BILL REQ. #:  H-0503.1 

Read first time 01/11/2007.   Referred to Committee on Finance.

     AN ACT Relating to excise tax relief for proceeds lost due to theft; adding a new section to chapter 82.04 RCW; adding a new section to chapter 82.08 RCW; adding a new section to chapter 82.12 RCW; providing an effective date; and declaring an emergency.

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

NEW SECTION.  Sec. 1   A new section is added to chapter 82.04 RCW to read as follows:
     (1) In computing tax there may be deducted from the measure of tax imposed on the business of making retail or wholesale sales the amount of any proceeds from a retail or wholesale sale that have been lost due to theft. The deduction is allowed only if the theft was by a person other than the seller, an immediate family or household member of the seller, an employee of the seller, or a person having a business or contractual relationship with the seller at the time of the theft. The maximum deduction allowable is five thousand dollars per theft.
     (2) A deduction is allowed under this section only to the extent the loss is not covered by insurance or otherwise recovered. Proceeds subsequently recovered in whole or in part must be reported as gross proceeds of sales for the return filed for the period in which the recovery is made, but only if the seller incurred a tax liability under this chapter on the return for the period in which the theft occurred or would have incurred a tax liability under this chapter for the period in which the theft occurred absent the deduction under this section.
     (3) A seller must report the theft to the appropriate law enforcement agency and obtain a copy of such report, which shall be retained as supporting documentation for the deduction. The department may require additional information or documentation from the seller as it determines necessary in order to verify the seller's right to a deduction under this section.
     (4) The deduction claimed under this section shall not exceed the amount of proceeds of retail or wholesale sales that are lost due to theft. If a seller cannot determine whether a loss due to theft represents proceeds of retail or wholesale sales, or proceeds from business activities taxable under this chapter other than as a retail or wholesale sale, the seller may use the method of apportioning the loss in (a) of this subsection or other method of determining the deduction under this section as approved by the department before taking the deduction.
     (a) If the amount of loss due to theft is known, or an estimate has been approved in advance by the department under (b) of this subsection, but the proper amount of the deduction under this section cannot be determined, the seller may apportion the loss to retail or wholesale sales as provided in this subsection (4)(a). The department may adjust the amount of loss apportioned under this subsection (4)(a) based on amended returns filed by the seller or based on the results of an audit of the seller by the department.
     (i) The seller may determine the amount of the loss to apportion to retail sales by multiplying the loss by a fraction. The numerator of the fraction is the taxable amount reported under all retailing business and occupation tax classifications on the seller's excise tax returns for the calendar year immediately preceding the calendar year in which the theft occurred. The denominator of the fraction is the total taxable amount reported under all business and occupation tax classifications on the seller's excise tax returns for the calendar year immediately preceding the calendar year in which the theft occurred, less any amount for which a credit is allowed under RCW 82.04.440. For purposes of the numerator and denominator, if the seller was not engaged in business in the calendar year immediately preceding the theft, or if the seller is required to file returns more frequently than annually, the seller may use the taxable amounts on its returns covering the most recent twelve-month period ending with the reporting period immediately preceding the reporting period in which the theft occurred. If twelve months of return data is not available, the seller shall use as many months of return data as is available.
     (ii) The seller may determine the amount of the loss to apportion to wholesale sales by multiplying the loss by a fraction. The numerator of the fraction is the taxable amount reported under all wholesaling business and occupation tax classifications on the seller's excise tax returns for the calendar year immediately preceding the calendar year in which the theft occurred. The denominator of the fraction is the total taxable amount reported under all business and occupation tax classifications on the seller's excise tax returns for the calendar year immediately preceding the calendar year in which the theft occurred, less any amount for which a credit is allowed under RCW 82.04.440. For purposes of the numerator and denominator, if the seller was not engaged in business in the calendar year immediately preceding the theft, or if the seller is required to file returns more frequently than annually, the seller may use the taxable amounts on its returns covering the most recent twelve-month period ending with the reporting period immediately preceding the reporting period in which the theft occurred. If twelve months of return data is not available, the seller shall use as many months of return data as is available.
     (b) If the exact amount of proceeds lost due to theft cannot be precisely determined, the seller may estimate the amount of the loss. The estimated amount used for the purpose of this deduction must equal the amount indicated in the report made to law enforcement, and must be approved in advance by the department. The department may require additional information or documentation as it determines is necessary.
     (5) For the purposes of this section, the following definitions apply:
     (a) "Proceeds" means the gross proceeds of sales.
     (b) "Taxable amount" means the gross amount subject to the tax imposed in this chapter required to be reported on the person's excise tax returns, less any allowable deductions other than the deduction under this section.

NEW SECTION.  Sec. 2   A new section is added to chapter 82.08 RCW to read as follows:
     (1) A seller is entitled to a deduction from the measure of tax for the amount of any proceeds from a retail sale subject to tax under RCW 82.08.020 that have been lost due to theft. The deduction is allowed only if the theft was by a person other than the seller, an immediate family or household member of the seller, an employee of the seller, or a person having a business or contractual relationship with the seller at the time of the theft. The maximum deduction allowable is five thousand dollars per theft.
     (2) A deduction is allowed under this section only to the extent that the loss is not covered by insurance or otherwise recovered. Proceeds subsequently recovered in whole or in part and the tax thereon must be paid and reported on the return filed in the period in which the recovery is made.
     (3) A seller must report the theft to the appropriate law enforcement agency and obtain a copy of such report, which shall be retained as supporting documentation for the deduction. The department may require additional information or documentation from the seller as it determines is necessary in order to verify the seller's right to a deduction under this section.
     (4)(a) The deduction claimed under this section shall not exceed the amount of proceeds of retail sales subject to the tax under RCW 82.08.020 that are lost due to theft. If a seller cannot determine whether a loss due to theft represents proceeds of a retail sale subject to the tax imposed by RCW 82.08.020, or proceeds from business activities not taxable as a retail sale, the seller may use the method of apportioning the loss in (b) of this subsection or other method of determining the deduction under this section as approved by the department before taking the deduction. The department may adjust the amount of loss apportioned under (b) of this subsection based on amended returns filed by the seller or based on the results of an audit of the seller by the department.
     (b)(i) If the amount of loss due to theft is known, or an estimate has been approved in advance by the department under (b)(ii) of this subsection, but the proper amount of the deduction under this section cannot be determined, the seller may apportion the loss to retail sales subject to tax under RCW 82.08.020 as provided in section 1(4)(a)(i) of this act.
     (ii) If the proceeds lost due to theft represent retail sales and the local sales taxes imposed on such sales are sourced to more than one local taxing authority, the seller shall estimate the amount of the loss. The estimated amount used for the purpose of this deduction must equal the amount indicated in the report made to law enforcement, and must be approved in advance by the department. The department may require additional information or documentation as it determines is necessary.
     (5) For the purposes of this section, "proceeds" has the same meaning as "selling price" in RCW 82.08.010.

NEW SECTION.  Sec. 3   A new section is added to chapter 82.12 RCW to read as follows:
     (1) A retailer required by RCW 82.12.040 to collect the tax imposed by this chapter is entitled to a credit for use tax proceeds from a transaction for which the tax imposed by this chapter was collected and that have been lost due to theft. The credit is allowed only if the theft was by a person other than the retailer, an immediate family or household member of the retailer, an employee of the retailer, or a person having a business or contractual relationship with the retailer at the time of the theft. The maximum credit allowable is four hundred fifty dollars per theft.
     (2) A credit may be claimed under this section only to the extent that the loss is not covered by insurance or otherwise recovered. Proceeds subsequently recovered in whole or in part must be paid and reported on the return filed in the period in which the recovery is made.
     (3) A retailer must report the theft to the appropriate law enforcement agency and obtain a copy of such report, which shall be retained as supporting documentation for the credit. The department may require additional information or documentation from the retailer as it determines is necessary in order to verify the retailer's right to a credit under this section.
     (4) The credit claimed under this section shall not exceed the amount of proceeds that are lost due to theft. If a retailer cannot determine whether a loss due to theft represents proceeds of transactions for which the tax imposed by this chapter was collected as required by RCW 82.12.040, or proceeds from other business activities, the seller may use the method of apportioning the loss in (a) of this subsection or other method of determining the credit under this section as approved by the department before claiming the credit. The department may adjust the amount of loss apportioned under (a) of this subsection based on amended returns filed by the seller or based on the results of an audit of the seller by the department.
     (a)(i) If the amount of loss due to theft is known, or an estimate has been approved in advance by the department under (b) of this subsection, but the proper amount of the credit under this section cannot be determined, the retailer may apportion the loss to the use tax collected as provided in this subsection (4)(a).
     (ii) The retailer may determine the amount of the loss to apportion to the use tax collected by multiplying the loss by a fraction. The numerator of the fraction is the total amount of state and local use tax collected by the retailer in the calendar year immediately preceding the calendar year in which the theft occurred. The denominator of the fraction is the total tax liability of the retailer reported on the retailer's excise tax returns for the calendar year immediately preceding the calendar year in which the theft occurred. For purposes of the numerator and denominator, if the retailer was not engaged in business in the calendar year immediately preceding the theft, or if the retailer is required to file returns more frequently than annually, the retailer may use data reported on its returns covering the most recent twelve-month period ending with the reporting period immediately preceding the reporting period in which the theft occurred. If twelve months of return data is not available, the retailer shall use as many months of return data as is available.
     (b) If the exact amount of proceeds lost due to theft cannot be precisely determined, the retailer may estimate the amount of the loss. The estimated amount used for the purpose of this credit must equal the amount indicated in the report made to law enforcement, and must be approved in advance by the department. The department may require additional information or documentation as it determines is necessary.
     (5) For the purposes of this section, "proceeds" means taxes imposed under this chapter and collected as required by RCW 82.12.040.

NEW SECTION.  Sec. 4   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2007.