to the transaction. 
 
Network fees are fees a payment network charges for its services, including for facilitating the payment of a credit, debit, or prepaid card transaction from cardholders to a merchant through the payment network.
 
Business and Occupation Tax Rate on Payment Card Processing Activities. 
Payment card processing activities are subject to a B&O tax rate of 3 percent.  The new B&O tax rate applies to any gross income derived from the merchant discount of those merchants with which the payment card processing company has directly or indirectly contracted to perform payment card processing activities.
 
Payment card processing activities subject to the new B&O tax rate of 3 percent are also subject to the surcharge on financial institutions and the workforce education investment surcharge.
 
For payment card processing activities in which more than one payment card processing company receives a portion of the merchant discount, each company is required to include in its gross income the portion of the merchant discount it is entitled to retain.

The term "merchant discount" means the aggregate fee, or negotiated discount, incurred by a merchant for the processing of payment card transactions under its contract with a payment card processing company when it accepts a payment network-branded credit, debit, or prepaid card in a sale transaction.
 
The term "payment card processing activities" means acquiring, either directly or indirectly, credit, debit, or prepaid card transactions from merchants, facilitating the submission of those transactions to payment networks, and facilitating the payment of proceeds of those transactions to merchants.
 
Tax Preference Performance Requirements. 
The B&O tax deduction for amounts received by payment card processing companies in the form of interchange fees or network fees is permanent and not subject to tax preference performance review.
 
Retroactivity Clause. 
The bill applies prospectively and retroactively to any penalties or interest assessed on delinquent taxes, including any disputed assessments pending before the Department of Revenue, Board of Tax Appeals, or any court of law.  Any tax not previously paid must be paid within 90 days of the effective date of the act but is not subject to penalties or interest.