HOUSE BILL REPORT

                 SHB 1261

                  As Amended by the Senate

Title:  An act relating to the business and occupation tax small business credit.

Brief Description:  Requiring a ranged table in standard increments for the business and occupation tax small business credit.

Sponsors:  By House Committee on Finance (originally sponsored by  Representatives Mulliken, Pennington, Boldt and Wensman; by request of Department of Revenue).

Brief History:

Committee Activity:

Finance:  1/30/97, 2/25/97 [DPS].

Floor Activity:

Passed House:  3/19/97, 97‑0.

Senate Amended.

HOUSE COMMITTEE ON FINANCE

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  Signed by 14 members:  Representatives B. Thomas, Chairman; Carrell, Vice Chairman; Mulliken, Vice Chairman; Dunshee, Ranking Minority Member; Dickerson, Assistant Ranking Minority Member; Boldt; Butler; Conway; Mason; Morris; Pennington; Schoesler; Thompson and Van Luven.

Staff:  Linda Brooks (786-7153).

Background: Washington=s major business tax is the Business and Occupation (B&O) tax.  This tax is imposed on the gross receipts of business activities conducted within the state.

A small business credit is provided for the B&O tax.  The maximum amount of credit is $420 per year.  The $420 credit offsets any tax liability of $420 per month or less.  The credit is phased out dollar-for-dollar by the amount the B&O tax liability exceeds $420.  If the tax liability is more than $420 and less than $840, the credit is equal to $840 minus the initial tax liability.  For example, if the initial liability is $600, the credit is $240 ($840 minus $600) and the net tax due is $360 ($600 minus $240).  If tax liability exceeds $840 (twice the maximum credit), the credit is zero and the full amount of the tax is due.

All taxpayers are eligible to use this credit to reduce their B&O taxes.  However, since the credit phases out at higher gross income amounts, only the smallest firms see a tax reduction.

Summary of Bill:  The Department of Revenue may prepare a ranged table using standard increments of no more than $10 for use by taxpayers in taking the small business B&O tax credit.  The table will cross reference tax liabilities with tax credits.  For example, if the taxpayer has a tax liability of $600, the table shows that the taxpayer may claim a tax credit of $240.  If the department prepares a table, all taxpayers are required to use the table to determine their credit amounts.

No taxpayer will owe a greater amount of tax as a result of the B&O tax credit table.

EFFECT OF SENATE AMENDMENT(S): Senate amendment limits the amount of the standard increments to no more than $5.  The House had limited the increments to no more than $10.

Appropriation:  None.

Fiscal Note:  Available.  New fiscal note requested on February 26, 1997.

Effective Date:  Ninety days after adjournment of session in which bill is passed.

Testimony For:  A tax credit table makes computing the amount of the tax due easier for the small business person.

Testimony Against:  None.

Testified:  Representative Mulliken, prime sponsor, and Jim Hedrick, Department of Revenue.