Brief Description: Authorizing a business and occupation tax deduction for certain nonprofit community health centers.

Sponsors: Senators Prentice and Kohl-Welles.

Companion bill: None.

Hearing Date: 3/22/05

Staff: Rick Peterson (786-7150).

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. Nonprofit organizations pay B&O tax unless specifically exempted by statute. Exemption from federal income tax does not automatically provide exemption from state taxes.

Nonprofit health and social welfare organizations are allowed a deduction under the B&O tax for payments from governmental entities for health or social services. Examples include: health care; family and drug counseling; services for the sick, elderly, and disabled; day care; vocational training and employment services; legal services for the indigent; and services for low-income homeowners and renters. This exemption also applies to Medicaid and Medicare payments. The B&O tax deduction by health or social welfare organizations is provided only for payments made directly by federal, state, or local governments.

In addition, nonprofit hospitals and public hospitals are allowed a deduction under the B&O tax for payments for health care services covered under medicare, medicaid, children's health, or the basic health plan. Payments made directly from governments or indirectly by governments through managed care organizations are eligible for this deduction. This deduction does not apply to patient co-payments or deductibles.

Summary of Bill:

The tax deduction available to nonprofit hospitals and public hospitals for amounts received as compensation for health care services covered under medicare, medical assistance, children's health, or the basic health plan is extended to nonprofit community health centers and networks of nonprofit community health centers.

"Community health center" is defined as a federally qualified health center as defined in 42 U.S.C. 1396d as existing on the effective date of this act.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill contains an emergency clause and takes effect on August 1, 2005.