Background: The Sales and Use Tax. The sales tax is imposed by the state, counties, and cities on retail sales of most items of tangible personal property and some services, including construction and repair services. If retail sales taxes were not collected when the property or services were acquired by the user, then use taxes are applied to the value of most tangible personal property and some services when used in this state. Use tax rates are the same as retail sales tax rates. The combined state/local rate is between 7 and 9.5 percent, depending on location.

The Federal Earned Income Tax Credit. The earned income tax credit (EITC), established in the federal tax code in 1975, is a refundable tax credit available to eligible workers earning relatively low wages. Because the credit is refundable, an EITC recipient need not owe taxes to receive the benefits. The amount of the credit varies but it is generally determined by income and family size. Some states with an income tax provide an EITC. For purposes of the EITC, earned income includes wages, salaries, tips, and other taxable employee pay. The following types of income are not considered earned income: retired persons' disability benefits, pensions and annuities, social security, child support, welfare benefits, workers' compensation benefits, and veterans' benefits. The EITC cannot be claimed unless investment income is less than $3,100 for the 2009 tax year. Generally, a taxpayer may be able to take the credit for tax year 2009 if the taxpayer:

has three or more qualifying children and earns less than $43,279 ($48,279 married filing jointly);
has two qualifying children and earns less than $40,295 ($45,295 married filing jointly);
has one qualifying child and earns less than $35,463 ($40,463 married filing jointly); or
has no qualifying children and earns less than $13,440 ($18,440 married filing jointly).

For the 2009 tax year, the maximum credit is:

$5,657 with three or more qualifying children;
$5,028 with two qualifying children;
$3,043 with one qualifying child; and
$457 with no qualifying children.

Working Families' Tax Exemption. In 2008 the Legislature enacted a working families' tax exemption in the form of a state sales tax remittance, equal to a percentage of the EITC. Persons eligible for the credit must file a federal income tax return, receive an EITC, and have resided in Washington for more than 180 days in the year which the exemption is claimed. Eligible persons must pay the sales tax in the year for which the exemption is claimed. For remittances in 2009 and 2010, the exemption for the prior year is $25 or equal to 5 percent of the EITC for which data is available, whichever is greater. For 2011 and thereafter, the exemption for the prior year is $50 or equal to 10 percent of the EITC for which data is available, whichever is greater. For any fiscal period, the working families' tax exemption must be approved in the state omnibus appropriations act. The Department of Revenue (DOR) determines eligibility based on information provided by the applicant, and through audit, administrative records, and verification of Internal Revenue Service records. DOR may use the best data available to process the remittance. DOR may, in conjunction with other agencies or organizations, design a public information campaign to inform potentially eligible persons of the exemption. DOR may contact persons who appear to be eligible. The administrative provisions of chapter 82.32 RCW apply and DOR is granted rulemaking authority. DOR must limit its costs to the initial start-up costs to implement the program. The state omnibus appropriations act must specify funding to be used for the ongoing administrative costs of the program.

Nexus. Nexus is the level of connection with a state necessary under the U.S. Commerce Clause to permit a state to impose a tax or a sales tax collection duty on out-of-state businesses doing business in the state. A state tax is constitutional under the Commerce Clause if it is assessed against a taxpayer with whom the state has a substantial nexus, is fairly apportioned, is nondiscriminatory, and is fairly related to the services provided by the state. Of these requirements, the substantial nexus requirement is often the most difficult to determine. In Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the Court held that out-of-state businesses must have a physical presence in the state for there to be substantial nexus sufficient under the Commerce Clause to impose a sales tax collection duty. However, the Court was less clear in indicating whether the physical presence standard extends to other taxes. The proper nexus standard for state taxation of out-of-state businesses has been a contentious issue since the Quill decision. Numerous state courts have since affirmed economic presence standards, holding that a state may tax businesses with no physical presence within its borders.

The state of Washington uses a physical presence standard to determine whether a business has nexus with Washington. A physical presence standard requires a business to own or use real or personal property in this state, employ employees in this state, or engage, directly or through an agent, in activities in this state significantly associated with the business' ability to establish or maintain a market for its products or services in this state. A few examples of nexus-creating activities include: soliciting sales in this state through employees or other representatives; installing or assembling goods in this state, either by employees or other representatives; maintaining a stock of goods in this state; renting or leasing tangible personal property in this state; or making repairs or providing maintenance or service to property sold in this state.

Apportionment. Generally, a business performing service-taxable activities inside and outside the state must apportion to Washington the gross income derived from Washington activities as determined by a separate accounting method. However, if a separate accounting is impractical or inaccurate, Washington law provides an apportionment formula based on the cost of doing business in Washington versus the cost of doing business everywhere. More specifically, the apportionment formula is a fraction, the numerator of which is the cost of doing business in Washington, and the denominator is the total cost of doing business everywhere. A business' total income, earned inside and outside of Washington, is multiplied by the resulting fraction/percentage to determine the amount of service income subject to Washington's B&O tax. Under Washington law, only service-taxable activities are subject to the apportionment formula.

Financial institutions are subject to a different formula for apportionment. State law requires that the rules for financial institutions be consistent with uniform rules for apportionment developed throughout the nation. The DOR has issued a rule that provides a standard three-factor formula for financial institutions. The apportionment percentage is the average of a receipts factor, payroll factor, and property factor. The financial institutions total gross income, earned inside and outside of Washington, is multiplied by the resulting percentage to determine the amount of income subject to Washington's B&O tax.

Royalty income is not apportioned in this state. Instead, royalties are allocated to the domicile of the business.

Economic Substance Doctrine. The economic substance doctrine states that a transaction’s tax benefits will not be allowed if the transaction does not have economic substance. This common law doctrine is an effort by the courts to enforce legislative intent in situations in which a literal reading of statutory code would allow a taxpayer to circumvent this intent. The doctrine is used frequently at the federal level to determine whether tax shelters or strategies used to reduce tax liability are considered abusive by the Internal Revenue Service. Washington courts have not used the economic substance doctrine to interpret tax statutes, but instead have relied on traditional methods of statutory construction that include: (1) looking to the plain language of a statute to determine whether the language is ambiguous; (2) giving words their common and ordinary meaning if the words are not ambiguous; (3) evaluating other evidence if language is determined to be ambiguous to ascertain legislative intent; and (4) construing tax exemptions, credits, and deductions narrowly.

Nonresident Sales Tax Exemption. The sales tax is imposed by the state, counties, and cities on retail sales of most items of tangible personal property and some services, including construction and repair services. The state sales rate is 6.5 percent and the local rates vary by location. If retail sales taxes were not collected when the property or services were acquired by the user, then use taxes are applied to the value of most tangible personal property and some services when used in this state. Use tax rates are the same as retail sales tax rates. The combined state/local rate is between 7.0 and 9.5 percent, depending on location.

Persons who reside in a state, possession or Canadian province that imposes a sales tax of less than 3.0 percent are exempt from Washington retail sales tax on tangible personal property purchased for use outside of Washington (i.e., the exemption does not apply to lodging or meals). Sales to residents of other states may also be exempt if their state of residence allows similar exemption for Washington residents; however, no state currently qualifies under this provision of reciprocity.

Direct Seller B&O Tax Exemption. A B&O tax exemption is provided for certain out-of-state sellers that sell consumer products exclusively to or through a direct seller's representative (DSR). Broadly, a DSR is defined to mean a person who buys consumer products for resale in either the home or some other forum that does not constitute a permanent retail establishment. There is no explicit requirement in the statute that the seller make sales of only consumer products through the DSR nor an explicit requirement that prohibits downstream sales of consumer products from being sold at retail from a permanent retail establishment. Traditionally, the exemption has been used by out-of-state sellers engaged in sales of consumer products exclusively through in-home parties or door-to-door selling. A seller qualifying for the exemption does not owe B&O tax on wholesaling or retailing of the consumer products. (The representative owes B&O tax on the commission.) In Dot Foods, Inc. v. Dep't of Revenue, 166 Wn.2d 912 (2009), the Washington Supreme Court held that the exemption also applies to out-of-state businesses selling non consumer products through its representative in addition to consumer products and to out-of-state businesses for consumer products ultimately sold at retail in permanent retail establishments. Many out-of-state businesses selling consumer products in this state could be eligible for the exemption under this expanded interpretation or could easily restructure their business operations to qualify for the exemption.

Tax Preferences for Manufacturers of Certain Agricultural Products. Washington law provides a preferential tax rate for the business of slaughtering, breaking, or processing of perishable meat products and the wholesaling of such perishable meat products. In Agrilink Foods, Inc. v. Dep't of Revenue, 153 Wn.2d 392 (2005), the Supreme Court held that the preferential B&O tax rate applies to the processing of perishable meat products into nonperishable finished products, such as canned food. There had been a question as to whether the finished product had to also be a perishable meat product.

A B&O tax exemption is provided for manufacturing by canning, preserving, freezing, processing, or dehydrating fresh fruits or vegetables, and selling such products at wholesale by the manufacturer to purchasers who transport the goods out-of-state in the ordinary course of business. This exemption expires July 1, 2012, and is replaced by a preferential B&O tax rate.

Preferential B&O Tax Rate for Board of Director Income. The wages of employees is exempt from the B&O tax. Members of corporate boards of directors receive fees for their services. Corporate directors are not employees of the corporation when they engage in their roles as corporate directors.

Foreclosure Real Estate Excise Tax Exemption. The sale of real estate is subject to the state real estate excise tax (REET). The tax is measured by the full selling price, including the amount of any liens, mortgages, or other debts multiplied by the rate of 1.28 percent. State law also authorizes several local REETs.

The REET also applies to transfers of controlling interests in entities that own property in the state. In order for the REET to apply to the sale of a controlling interest in an entity that owns real property, the following must have occurred: (1) the transfer or acquisition of the controlling interest occurred within a 12-month period; (2) the controlling interest was transferred in a single transaction or series of transactions by a single person or acquired by a single person or a group of persons acting in concert; (3) the entity has an interest in real property located in this state; (4) the transfer is not otherwise exempt from tax under state law; and (5) the transfer was made for valuable consideration. A program established in 2005 requires transfers of controlling interests in an entity that owns real property to be reported to the Secretary of State. Failure to report a transfer of a controlling interest to the Secretary of State can result in interest and penalties, including a 50 percent tax evasion penalty.

The REET is a legal obligation of the seller. Additionally, a statutory lien is placed on the property until the tax is paid. If REET is not properly paid, the DOR may enforce the obligation in an action of debt against the seller, enforce the lien in the same manner as a mortgage foreclosure, or some combination of the two. A buyer may also be liable for the REET unless the buyer notifies the DOR in writing within 30 days following the sale.

The real estate excise tax does not apply to a non judicial foreclosure sale of real property by a trustee under the terms of a deed of trust or a judicial foreclosure sale order by a court on any mortgage, lien, or deed of trust. This exemption applies regardless of whether the sale is to the lender or a third party.

Tax Debts - Corporate Officer Liability. Currently, business owners can be held personally liable for uncollected but unremitted sales tax only when a corporation or limited liability company goes out of business.

B&O Tax Credit for New Employment for International Service Activities. Firms engaged in certain international services are entitled to a B&O tax credit of $3,000 for each new job a firm creates. Eligible activities are defined in the statute, which include services such as computer, legal, accounting, engineering, architectural, advertising, and financial services. To qualify, the firm must be located in a community empowerment zone or in a city or group of contiguous cities with a population of at least 80,000.

Rural Job Credit and Deferral Program. A credit against the state B&O tax is provided for manufacturing, research and development, or computer service firms that create new jobs in rural counties or community empowerment zones (CEZs).

Rural counties are defined as those with an average population density of less than 100 persons per square mile. Currently, of the state's 39 counties, only seven (Clark, King, Kitsap, Pierce, Snohomish, Spokane and Thurston) do not meet this definition. CEZs have been established in King, Kitsap, Pierce, and Spokane Counties.

The amount of the credit is $2,000 for each new job created, unless the new position is paid wages (including benefits) of more than $40,000 annually, in which case the credit is $4,000. To qualify, a firm must increase its total employment in rural counties or community empowerment zones by at least 15 percent. The amount of credit is capped at $7.5 million annually for all firms. The 15 percent job increase percentage is calculated by comparing employment in the four full calendar quarters after employees are hired to employment in the four full calendar quarters before employees were hired.

The Rural County Sales/Use Tax Deferral Program grants a deferral of sales/use tax for manufacturing, and computer-related businesses, research and development laboratories, and commercial testing facilities (excluding light and power businesses) locating in rural counties, CEZ, or a county containing a CEZ. The sales and/or use taxes on qualified construction and equipment costs for such businesses located in these specific geographic areas are waived when all program requirements have been met and verified.

B&O Deduction for Dues and Fees. B&O tax deduction is allowed for amounts received by a business for which no goods or services are received and only give the payee the right to be a member (aka bona fide initiation fees and dues).

B&O Deduction for Bad Debts. A credit or refund against current sales tax liability is allowed for retail sales taxes previously remitted to the state on debts that are deductible as worthless for federal income tax purposes.

Taxation of Brokered Natural Gas. Washington imposes a separate and distinct use tax on the use of natural gas or manufactured gas, referred to as the brokered natural gas (BNG) use tax. Cities may impose a local version of the BNG use tax. The purpose of BNG use taxes is to eliminate differential tax treatment for natural gas purchased from gas companies, which is subject to state and local utility taxes, and gas purchased directly from producers by large, commercial users, which is not subject to utility taxes. The BNG use tax rates are identical to state and local utility tax rates.

Community Solar Incentives. In 2009 the Legislature enacted ESSB 6170, which provided additional incentives for renewable energy systems cost recovery program, extending the cost-recovery incentive program for renewable energy systems to include community solar projects. As a result, community solar projects are now eligible to receive cost recovery incentive payments from participating light and power businesses at a base incentive rate of $0.30 for each economic development kilowatt-hour of energy produced. Incentive payments for all other renewable energy systems remain at a base rate of $0.15 for each economic development kilowatt-hour of energy produced.

Sales and Use Tax Exemption for Livestock Nutrient Management Equipment and Facilities. In 2001 the Legislature provided an exemption from sales and use taxes for dairy nutrient management equipment, facilities, and related services. To be eligible the person had to have a certified dairy nutrient management plan. In 2006 the sales and use tax exemption was broadened beyond dairy to other sectors of the livestock industry that had approved nutrient management plans. A sales and use tax exemption applies to the materials, machinery, equipment, and labor and services purchased or used in relation to the operation, repair, cleaning, alteration, or improvement of livestock nutrient management facilities and equipment. Livestock nutrient management facilities and equipment are machinery, equipment, and structures used in the handling and treatment of livestock manure, such as aerators, agitators, alley scrapers, and augers. The exemption includes repair and replacement parts. The exemption requires facilities and equipment to be used exclusively for activities necessary to maintain a livestock nutrient management plan.

B&O Exemption for Property Management Salaries. B&O tax exemption is allowed for amounts received by a property management company, if the payments are received from a property management trust account for payment of wages and benefits to on-site personnel.

PUD Privilege Tax. Public Utility Districts (PUDs) were created to provide water and electricity, and to conserve water and power resources. Currently, there are 28 PUDs: 23 provide electricity services; 14 provide water or water and wastewater service; and 13 offer wholesale broadband telecommunications service.

The PUDs that generate, transmit, or distribute electricity are subject to the PUD privilege tax. The tax is intended to be in lieu of property tax, since public utility districts are governmental entities and do not pay property taxes.

The tax is based on the amount received from the sale of electricity. A recent lower court case has upheld the request for refund of tax by two PUDs that separate their kilowatt-hour charges from the charge to recoup the costs of providing service regardless of whether any electricity is used (e.g. meter reading, billing, and fixed facilities). These PUDs argue that tax should be paid only on the kilowatt-hour charge. It has been the department's interpretation that the tax applies to the entire amount received.

Sales Tax Exemption for Coal. Purchases of coal used at a thermal electric generating facility placed in operation after 1969 and before July 1, 1997, are exempt from retail sales/use tax. The exemption is contingent upon owners of the plant demonstrating to the Department of Ecology that progress is being made to install the necessary air pollution control devices and that the facility has emitted no more than 10,000 tons of sulfur dioxide during the previous 12 months.

Exemption for Machinery Used to Generate Electricity from Wind. Effective July 1, 2009, through June 30, 2013, purchases and installation of machinery and equipment that will be used directly in a facility that generates no more than ten kilowatts of electricity using solar energy are exempt from sales/use tax. In addition, purchases and installation of machinery and equipment used directly in generating electricity using fuel cells, sun, wind, biomass energy, tidal and wave energy, geothermal resources, anaerobic digestion, technology that converts otherwise lost energy from exhaust, or landfill gas in a facility that generates no less than one kilowatt of electricity are exempt from sales/use tax subject to the following: (1) from July 1, 2009, through June 30, 2011, the exemption is 100 percent of the sales or use tax paid; and (2) July 1, 2011, through June 30, 2013, the exemption is in the form of a refund from the DOR of 75 percent of sales or use tax paid.

Summary of Bill: Sales Tax and Working Families Tax Exemption. From June 1, 2010 until June 30, 2013, an additional sales and use tax of 0.3 percent is imposed.

An amount of $313,307,000 reflecting the increased revenue receipts, is appropriated for Fiscal Year 2011 from the state General Fund to the Education Legacy Trust Account to maintain support for property-poor school districts through the state's levy equalization program, provide funding for approximately 16,000 students to continue to receive state-funded all-day kindergarten, and allow approximately 34,000 students to attend institutions of higher education with the assistance of the state need grant.

The Working Families' Tax Exemption is provided to eligible low-income persons for sales tax paid after June 1, 2010. For remittances made in 2011 (for taxes paid in 2010), the exemption is the greater of $25 or a 5 percent of the EITC granted, prorated for the seven calendar months of 2010 in which the additional tax is imposed. For remittances made in 2012, the exemption is the greater of $25 or 5 percent of the EITC granted. For remittances made in 2013 and thereafter, the exemption is the greater of $50 or 10 percent of the EITC granted. For remittances provided in the Fiscal Year 2015 and thereafter, DOR must limit its ongoing costs to administer the program to 5 percent of the total exemptions provided each year.

An exception from the requirement that a sales and use tax change take effect no sooner than 75 days after its enactment and only on the first day of January, April, July, or October is provided.

An exception is provided from lowering the state expenditure limit from the monies deposited into or appropriated from the Education Legacy Trust Account.

Economic Nexus and Apportionment. For purposes of imposing the B&O tax on service activities and the activity of receiving royalty income, a business or individual will have substantial nexus with the state if the individual or business meets one of the following requirements: (1) an individual is a resident or domiciled in the state; (2) a business entity is organized or commercially domiciled in this state; or (3) the individual or business is organized or domiciled outside the state but has more than $50,000 of property in the state, more than $50,000 of payroll in the state, more than $250,000 of receipts from this state, or at least 25 percent of the individual's or business's total property, total payroll, or total receipts in this state. This nexus standard only applies to service activities and the activity of receiving royalty income. A business or individual with substantial nexus in any tax year is deemed to have substantial nexus with the state for the following tax year.

Income derived from service activities and royalties is apportioned to Washington based on a receipts factor. The receipts factor is a fraction of which the numerator is the total gross income of the business attributable to this state for the activity, and the denominator is the worldwide gross income of the business for the activity. The total worldwide gross income from the activity is multiplied by the receipts factor to determine the amount of income apportioned to Washington for purposes of the B&O tax. Apportionment using the receipts factor would replace the three-factor apportionment formula for financial institutions and the cost apportionment formula for other businesses providing services.

Except for financial institutions, gross income is attributable to this state based on the following series of hierarchical rules:

income is attributable to this state if the customer received the benefit of the service in this state or used the business's intangible property in this state;
if the customer received the benefit of the service or used the intangible property in more than one state, income is attributable to the state where the service was primarily received or where the intangible property is primarily used;
if income cannot be attributed under the foregoing, then the income is attributable to the state where the customer ordered the service or where the royalty agreement was negotiated;
if income cannot be attributed under the foregoing, then the income is attributable to the state to which the billing statements or invoices are sent to the customer;
if income cannot be attributed under the foregoing, then the income is attributable to the state from which the customer sends payment to the business;
if income cannot be attributed under the foregoing, then the income is attributable to the state where the customer is located; and
if income cannot be attributed under the foregoing, then the income is attributable to the state where the business is domiciled.

For financial institutions the Department must adopt their apportionment methods by rule.

Economic Substance and Tax Avoidance. The economic substance doctrine is adopted. Accordingly, DOR may disregard abusive tax avoidance transactions for tax periods on or after January 1, 2006. An abusive tax avoidance transaction is defined to mean a transaction, plan, or arrangement that lacks economic substance. A transaction is deemed to have economic substance only if: (1) the transaction changes the taxpayer's economic position in a meaningful way, apart from the transaction's tax effects; (2) the taxpayer has a substantial nontax purpose for entering into the transaction; and (3) the transaction is an objectively reasonable means of accomplishing the substantial nontax purpose. DOR has the burden of establishing that a transaction does not have economic substance.

If DOR determines that a transaction lacks economic substance, DOR may take reasonable steps necessary to deny the tax benefit resulting from the abusive tax avoidance transaction. These steps may include: re-characterizing the nature of income; disregarding the form of a corporate or other business entity; treating a transaction according to its underlying economic substance rather than form; treating a series of formally separate steps as a single transaction; and imputing income to a taxpayer who provides services to a related person and the consideration does not reflect the fair market value of the service.

If a tax deficiency is deemed to be a result of an abusive tax avoidance transaction, DOR may assess a 35 percent penalty; however, DOR may not assess the penalty if the taxpayer discloses its participation in an abusive tax avoidance transaction before DOR discovers it.

The statutory language describing how the acquisition of tangible personal property (TPP) occurs (lease, gift, bailment, etc.) is eliminated. Therefore, the acquisition of TPP in any manner is subject to use tax unless some other provision specifically exempts the transaction.

For the purpose of determining whether the sale of a controlling interest has occurred within a 12-month period, an option to purchase real estate is also included in the determination. The date the option agreement is executed is used as the relevant date.

DOR may, at its option, enforce the collection of REET for the sale of a controlling interest in a business by pursuing the buyer of a controlling interest, seller of a controlling interest, or the business entity itself of which a controlling interest is transferred.

The law is clarified that a lien for payment of REET attaches to each parcel of property owned by an entity in which a controlling interest has been transferred.

A parent corporation of a wholly owned subsidiary is responsible for REET if the subsidiary transfers real property to a third party and then dissolves before payment of the tax.

Buyers are no longer absolved from REET liability by simply providing notice of a real estate sale to DOR.

Direct Seller B&O Exemption. The B&O exemption for firms that sell into Washington using direct seller's representatives is eliminated. For periods prior to April 1, 2010, the exemption is retroactively limited to consumer products.

Preferential B&O Tax Rate for Manufacturing Certain Agricultural Products. The B&O preferential tax rate (0.138 percent) for meat processing to the manufacturing of perishable meat products, dehydrated, cured, or smoked meat products, and hides, tallow, and other meat by-products is expressly limited to those activities creating a final product which is at least 50 percent fruit and vegetables to qualify for the preferential tax rate.

The preferential rate for slaughtering, breaking, or processing perishable meat products or selling these perishable meat products at wholesale is modified by requiring that the end product be: a perishable meat product; a nonperishable meat product that is comprised primarily of animal carcass by weight or volume, other than a canned meat product; or a meat by-product. The tax preference for fruit and vegetable manufacturers is modified by requiring that the end product be comprised either exclusively of fruits or vegetables, or any combination of fruits, vegetables, and certain other substances that, cumulatively, may not exceed the amount of fruits and vegetables contained in the product measured by weight or volume.

B&O Tax on Amounts Paid to Corporate Directors. The fees paid to members of corporate boards of directors are explicitly subject to tax under the service and other classification at the 1.5 percent tax rate. After July 1, 2010, fees paid to members of corporate boards of directors would not be exempt under the exemption for wages and salaries for employees.

Foreclosure Exemption from REET. The REET exemption for transfers made pursuant to foreclosure is narrowed. Sales of the property to a third party would be subject to tax. When a transfer or conveyance pursuant to a judicial or non judicial foreclosure or enforcement of a judgment is a sale the tax levied under this chapter is the obligation of the buyer.

Tax Debts - Corporate Officer Liability. DOR is allowed to pursue uncollected taxes of a terminated or insolvent limited liability business from the chief executive or chief financial officer, or other persons responsible for paying the taxes.

The B&O Tax Job Credit for International Service Activities. The B&O tax credit for international service activities is repealed.

Eligibility for the Rural County Programs. A business claiming the sales and use tax deferral under chapter 82.60 RCW and B&O credits under chapter 82.62 RCW in the Rural County Job Credit and Deferral Programs are eligible for the incentives for computer programming, but only when it is used to create a new item for sale.

Limiting the B&O Deduction for Dues and Fees. The B&O tax deduction for dues and initiation fees is allowed certain nonprofit organizations exempt under certain federal income tax provisions in U.S.C. section 501(c).

Limiting the Bad Debt Deduction. The deduction is expressly limited to the seller.

Brokered Natural Gas. The brokered natural gas use tax is imposed at the location where the gas is burned by the taxpayer or stored in a facility of the taxpayer for later consumption. This change does not affect the state, but increases revenues to local governments imposing the tax.

Limiting Community Solar Incentives. For community solar projects, the renewable cost recovery program is limited to those community solar projects generating no more than 75 kilowatts of electricity.

Sales Tax Exemption for Livestock Nutrient Equipment and Facilities. The sales and use tax exemption for equipment and facilities used for handling livestock nutrients at dairies and livestock feeding operations is suspended for three years.

PUD Privilege Tax. Gross revenue for purpose of the PUD privilege tax applies to all charges for electricity including recurring charges as a condition of receiving the electricity.

Repealing the Sales Tax Exemption for Coal. The sales and use tax exemption for coal used at a coal-fired thermal electric generation facility is repealed.

Machinery Used to Create Electricity from Wind. In order to qualify for the exemption for machinery and equipment used to create energy from wind, a producer must either be a local utility or someone contracting with a local utility for the sale of power.

Repeal of B&O Exemption for Property Management Salaries. The B&O exemption for amounts received by a property management company from the owner of a property for gross wages and benefits paid to on-site personnel is repealed.

Business and Occupation Tax Increase on Service Activities. Businesses who pay the B&O tax at the rate of 1.5 percent will have an increase of .25 percent for three years. In addition, the small business tax credit for these businesses is double to be worth a maximum of $70 a month from $35 a month.

Sales Tax on Bottled Water. The sales tax is extended to bottled water. In addition an exemption is added for persons who purchase bottle water with a prescription.