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House of Representatives P.O. Box 40600 Office of Program Research Olympia WA 98504-0600 Finance Committee Phone 360-786-7100
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HB 2485
Bill Analysis
February 4, 1998
Brief Description: Eliminating the business and occupation tax on internal distrbutions.
Bill Sponsors: Representatives Van Luven, Dunshee, Kastama, Gardner and Linville; by request of Department of Revenue.
Staff: Rick Peterson, 786-7150.
Background: The business and occupation tax (B&O) is levied for the privilege of doing business in Washington. The tax is levied on the gross receipts of all business activities (except utility activities) conducted within the state.
Although there are several different rates, beginning July 1, 1998 the principal rates will be as follows:
Manufacturing/wholesaling 0.484%
Retailing 0.471%
Services 1.5%
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. For this reason, the tax pyramids at each level of activity. For example, retailers are not allowed to deduct amounts paid to wholesalers, and contractors are not allowed to deduct amounts paid to a subcontractor.
Firms distributing merchandise from their own warehouses to two or more of their own retail stores must pay a B&O tax on the value of the articles distributed. This "internal distributions" tax applies (at the 0.484 wholesaling rate) to integrated firms that perform wholesale functions but are not technically wholesalers.
The intent of the internal distributions tax is to tax both independent wholesalers and integrated firms in the same way. The tax is now being avoided by large integrated retailers who have restructured to have a subsidiary or other entity operate the warehouse.
Summary of Bill: The "internal distributions" tax is eliminated.
Appropriation: None.
Fiscal Note: Available.
Effective Date: July 1, 1998.