BILL REQ. #: H-4279.1
State of Washington | 62nd Legislature | 2012 Regular Session |
Read first time 02/27/12. Referred to Committee on Ways & Means.
AN ACT Relating to prohibiting local jurisdictions from adopting throwback provisions in regards to the imposition of business and occupation taxes; amending RCW 35.102.130; creating a new section; and providing an effective date.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1 The legislature finds that allowing cities
to have throwback provisions for business and occupation taxes, under
which cities impose their own business and occupation tax on the income
generated from activities that occur outside the city when the area
outside the city does not also impose a business and occupation tax, is
detrimental to the business community. Therefore, the legislature
intends to prohibit cities from implementing throwback business and
occupation taxing provisions in order to create a more fair and
reasonable tax policy that enhances the state's ability to encourage
existing businesses to continue to stay in Washington and new
businesses to locate to Washington.
Sec. 2 RCW 35.102.130 and 2010 c 111 s 305 are each amended to
read as follows:
A city that imposes a business and occupation tax must provide for
the allocation and apportionment of a person's gross income, other than
persons subject to the provisions of chapter 82.14A RCW, as follows:
(1) Gross income derived from all activities other than those taxed
as ((service or)) royalties must 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)(i) In the case of sales of digital products, the activity takes
place where delivery to the buyer occurs. The delivery of digital
products ((will be)) is deemed to occur at:
(A) The seller's place of business if the purchaser receives the
digital product at the seller's place of business;
(B) If not received at the seller's place of business, the location
where the purchaser or the purchaser's donee, designated as such by the
purchaser, receives the digital product, including the location
indicated by instructions for delivery to the purchaser or donee, known
to the seller;
(C) If the location where the purchaser or the purchaser's donee
receives the digital product is not known, the purchaser's address
maintained in the ordinary course of the seller's business when use of
this address does not constitute bad faith;
(D) If no address for the purchaser is maintained in the ordinary
course of the seller's business, the purchaser's address obtained
during the consummation of the sale, including the address of a
purchaser's payment instrument, if no other address is available, when
use of this address does not constitute bad faith; and
(E) If no address for the purchaser is obtained during the
consummation of the sale, the address where the digital good or digital
code is first made available for transmission by the seller or the
address from which the digital automated service or service described
in RCW 82.04.050 (2)(g) or (6)(b) was provided, disregarding for these
purposes any location that merely provided the digital transfer of the
product sold.
(ii) If none of the methods in (b)(i) of this subsection (1) for
determining where the delivery of digital products occurs are available
after a good faith effort by the taxpayer to apply the methods provided
in (b)(i)(A) through (E) of this subsection (1), then the city and the
taxpayer may mutually agree to employ any other method to effectuate an
equitable allocation of income from the sale of digital products. The
taxpayer will be responsible for petitioning the city to use an
alternative method under this subsection (1)(b)(ii). The city may
employ an alternative method for allocating the income from the sale of
digital products if the methods provided in (b)(i)(A) through (E) of
this subsection (1) are not available and the taxpayer and the city are
unable to mutually agree on an alternative method to effectuate an
equitable allocation of income from the sale of digital products.
(iii) For purposes of this subsection (1)(b), the following
definitions apply:
(A) "Digital automated services," "digital codes," and "digital
goods" have the same meaning as in RCW 82.04.192;
(B) "Digital products" means digital goods, digital codes, digital
automated services, and the services described in RCW 82.04.050 (2)(g)
and (6)(b); and
(C) "Receive" has the same meaning as in RCW 82.32.730.
(c) In the case of gross income derived from activities taxed as
services, the activity takes place where the service-income-producing
activity is performed.
(d) 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 must be allowed as provided in RCW 35.102.060;
if not all of the cities impose a gross receipts tax, the affected
cities must allow another credit or allocation system as they and the
taxpayer agree.
(2) Gross income derived as royalties from the granting of
intangible rights must 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.)) The definitions in this subsection apply throughout this
section.
(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)
(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.)) "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.
(c)
(((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.)) (c) "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.
(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)
(((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. 3 This act takes effect July 1, 2012.