H-3013

AN ACT Relating to revenue and taxation; amending RCW 82.03.130, 82.03.140, 82.03.180, and 82.08.020; adding a new title to the Revised Code of Washington, to be numbered Title 82A RCW; creating a new section; prescribing penalties; providing for submission of this act to a vote of the people; and providing a contingent effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. DEFINITIONS. Unless the context clearly requires otherwise, the definitions in this section apply throughout this title:

(1) "Corporation" means a person taxable as a corporation under the Internal Revenue Code, including a corporation electing to be taxed under subchapter S of chapter 1 of the Internal Revenue Code.

(2) "Department" means the state department of revenue.

(3) "Gross income" means all income from whatever source derived, including but not limited to the following items:

(a) Compensation for services, including fees, commissions, and similar items;

(b) Gross income derived from business;

(d) Interest;

(e) Rents;

(f) Royalties;

(g) Dividends;

(h) Alimony and separate maintenance payments;

(i) Annuities;

(j) Income from life insurance and endowment contracts;

(k) Pensions;

(l) Income from discharge of indebtedness;

(m) Distributive share of partnership gross income;

(n) Income in respect of a decedent; and

(o) Income from an interest in an estate or trust.

(4) "Individual" means a natural person.

(5) "Internal Revenue Code" means the United States Internal Revenue Code of 1954 and amendments thereto, as existing on January 1, 1987.

(6) "Person" includes individuals, corporations, partnerships, firms, companies, fiduciaries, and any other group or combination acting as a unit.

(7) "Resident" includes:

(a) An individual who is domiciled in this state unless the individual maintains no permanent place of abode in this state and does maintain a permanent place of abode elsewhere and spends in the aggregate not more than thirty days of the taxable year in this state; or who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate more than one hundred eighty-three days of the taxable year in this state;

(b) The estate of a decedent who at the time of death was domiciled in this state;

(d) An irrevocable trust, the grantor of which was domiciled in this state at the time the trust became irrevocable. For purposes of this subsection (7)(d), a trust is irrevocable to the extent that the grantor is not treated as the owner thereof under sections 671 through 679 of the Internal Revenue Code.

(8) "Taxable income" means gross income as modified under section 3 of this act.

(9) "Taxable year" means the taxpayer's taxable year as defined under the Internal Revenue Code.

(10) "Taxpayer" means a person receiving income subject to tax under this title.

NEW SECTION. Sec. 2. TAX IMPOSED. (1) A tax is imposed at the rate of one percent on all taxable income received by individuals, estates, trusts, and corporations.

(2) Moneys collected under this chapter shall be deposited in the basic education account created in section 19 of this act.

NEW SECTION. Sec. 3. TAXABLE INCOME MODIFICATIONS. In computing taxable income, the following modifications shall be made to the taxpayer's gross income:

(1) Deduct twelve thousand dollars for individual returns, and eighteen thousand dollars for joint returns.

(2) Deduct income derived from obligations of the United States that this state is prohibited by federal law from subjecting to an income tax.

(3) Deduct amounts that are allowed under the Internal Revenue Code as ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

(4) Deduct amounts that are allowed under the Internal Revenue Code as ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income.

(5) Allocate and apportion income as required in section 5 of this act.

NEW SECTION. Sec. 4. PARTNERSHIPS. (1) Partnerships are not subject to tax under this title. Partners are subject to tax in their separate or individual capacities.

(2) The taxable incomes of partners shall be computed by including a share of the modifications under section 3 of this act if the modification relates to the income of the partnership. Each partner's share of a modification is the amount of modification multiplied by a fraction. The numerator of the fraction is the partner's distributive share of partnership income. The denominator of the fraction is the total partnership income. The fraction shall never be greater than one.

NEW SECTION. Sec. 5. APPORTIONMENT AND ALLOCATION OF INCOME. (1) For resident individuals and corporations other than financial organizations or public utilities, all income shall be apportioned and allocated to this state except income that is apportioned or allocated to another state under RCW 82.56.010.

(2) For nonresident individuals, all income shall be apportioned and allocated to this state if it is not apportioned or allocated to another state under RCW 82.56.010 and is received:

(a) For the rendition of personal services in this state;

(b) As a result of the ownership or disposition of any interest in real or tangible personal property in this state; or

(3) For financial organizations and public utilities, the department shall promulgate rules under which the extent of the taxpayer's income attributable to this state may be fairly determined and apportioned and allocated to this state. As used in this subsection, "financial organization" and "public utility" have the meanings given in section 1 of Article IV of RCW 82.56.010.

NEW SECTION. Sec. 6. TAX RETURNS FOR FRACTIONAL YEAR. If the first taxable year of any taxpayer with respect to which a tax is imposed by this title ends before December 31st of the calendar year in which this title becomes effective (referred to in this section as a fractional taxable year), the taxable income for the fractional taxable year shall be the taxpayer's taxable income for the entire taxable year, adjusted by one of the following methods, at the taxpayer's election:

(1) The taxable income shall be multiplied by a fraction. The numerator of the fraction is the number of days in the fractional taxable year. The denominator of the fraction is the number of days in the entire taxable year.

(2) The taxable income shall be adjusted, in accordance with rules of the department, so as to include only such income and be reduced only by such deductions as can be clearly determined from the permanent records of the taxpayer to be attributable to the fractional taxable year.

NEW SECTION. Sec. 7. EMPLOYER WITHHOLDING‑-REQUIREMENTS. (1) Every employer making a payment of wages or salaries earned in this state, regardless of the place where the payment is made, shall deduct and withhold a tax as prescribed in tables adopted by the department by rule. The tables shall reasonably reflect the annual tax liability of the employee under this title. Every employer making such a deduction and withholding shall furnish to the employee a record of the amount of tax deducted and withheld from the employee on forms provided by the department.

(2) If the employee is a resident of this state and earns income from personal services entirely performed in another state that imposes an income tax on the income, and the employer withholds income taxes under the laws of the state in which the income is earned, the employer is not required to withhold any tax imposed by this title on the income if the laws of the state in which the income is earned allow a similar exemption for its residents who earn income in this state.

NEW SECTION. Sec. 8. LIABILITY OF EMPLOYER FOR TAX WITHHELD. Any person required to deduct and withhold the tax imposed by this title is liable for the payment of the amount deducted and withheld to the department, and is not liable to any other person for the amount of tax deducted and withheld under this title. The amount of tax so deducted and withheld shall be held to be a special fund in trust for this state.

NEW SECTION. Sec. 9. WITHHOLDING BY GOVERNMENTAL ENTITY. If the employer is the United States or this state or any political subdivision thereof, or an agency or instrumentality of any one or more of the foregoing, then the return of the amount deducted and withheld upon any wages or salaries may be made by any officer of the employer having control of the payment of the wages and salaries or appropriately designated for that purpose.

NEW SECTION. Sec. 10. CREDIT FOR TAX WITHHELD‑-HOW CLAIMED. The amount deducted and withheld as tax under sections 7 through 9 of this act during any taxable year shall be allowed as a credit against the tax imposed for the taxable year by this title. If the tax liability of any individual shown by the return is less than the total amount of the credit that the individual is entitled to claim under this section, the individual is entitled to a refund in the amount of the excess of the credit over the tax otherwise due. If any individual entitled to claim a credit under this section is not otherwise required by this title to file a return, a refund may be obtained in the amount of the credit by filing a return, with applicable sections completed, to claim the refund. No credit or refund is allowed under this section unless the credit or refund is claimed on a return filed for the taxable year for which the amount was deducted and withheld.

NEW SECTION. Sec. 11. METHOD OF ACCOUNTING. (1) A taxpayer's method of accounting for purposes of the tax imposed under this title shall be the same as the taxpayer's method of accounting for federal income tax purposes. If no method of accounting has been regularly used by a taxpayer for federal income tax purposes, tax due under this title shall be computed by a method of accounting that in the opinion of the department fairly reflects income.

(2) If a person's method of accounting is changed for federal income tax purposes, it shall be similarly changed for purposes of this title.

NEW SECTION. Sec. 12. RECORDS‑-RETURNS. (1) Every taxpayer and every person required to collect the tax imposed under this title shall keep records, render statements, make returns, file reports, and perform other acts, as the department requires by rule. Each return shall be made under penalty of perjury and on forms prescribed by the department. The department may require other statements and reports be made under penalty of perjury and on forms prescribed by the department. The department may require any taxpayer and any person required to collect the tax imposed under this title to furnish to the department a correct copy of any return or document that the taxpayer has filed with the internal revenue service or received from the internal revenue service.

(2) All books and records and other papers and documents required to be kept under this title are subject to inspection by the department at all times during business hours of the day.

NEW SECTION. Sec. 13. COMBINED REPORTING‑-ADMINISTRATIVE ADJUSTMENTS. (1) If a corporation required to report under this title owns or controls, either directly or indirectly, another corporation or corporations except foreign corporations, or if a corporation required to report under this title is owned or controlled, either directly or indirectly, by another corporation except a foreign corporation, the department may require a combined or consolidated report showing the combined taxable income and apportionment factors of the controlled group, excluding foreign corporations, and any other information it deems necessary to ascertain the taxable income of the corporations. The department may, in such manner as it may determine, assess the tax against the corporations that are required to report under this title and whose taxable income is involved in the report upon the basis of the combined entire taxable income; or it may adjust the tax in such other manner as it determines to be equitable if it determines the adjustment is necessary to prevent evasion of taxes or to reflect the income earned by the corporations from business done in this state. Direct or indirect ownership or control of more than fifty percent of the voting stock of a corporation constitutes ownership or control for purposes of this section.

(2) If two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in or having income from sources allocable to this state, and whether or not affiliated) are owned or controlled directly or indirectly by the same interests, the department may distribute, apportion, or allocate income, deductions, credits, exemptions, or allowances between or among the organizations, trades, or businesses if it determines that the distribution, apportionment, or allocation is necessary to prevent evasion of the tax imposed by this title.

NEW SECTION. Sec. 14. SERVICE OF PROCESS. (1) Any person who incurs tax liability under this title and who removes from this state or conceals his or her whereabouts shall be considered to appoint the secretary of state of this state as the person's agent for service of process or notice in any judicial or administrative proceeding under this title. This process or notice shall be served by the department on the secretary of state by leaving at the office of the secretary of state, at least fifteen days before the return day of the process or notice, a certified copy thereof and by sending to the person, by registered or certified mail, a certified copy with an endorsement thereon of the service upon the secretary of state, addressed to the person at the person's last known address.

(2) Service of process or notice in the manner and under the circumstances provided in this section is of the same force and validity as if served upon the person personally within this state. Proof of this service may be made in any judicial or administrative proceeding by the affidavit of the authorized agent of the department who made the service, with a copy of the process or notice that was so served attached to the affidavit.

NEW SECTION. Sec. 15. PROVISIONS OF INTERNAL REVENUE CODE CONTROL. (1) To the extent possible, without being inconsistent with this title, all of the provisions of the Internal Revenue Code relating to the following subjects apply to the taxes imposed under this title:

(a) Time and manner of payment of tax imposed under this title, including tax withheld under sections 7 through 9 of this act.

(b) Periods of limitation upon assessment and collection of taxes. However, if a taxpayer fails to report a change or correction increasing his or her federal gross income, or fails to report a change or correction that is treated as if it were a deficiency for federal income tax purposes, an assessment may be made at any time within one year of the date on which the department first learns of the change or correction.

(d) Liability of transferees.

(e) Closing agreements and compromises.

(f) Deficiency procedures, except that the state board of tax appeals shall review deficiencies under chapter 82.03 RCW.

(g) Penalties and additions for failure to timely file returns or pay taxes.

(h) Timing, amount, and manner of payment of estimated tax payments.

(i) Time and manner of making returns, verification of returns, and the time when a return is deemed filed.

(j) Powers of the secretary of the treasury, exercised under this title by the department, to prepare and execute returns, to prescribe forms, to enforce collection of the tax through liens and seizure of property, and to impose penalties.

(2) The department by rule may provide modifications and exceptions to the provisions listed in subsection (1) of this section if reasonably necessary to facilitate the prompt, efficient, and equitable collection of tax under this title.

NEW SECTION. Sec. 16. RULES. The department may adopt rules under chapter 34.05 RCW for the administration and enforcement of this title. The rules, to the extent possible without being inconsistent with this title, shall follow the Internal Revenue Code, and the regulations and rulings of the United States treasury department with respect to the federal income tax. The department may adopt as a part of these rules any portions of the Internal Revenue Code and treasury department regulations and rulings, in whole or in part.

NEW SECTION. Sec. 17. REFUNDS OF OVERPAYMENTS‑-OTHER ADMINISTRATIVE PROVISIONS. (1) The department shall refund all taxes and penalties improperly paid or collected.

(2) RCW 82.32.110, 82.32.120, 82.32.130, 82.32.320, 82.32.330, and 82.32.340 apply to the administration of the taxes imposed under this title.

NEW SECTION. Sec. 18. CRIMES. (1) Any person who knowingly attempts to evade or defeat the tax imposed under this title or payment thereof is guilty of a class C felony as provided in chapter 9A.20 RCW.

(2) Any person required to collect tax imposed under this title who knowingly fails to collect, truthfully account for, or pay over the tax is guilty of a class C felony as provided in chapter 9A.20 RCW.

(3) Any person who knowingly fails to pay tax, pay estimated tax, make returns, keep records, or supply information, as required under this title, is guilty of a gross misdemeanor as provided in chapter 9A.20 RCW.

NEW SECTION. Sec. 19. The basic education account is created in the state treasury. All receipts from the tax imposed by section 2(1) of this act shall be deposited into the account. Moneys in the account may be spent only after appropriation. Expenditures from the account may be used only for the purposes of the basic education act.

Sec. 20. RCW 82.03.130 and 1989 c 378 s 4 are each amended to read as follows:

JURISDICTION OF BOARD. The board shall have jurisdiction to decide the following types of appeals:

(1) Appeals taken pursuant to RCW 82.03.190.

(2) Appeals from a county board of equalization pursuant to RCW 84.08.130.

(3) Appeals by an assessor or landowner from an order of the director of revenue made pursuant to RCW 84.08.010 and 84.08.060, if filed with the board of tax appeals within thirty days after the mailing of the order, the right to such an appeal being hereby established.

(4) Appeals by an assessor or owner of an intercounty public utility or private car company from determinations by the director of revenue of equalized assessed valuation of property and the apportionment thereof to a county made pursuant to chapter 84.12 RCW and 84.16 RCW, if filed with the board of tax appeals within thirty days after mailing of the determination, the right to such appeal being hereby established.

(5) Appeals by an assessor, landowner, or owner of an intercounty public utility or private car company from a determination of any county indicated ratio for such county compiled by the department of revenue pursuant to RCW 84.48.075: PROVIDED, That

(a) Said appeal be filed after review of the ratio under RCW 84.48.075(3) and not later than fifteen days after the mailing of the certification; and

(b) The hearing before the board shall be expeditiously held in accordance with rules prescribed by the board and shall take precedence over all matters of the same character.

(6) Appeals from the decisions of sale price of second class shorelands on navigable lakes by the department of natural resources pursuant to RCW 79.94.210.

(7) Appeals from urban redevelopment property tax apportionment district proposals established by governmental ordinances pursuant to RCW 39.88.060.

(8) Appeals from interest rates as determined by the department of revenue for use in valuing farmland under current use assessment pursuant to RCW 84.34.065.

(9) Appeals from revisions to stumpage value tables used to determine value by the department of revenue pursuant to RCW 84.33.091.

(10) Appeals from denial of tax exemption application by the department of revenue pursuant to RCW 84.36.850.

(11) Appeals relating to income tax deficiencies under Title 82A RCW.

Sec. 21. RCW 82.03.140 and 1988 c 222 s 4 are each amended to read as follows:

APPEALS. In all appeals over which the board has jurisdiction under RCW 82.03.130, a party taking an appeal may elect either a formal or an informal hearing, such election to be made according to rules of practice and procedure to be promulgated by the board: PROVIDED, That nothing shall prevent the assessor or taxpayer, as a party to an appeal pursuant to RCW 84.08.130, within twenty days from the date of the receipt of the notice of appeal, from filing with the clerk of the board notice of intention that the hearing be a formal one: PROVIDED, HOWEVER, That nothing herein shall be construed to modify the provisions of RCW 82.03.190: AND PROVIDED FURTHER, That upon an appeal under RCW 82.03.130(5) or (11), the director of revenue may, within ten days from the date of its receipt of the notice of appeal, file with the clerk of the board notice of its ((~~intention that the hearing be held pursuant to chapter 34.05 RCW~~)) election of a formal hearing. In the event that appeals are taken from the same decision, order, or determination, as the case may be, by different parties and only one of such parties elects a formal hearing, a formal hearing shall be granted.

Sec. 22. RCW 82.03.180 and 1989 c 175 s 176 are each amended to read as follows:

JUDICIAL REVIEW. (1) For appeals other than those under RCW 82.03.130(11), judicial review of a decision of the board of tax appeals shall be de novo in accordance with the provisions of RCW 82.32.180 or 84.68.020 as applicable except when the decision has been rendered pursuant to a formal hearing elected under RCW 82.03.140 or 82.03.190, in which event judicial review may be obtained only pursuant to RCW 34.05.510 through 34.05.598: PROVIDED, HOWEVER, That nothing herein shall be construed to modify the rights of a taxpayer conferred by RCW 82.32.180 and 84.68.020 to sue for tax refunds: AND PROVIDED FURTHER, That no review from a decision made pursuant to RCW 82.03.130(1) may be obtained by a taxpayer unless within the petition period provided by RCW 34.05.542 the taxpayer shall have first paid in full the contested tax, together with all penalties and interest thereon, if any. The director of revenue shall have the same right of review from a decision made pursuant to RCW 82.03.130(1) as does a taxpayer; and the director of revenue and all parties to an appeal under RCW 82.03.130(5) shall have the right of review from a decision made pursuant to RCW 82.03.130(5).

(2) Within thirty days after the final decision of the board in a case under RCW 82.03.130(11) in which a formal hearing is elected, the taxpayer or the department may appeal to the court of appeals. The appeal shall be perfected by filing with the clerk of the court of appeals a petition for review and by serving a copy thereof by mail or personally on the opposing party. The petitioner shall pay the costs of preparing the record of the hearing, and thereafter the board shall file with the clerk of the court the original or a certified copy of the entire record of the proceeding under review. RCW 34.05.570(3) applies to this review, and a bond shall be required for the review if requested by the department. The appropriate division of the court of appeals in which the petition for review is to be filed shall be, at the option of the petitioner, either division II or that division containing the district in which is located the petitioner's residence or principal place of business. The method of judicial review of the board of tax appeals decision provided in this subsection is exclusive. Nothing in this subsection prevents an appeal from the court of appeals to the state supreme court in the same manner as in other civil cases. There shall be no judicial review of a final decision of the board under RCW 82.03.130(11) in which a formal hearing has not been elected.

Sec. 23. RCW 82.08.020 and 1985 c 32 s 1 are each amended to read as follows:

(1) There is levied and there shall be collected a tax on each retail sale in this state equal to the lesser of (a) six and five-tenths percent, or (b) six and five-tenths percent, minus an amount equal to any increase over the one percent rate that was established by section 2 of this act on the effective date of this act, of the selling price.

(2) The tax imposed under this chapter shall apply to successive retail sales of the same property.

(3) The rate provided in this section applies to taxes imposed under chapter 82.12 RCW as provided in RCW 82.12.020.

NEW SECTION. Sec. 24. JUDICIAL REVIEW OF CLAIM FOR REFUND. Any person having filed a claim for refund or credit on any tax, penalty, or other sum collected under this title may, within the applicable period of limitation provided in section 15(1)(b) of this act, sue for a refund or credit on the tax, penalty, or other sum in the superior court of Thurston county. All procedures and rights of appeal governing other civil actions apply to these proceedings.

This section does not apply to any tax payment which has been the subject of an appeal to the state board of tax appeals with respect to which a formal hearing has been held.

NEW SECTION. Sec. 25. SEVERABILITY. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 26. CODIFICATION. Sections 1 through 19 and 22 of this act shall be codified as a new title in the Revised Code of Washington, to be numbered Title 82A RCW.

NEW SECTION. Sec. 27. CAPTIONS NOT LAW. Section captions constitute no part of the law.

NEW SECTION. Sec. 28. REFERENDUM. This act shall be submitted to the people for their adoption and ratification, or rejection, at the next succeeding general election to be held in this state, in accordance with Article II, section 1 of the state Constitution, as amended, and the laws adopted to facilitate the operation thereof.

NEW SECTION. Sec. 29. CONTINGENT EFFECTIVE DATE. This act shall take effect January 1, 1992, if approved and ratified by the voters at the next general election.