BILL REQ. #:  H-2406.1 

READ FIRST TIME 03/10/03.   

     AN ACT Relating to local government business and occupation tax on intellectual property; and adding a new section to chapter 35.21 RCW.

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

NEW SECTION.  Sec. 1   A new section is added to chapter 35.21 RCW to read as follows:
     (1) Except as provided in this section, a city may not impose a business and occupation tax on intellectual property creating activities.
     (2) A city may impose a business and occupation tax measured by gross receipts from royalties or other compensation from the sale, licensing, or other transfer of intellectual property only on taxpayers domiciled in the city.
     (3) This section does not prohibit a city from imposing a business and occupation tax measured by the value of products manufactured in the city merely because intellectual property creating activities are involved in the design or manufacturing of the products.
     (4) This section does not prohibit a city from imposing a business and occupation tax measured by the gross proceeds of sales made in the city merely because intellectual property creating activities are involved in creation of the articles sold.
     (5) This section does not prohibit a city from imposing a business and occupation tax measured by the gross income received for services rendered in the city merely because intellectual property creating activities are some part of services rendered.
     (6) A tax in effect on January 1, 2002, is not subject to this section until January 1, 2004.
     (7) The definitions in this subsection apply to this section.
     (a) "Business and occupation tax" means a tax measured by gross proceeds of sales, gross income of the business, or value proceeding or accruing.
     (b) "City" includes cities, code cities, and towns.
     (c) "Domicile" means the principal place from which the trade or business of the taxpayer is directed or managed.
     (d) "Intellectual property creating activity" means research, development, authorship, creation, or general or specific inventive activity without regard to whether the intellectual property creating activity actually results in the creation of patents, trademarks, trade secrets, subject matter subject to copyright, or other intellectual property.
     (e) "Manufacture," "gross proceeds of sales," "gross income of the business," "value proceeding or accruing," and "royalties" have the same meanings as under chapter 82.04 RCW.
     (f) "Value of products" means the value of products as determined under RCW 82.04.450.