6143-S AMS BENT GORR 583

SSB 6143 - S AMD 334

By Senator Benton

NOT ADOPTED 3/06/2010

    On page 15, beginning on line 1, strike everything through page 20 line 3 and insert the following:

     "NEW SECTION. Sec. 201. A new section is added to chapter 82.32 RCW to read as follows:

(1) Unless otherwise specifically provided in statute, the department must respect the form of a transaction.

(2) The following transactions are considered to be “specified tax avoidance transactions:”

(a) Joint venture arrangements between construction contractors and the owner/developer of construction projects that are in essence guaranteed payments for the purchase of construction services specifically characterized by a failure of the joint venture agreements to provide for the contractor to share substantial profits and bear significant risk in the venture;

(b) A transaction, related series of transactions or other arrangement without a valid business purpose that result in a person avoiding tax on the receipt of income that would otherwise without such planning be subject to taxation in Washington provided that such income derives from a transaction with a person that is not affiliated with the taxpayer; and

 (c) For purposes of this subsection, “affiliated” means under common control.  “Control” means the possession, directly or indirectly, of more than fifty percent of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise.

(3) Solely for purposes of denying the tax benefit that would otherwise result on specified tax avoidance transactions, the department may take any reasonable steps necessary to deny the tax benefit that would otherwise arise as a result of the specified tax avoidance transaction.

 (3) The department must by rule provide guidance on specified tax transactions. The adoption of a rule as required under this subsection is not a condition precedent for the department to use the authority provided in this section to correct specified tax avoidance transactions. The rule adopted under this section must include examples of specified tax avoidance transactions.

NEW SECTION. Sec. 202. A new section is added to chapter 82.  RCW to read as follows: 

(1)(a) The department may not use section 201 of this act to disregard any transaction, plan, or arrangement initiated before April 1, 2010. 

Sec. 203. RCW 82.32.090 and 2006 c 256 s 6 are each amended to read as follows:

(1) If payment of any tax due on a return to be filed by a taxpayer is not received by the department of revenue by the due date, there ((shall be)) is assessed a penalty of five percent of the amount of the tax; and if the tax is not received on or before the last day of the  month following the due date, there ((shall be)) is assessed a total penalty of fifteen percent of the amount of the tax under this subsection; and if the tax is not received on or before the last day of the second month following the due date, there ((shall be)) is assessed a total penalty of twenty-five percent of the amount of the tax under  this subsection. No penalty so added shall be less than five dollars. 

(2) If the department of revenue determines that any tax has been substantially underpaid, there ((shall be)) is assessed a penalty of five percent of the amount of the tax determined by the department to be due. If payment of any tax determined by the department to be due is not received by the department by the due date specified in the notice, or any extension thereof, there ((shall be)) is assessed a  total penalty of fifteen percent of the amount of the tax under this  subsection; and if payment of any tax determined by the department to be due is not received on or before the thirtieth day following the due date specified in the notice of tax due, or any extension thereof, there ((shall be)) is assessed a total penalty of twenty-five percent of the amount of the tax under this subsection. No penalty so added ((shall)) may be less than five dollars. As used in this section, "substantially underpaid" means that the taxpayer has paid less than eighty percent of the amount of tax determined by the department to be due for all of the types of taxes included in, and for the entire period of time covered by, the department's examination, and the amount  of underpayment is at least one thousand dollars.

(3) If a warrant ((be)) is issued by the department ((of revenue)) for the collection of taxes, increases, and penalties, there ((shall be)) is added thereto a penalty of ten percent of the amount of the tax, but not less than ten dollars.

(4) If the department finds that a person has engaged in any business or performed any act upon which a tax is imposed under this title and that person has not obtained from the department a registration certificate as required by RCW 82.32.030, the department ((shall)) must impose a penalty of five percent of the amount of tax due from that person for the period that the person was not registered as required by RCW 82.32.030. The department ((shall)) may not impose the penalty under this subsection (4) if a person who has engaged in business taxable under this title without first having registered as required by RCW 82.32.030, prior to any notification by the department of the need to register, obtains a registration certificate from the department.

(5) If the department finds that all or any part of a deficiency resulted from the disregard of specific written instructions as to reporting or tax liabilities, the department ((shall)) must add a penalty of ten percent of the amount of the additional tax found due because of the failure to follow the instructions. A taxpayer disregards specific written instructions when the department ((of revenue)) has informed the taxpayer in writing of the taxpayer's tax obligations and the taxpayer fails to act in accordance with those instructions unless the department has not issued final instructions because the matter is under appeal pursuant to this chapter or departmental regulations. The department ((shall)) may not assess the penalty under this section upon any taxpayer who has made a good faith effort to comply with the specific written instructions provided by the department to that taxpayer. Specific written instructions may be given as a part of a tax assessment, audit, determination, or closing agreement, provided that such specific written instructions ((shall)) apply only to the taxpayer addressed or referenced on such documents. Any specific written instructions by the department ((of revenue shall)) must be clearly identified as such and ((shall)) must inform the taxpayer that failure to follow the instructions may subject the taxpayer to the penalties imposed by this subsection.

(6) If the department finds that all or any part of a deficiency resulted from engaging in a specified tax avoidance transaction, as described in section 201(2) of this act, the department must assess a penalty of thirty-five percent of the additional tax found to be due as a result of engaging in the specified tax avoidance transaction. The penalty provided in this subsection may be assessed together with any other applicable penalties provided in this section on the same tax found to be due, except for the evasion penalty provided in subsection (7) of this section. The department may not assess the penalty under this subsection if, before the department discovers the taxpayer's use of the specified tax avoidance transaction, the taxpayer discloses its participation in the transaction to the department. 

(7) If the department finds that all or any part of the deficiency  resulted from an intent to evade the tax payable ((hereunder)), a  further penalty of fifty percent of the additional tax found to be due  ((shall)) must be added.

(((7))) (8) The penalties imposed under subsections (1) through (4) of this section can each be imposed on the same tax found to be due.  This subsection does not prohibit or restrict the application of other penalties authorized by law. 

(((8))) (9) The department ((of revenue)) may not impose both the evasion penalty and the penalty for disregarding specific written  instructions or the penalty provided in subsection (6) of this section on the same tax found to be due. 

(((9))) (10) For the purposes of this section, "return" means any  document a person is required by the state of Washington to file to satisfy or establish a tax or fee obligation that is administered or  collected by the department ((of revenue)), and that has a statutorily defined due date.

NEW SECTION. Sec. 204. (1) The legislature finds that this state's tax policy with respect to the taxation of transactions between affiliated entities and the income derived from such transactions (intercompany transactions) has motivated some taxpayers to engage in transactions designed solely or primarily to minimize the tax effects of intercompany transactions. The legislature further finds that some intercompany transactions result from taxpayers that are required to establish affiliated entities to comply with regulatory mandates and that transactions between such affiliates effectively increases the tax burden in this state on the affiliated group of entities. The legislature also finds that certain legal doctrines available in other jurisdictions may be beneficial in administering state excise taxes.

(2) Therefore, the department of revenue is directed to conduct a review of the state's tax policy with respect to the taxation of intercompany transactions. The review must include the impacts of such transactions under the state's business and occupation tax and state and local sales and use taxes. The department may include other taxes in the review as it deems appropriate. The department shall also study the necessity for and desirability of adopting certain interpretive and judicial doctrines in administering excise taxes. 

(3) In conducting the review, the department must examine how this state's tax policy compares to the tax policy of other states with respect to the taxation of intercompany transactions and the use of certain interpretive doctrines. The department's review must include an analysis of potential alternatives to the current policy of taxing intercompany transactions, including their estimated revenue impacts if practicable. 

(4) In conducting this review, the department must seek input from members of the business community and others as it deems appropriate.

(5) The department must report its findings to the fiscal committees of the house of representatives and senate by December 1, 2010. However, if the department has not completed its review by December 1, 2010, the department must provide the fiscal committees of the legislature with a brief status report by December 1, 2010, and the final report by December 1, 2011."

    On page 111, beginning on line 14, strike everything through page 111, line 22.

    Renumber the sections consecutively and correct any internal references accordingly.

EFFECT:  The broad grant of authority is removed.  Specific and narrow authorities are added.  The list of judicial doctrines is removed.  The liberal construction clause is removed as is retroactive application.  Requires the department to provide by rule guidance on specific transactions.  Requires the department to study the necessity for and desirability of adopting certain interpretive and judicial doctrines in administering excise taxes.

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