|Passed by the House March 19, 2003|
Speaker of the House of Representatives
Passed by the Senate April 10, 2003
President of the Senate
I, Cynthia Zehnder, Chief Clerk of the House of Representatives of the State of Washington, do hereby certify that the attached is ENGROSSED HOUSE BILL 2030 as passed by the House of Representatives and the Senate on the dates hereon set forth.
Governor of the State of Washington
Secretary of State
State of Washington
|State of Washington||58th Legislature||2003 Regular Session|
Read first time 02/19/2003. Referred to Committee on Finance.
AN ACT Relating to changing requirements regarding state and local tax to provide for municipal business and occupation tax uniformity and fairness; adding new sections to chapter 35.21 RCW; creating new sections; prescribing penalties; and providing an effective date.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1
The legislature intends to provide for a more uniform system of city business and occupation taxes that eliminates multiple taxation, while allowing for some continued local control and flexibility to cities.
NEW SECTION. Sec. 2
(1) A light and power business or a natural gas distribution business, as defined in RCW 82.16.010;
(2) A telephone business, as defined in RCW 82.04.065;
(3) Cable television services;
(4) Sewer or water services;
(5) Drainage services;
(6) Solid waste services; or
(7) Steam services.
NEW SECTION. Sec. 3
(1) "Business" has the same meaning as given in chapter 82.04 RCW.
(2) "City" means a city, town, or code city.
(3) "Business and occupation tax" or "gross receipts tax" means a tax imposed on or measured by the value of products, the gross income of the business, or the gross proceeds of sales, as the case may be, and that is the legal liability of the business.
(4) "Value of products" has the same meaning as given in chapter 82.04 RCW.
(5) "Gross income of the business" has the same meaning as given in chapter 82.04 RCW.
(6) "Gross proceeds of sales" has the same meaning as given in chapter 82.04 RCW.
NEW SECTION. Sec. 4
(b) The municipal research council shall contract to post the model ordinance on an internet web site and to make paper copies available for inspection upon request. The department of revenue and the department of licensing shall post copies of or links to the model ordinance on their internet web sites. Additionally, a city that imposes a business and occupation tax must make copies of its ordinance available for inspection and copying as provided in chapter 42.17 RCW.
(c) The definitions and tax classifications in the model ordinance may not be amended more frequently than once every four years, however the model ordinance may be amended at any time to comply with changes in state law. Any amendment to a mandatory provision of the model ordinance must be adopted with the same effective date by all cities.
(2) A city that imposes a business and occupation tax must adopt the mandatory provisions of the model ordinance. The following provisions are mandatory:
(a) A system of credits that meets the requirements of section 6 of this act and a form for such use;
(b) A uniform, minimum small business tax threshold of at least the equivalent of twenty thousand dollars in gross income annually. A city may elect to deviate from this requirement by creating a higher threshold or exemption but it shall not deviate lower than the level required in this subsection. If a city has a small business threshold or exemption in excess of that provided in this subsection as of January 1, 2003, and chooses to deviate below the threshold or exemption level that was in place as of January 1, 2003, the city must notify all businesses licensed to do business within the city at least one hundred twenty days prior to the potential implementation of a lower threshold or exemption amount;
(c) Tax reporting frequencies that meet the requirements of section 7 of this act;
(d) Penalty and interest provisions that meet the requirements of sections 8 and 9 of this act;
(e) Claim periods that meet the requirements of section 10 of this act;
(f) Refund provisions that meet the requirements of section 11 of this act; and
(g) Definitions, which at a minimum, must include the definitions enumerated in sections 3 and 12 of this act. The definitions in chapter 82.04 RCW shall be used as the baseline for all definitions in the model ordinance, and any deviation in the model ordinance from these definitions must be described by a comment in the model ordinance.
(3) Except for the system of credits developed to address multiple taxation under subsection (2)(a) of this section, a city may adopt its own provisions for tax exemptions, tax credits, and tax deductions.
(4) Any city that adopts an ordinance that deviates from the nonmandatory provisions of the model ordinance shall make a description of such differences available to the public, in written and electronic form.
NEW SECTION. Sec. 5
NEW SECTION. Sec. 6
(a) Persons who engage in business activities that are within the purview of more than one classification of the tax shall be taxable under each applicable classification.
(b) Notwithstanding anything to the contrary in this section, if imposition of the tax would place an undue burden upon interstate commerce or violate constitutional requirements, a taxpayer shall be allowed a credit only to the extent necessary to preserve the validity of the tax.
(c) Persons taxable under the retailing or wholesaling classification with respect to selling products in a city shall be allowed a credit against those taxes for any eligible gross receipts taxes paid by the person (i) with respect to the manufacturing of the products sold in the city, and (ii) with respect to the extracting of the products, or the ingredients used in the products, sold in the city. The amount of the credit shall not exceed the tax liability arising with respect to the sale of those products.
(d) Persons taxable under the manufacturing classification with respect to manufacturing products in a city shall be allowed a credit against that tax for any eligible gross receipts tax paid by the person with respect to extracting the ingredients of the products manufactured in the city and with respect to manufacturing the products other than in the city. The amount of the credit shall not exceed the tax liability arising with respect to the manufacturing of those products.
(e) Persons taxable under the retailing or wholesaling classification with respect to selling products in a city shall be allowed a credit against those taxes for any eligible gross receipts taxes paid by the person with respect to the printing, or the printing and publishing, of the products sold within the city. The amount of the credit shall not exceed the tax liability arising with respect to the sale of those products.
(2) The model ordinance shall be drafted to address the issue of multiple taxation for those tax classifications that are in addition to those enumerated in subsection (1)(c) through (e) of this section. The objective of any such provisions shall be to eliminate multiple taxation of the same income by two or more cities.
NEW SECTION. Sec. 7
NEW SECTION. Sec. 8
(2) A city that imposes a business and occupation tax shall compute interest paid on refunds or credits of amounts paid or other recovery allowed a taxpayer in accordance with RCW 82.32.060.
NEW SECTION. Sec. 9
NEW SECTION. Sec. 10
NEW SECTION. Sec. 11
NEW SECTION. Sec. 12
(a) Eligible gross receipts tax.
(c) Manufacturing. Software development may not be defined as a manufacturing activity.
(e) Retail sale.
(f) Services. The term "services" excludes retail or wholesale services.
(g) Wholesale sale.
(i) To manufacture.
(j) Commercial and industrial use.
(k) Engaging in business.
(2) Any tax classifications in addition to those enumerated in subsection (1) of this section that are included in the model ordinance must be uniform among all cities.
NEW SECTION. Sec. 13
(1) Gross income derived from all activities other than those taxed as service or royalties shall be allocated to the location where the activity takes place.
(a) In the case of sales of tangible personal property, the activity takes place where delivery to the buyer occurs.
(b) If a business activity allocated under this subsection (1) takes place in more than one city and all cities impose a gross receipts tax, a credit shall be allowed as provided in section 6 of this act; if not all of the cities impose a gross receipts tax, the affected cities shall allow another credit or allocation system as they and the taxpayer agree.
(2) Gross income derived as royalties from the granting of intangible rights shall be allocated to the commercial domicile of the taxpayer.
(3) Gross income derived from activities taxed as services shall be apportioned to a city by multiplying apportionable income by a fraction, the numerator of which is the payroll factor plus the service-income factor and the denominator of which is two.
(a) The payroll factor is a fraction, the numerator of which is the total amount paid in the city during the tax period by the taxpayer for compensation and the denominator of which is the total compensation paid everywhere during the tax period. Compensation is paid in the city if:
(i) The individual is primarily assigned within the city;
(ii) The individual is not primarily assigned to any place of business for the tax period and the employee performs fifty percent or more of his or her service for the tax period in the city; or
(iii) The individual is not primarily assigned to any place of business for the tax period, the individual does not perform fifty percent or more of his or her service in any city and the employee resides in the city.
(b) The service income factor is a fraction, the numerator of which is the total service income of the taxpayer in the city during the tax period, and the denominator of which is the total service income of the taxpayer everywhere during the tax period. Service income is in the city if:
(i) The customer location is in the city; or
(ii) The income-producing activity is performed in more than one location and a greater proportion of the service-income-producing activity is performed in the city than in any other location, based on costs of performance, and the taxpayer is not taxable at the customer location; or
(iii) The service-income-producing activity is performed within the city, and the taxpayer is not taxable in the customer location.
(c) If the allocation and apportionment provisions of this subsection do not fairly represent the extent of the taxpayer's business activity in the city or cities in which the taxpayer does business, the taxpayer may petition for or the tax administrators may jointly require, in respect to all or any part of the taxpayer's business activity, that one of the following methods be used jointly by the cities to allocate or apportion gross income, if reasonable:
(i) Separate accounting;
(ii) The use of a single factor;
(iii) The inclusion of one or more additional factors that will fairly represent the taxpayer's business activity in the city; or
(iv) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.
(4) The definitions in this subsection apply throughout this section.
(a) "Apportionable income" means the gross income of the business taxable under the service classifications of a city's gross receipts tax, including income received from activities outside the city if the income would be taxable under the service classification if received from activities within the city, less any exemptions or deductions available.
(b) "Compensation" means wages, salaries, commissions, and any other form of remuneration paid to individuals for personal services that are or would be included in the individual's gross income under the federal internal revenue code.
(c) "Individual" means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee of that taxpayer.
(d) "Customer location" means the city or unincorporated area of a county where the majority of the contacts between the taxpayer and the customer take place.
(e) "Primarily assigned" means the business location of the taxpayer where the individual performs his or her duties.
(f) "Service-taxable income" or "service income" means gross income of the business subject to tax under either the service or royalty classification.
(g) "Tax period" means the calendar year during which tax liability is accrued. If taxes are reported by a taxpayer on a basis more frequent than once per year, taxpayers shall calculate the factors for the previous calendar year for reporting in the current calendar year and correct the reporting for the previous year when the factors are calculated for that year, but not later than the end of the first quarter of the following year.
(h) "Taxable in the customer location" means either that a taxpayer is subject to a gross receipts tax in the customer location for the privilege of doing business, or that the government where the customer is located has the authority to subject the taxpayer to gross receipts tax regardless of whether, in fact, the government does so.
NEW SECTION. Sec. 14
NEW SECTION. Sec. 15
(2) For the purposes of this section, "net fiscal impacts" means accounting for the potential of both positive and negative fiscal impacts on local jurisdictions that may result from this act.
(3) It is the intent of the legislature through this study to provide accurate fiscal impact analysis and recommended options to alleviate revenue impacts from this act so as to allow local jurisdictions to anticipate and appropriately address any potential adverse revenue impacts from this act.
NEW SECTION. Sec. 16
NEW SECTION. Sec. 17
NEW SECTION. Sec. 18 Sections 2 through 14 of this act are each
added to chapter
NEW SECTION. Sec. 19