BILL REQ. #: S-0459.1
| State of Washington | 63rd Legislature | 2013 Regular Session |
Read first time 02/13/13. Referred to Committee on Ways & Means.
AN ACT Relating to community reinvestment of oil windfall profits; adding a new title to the Revised Code of Washington to be codified as Title 82A RCW; prescribing penalties; and providing an effective date.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1
(1) "Affiliated corporation" means a corporation that is a member
of a group of two or more corporations with a common owner or owners,
either corporate or noncorporate, when more than fifty percent of the
voting stock of each member corporation is directly or indirectly owned
by the common owner or owners or by one or more of the member
corporations.
(2) "Business activity" means any activity engaged in with the
object of gain, benefit, or advantage to the taxpayer or to another
person or class, directly or indirectly.
(3) "Corporation" means any corporation as defined by the laws of
this state or organization of any kind treated as a corporation for tax
purposes under the laws of this state, wherever located, which if it
were doing business in this state would be a taxpayer. The business
conducted by a partnership which is directly or indirectly held by a
corporation is considered the business of the corporation to the extent
of the corporation's distributive share of the partnership income,
inclusive of guaranteed payments to the extent prescribed by rule.
(4) "Combined group" means the group of all persons whose income
and apportionment factors are required to be taken into account under
section 8 (1) or (2) of this act in determining the taxpayer's share of
the net business income or loss apportionable to this state.
(5) "Department" means the department of revenue.
(6) "Gasoline price" means the average of the retail gasoline
prices published during the taxable year for the west coast less
California, as published by the federal energy information
administration or its successor agency.
(7) "Internal revenue code" means Title 26 of the United States
Code of 1986, and amendments thereto, as existing on January 1, 2011.
(8) "Person" means any individual, firm, partnership, general
partner of a partnership, limited liability company, registered limited
liability partnership, foreign limited liability partnership,
association, corporation (whether or not the corporation is, or would
be if doing business in this state, subject to tax under this title),
company, syndicate, estate, trust, business trust, trustee, trustee in
bankruptcy, receiver, executor, administrator, assignee, or
organization of any kind.
(9) "Partnership" means a general or limited partnership, or
organization of any kind treated as a partnership for business purposes
under the laws of this state.
(10) "Petroleum business" means a corporation engaged in any of the
following activities: Exploration, production, refining,
manufacturing, processing, transportation, and marketing of oil and gas
or any commodity, product, or feedstock derived from oil or gas,
including petrochemicals.
(11) "Petroleum refining" means refining crude petroleum into
refined petroleum by fractionation, straight distillation of crude oil,
cracking, or similar methods.
(12) "Tax haven" means a jurisdiction that, during the tax year in
question:
(a) Is identified by the organization for economic cooperation and
development (OECD) as a tax haven or as having a harmful preferential
tax regime; or
(b) Exhibits the following characteristics established by the OECD
in its 1998 report entitled harmful tax competition: An emerging
global issue as indicative of a tax haven or as a jurisdiction having
a harmful preferential tax regime, regardless of whether it is listed
by the OECD as an uncooperative tax haven:
(i) Has no or nominal effective tax on the relevant income; and
(ii)(A) Has laws or practices that prevent effective exchange of
information for tax purposes with other governments on taxpayers
benefiting from the tax regime;
(B) Has tax regime which lacks transparency. A tax regime lacks
transparency if the details of legislative, legal, or administrative
provisions are not open and apparent or are not consistently applied
among similarly situated taxpayers, or if the information needed by tax
authorities to determine a taxpayer's correct tax liability, such as
accounting records and underlying documentation, is not adequately
available;
(C) Facilitates the establishment of foreign-owned entities without
the need for a local substantive presence or prohibits these entities
from having any commercial impact on the local economy;
(D) Explicitly or implicitly excludes the jurisdiction's resident
taxpayers from taking advantage of the tax regime's benefits or
prohibits enterprises that benefit from the regime from operating in
the jurisdiction's domestic market; or
(E) Has created a tax regime which is favorable for tax avoidance,
based upon an overall assessment of relevant factors, including whether
the jurisdiction has a significant untaxed offshore financial/other
services sector relative to its overall economy.
(13) "Taxable income" means federal taxable income after making the
additions, subtractions, apportionments, and allocations provided under
this title.
(14) "Taxable year" means the taxpayer's taxable year as defined
under the internal revenue code.
(15) "Taxpayer" means a corporation receiving income subject to tax
under this title.
(16) "Unitary business" means a single economic enterprise that is
made up either of separate parts of a single business entity or of a
commonly controlled group of business entities that are sufficiently
interdependent, integrated, and interrelated through their activities
so as to provide a synergy and mutual benefit that produces a sharing
or exchange of value among them and a significant flow of value to the
separate parts. Any business conducted by a partnership must be
treated as conducted by its partners, whether directly held or
indirectly held through a series of partnerships, to the extent of the
partner's distributive share of the partnership's income, regardless of
the percentage of the partner's ownership interest or its distributive
or any other share of partnership income. A business conducted
directly or indirectly by one corporation is unitary with that portion
of a business conducted by another corporation through its direct or
indirect interest in a partnership if the conditions under this
subsection are satisfied.
(17) "United States" means the fifty states of the United States,
the District of Columbia, and United States' territories and
possessions.
NEW SECTION. Sec. 2
| If the gasoline price is: | The tax rate is: |
| Less than $1.75 | zero |
| Equal to or greater than $1.75, but less than $1.85 | 10% |
| Equal to or greater than $1.85, but less than $1.95 | 12% |
| Equal to or greater than $1.95, but less than $2.05 | 14% |
| Equal to or greater than $2.05, but less than $2.15 | 16% |
| Equal to or greater than $2.15, but less than $2.25 | 18% |
| Equal to or greater than $2.25, but less than $2.35 | 20% |
| Equal to or greater than $2.35, but less than $2.45 | 22% |
| Equal to or greater than $2.45, but less than $2.55 | 24% |
| Equal to or greater than $2.55, but less than $2.65 | 26% |
| Equal to or greater than $2.65, but less than $2.75 | 28% |
| Equal to or greater than $2.75 | 30% |
NEW SECTION. Sec. 3
NEW SECTION. Sec. 4
(1) Add amounts that have been deducted in computing federal
taxable income to the extent the amounts have been carried over from
taxable years ending before the effective date of this section.
(2) Add amounts that have been deducted in computing federal
taxable income to the extent the amounts have been carried back from
future taxable years.
(3) Add taxes on or measured by net income that have been deducted
under the internal revenue code in computing federal taxable income.
(4) Add gross income that has been excluded under section 103 of
the internal revenue code in computing federal taxable income, except
gross income derived from obligations of the state of Washington or
political subdivisions of the state of Washington. However, the amount
added under this subsection must be reduced by any expenses incurred in
the production of amounts added under this subsection, to the extent
the expenses have not been deducted in computing federal taxable
income.
(5) Deduct gross income that the state is prohibited from taxing
under the Constitution or laws of the United States, to the extent the
gross income was included in computing federal taxable income.
However, the amount deducted under this subsection must be reduced by
any expenses incurred in the production of amounts subtracted under
this subsection, to the extent the expenses have been deducted in
computing federal taxable income.
(6) Deduct income attributable to activities subject to tax under
chapter 82.04 RCW for periods prior to the effective date of this
section, to the extent the gross income was included in computing
federal taxable income. However, the amount deducted under this
subsection must be reduced by any expenses incurred in the production
of such income, to the extent the expenses have been deducted in
computing federal taxable income.
(7) Deduct income attributable to activities subject to tax under
chapter 82.16 RCW, to the extent the gross income was included in
computing federal taxable income. However, the amount deducted under
this subsection must be reduced by any expenses incurred in the
production of such income to the extent the expenses have been deducted
in calculating federal taxable income.
(8) Deduct income attributable to insurance business upon which a
tax based on gross premiums is paid to the state. However, the amount
deducted under this subsection must be reduced by any expense incurred
in the production of such income to the extent the expense has been
deducted in calculating federal taxable income.
(9) Add amounts upon which an S corporation is subject to tax under
subchapter S, chapter 1, subtitle A of the internal revenue code.
(10) Add amounts that have been deducted as intangible drilling and
development expenses under Sec. 263(c) of the internal revenue code in
excess of amounts that would have been deducted had the expenses been
capitalized and depreciated.
(11) Add amounts deducted on the percentage depletion basis under
Sec. 613 of the internal revenue code in excess of the amounts that
would have been deducted had the expenses been determined using the
cost depletion basis under Sec. 612 of the internal revenue code.
(12) Add amounts deducted as depreciation in excess of the amounts
allowable under Sec. 167 of the internal revenue code as that section
read on June 30, 1981.
NEW SECTION. Sec. 5
(1) The taxable income must be multiplied by a fraction. The
numerator of the fraction is the number of days in the fractional
taxable year. The denominator of the fraction is the number of days in
the entire taxable year.
(2) The taxable income must be adjusted, in accordance with rules
of the department, so as to include only such income and be reduced
only by such deductions as can be clearly determined from the permanent
records of the taxpayer to be attributable to the fractional taxable
year.
NEW SECTION. Sec. 6
NEW SECTION. Sec. 7
NEW SECTION. Sec. 8
(2) The department may, by rule, require the combined report to
include the income and associated apportionment factors of any persons
that are not included under subsection (1) of this section, but that
are members of a unitary business, in order to reflect proper
apportionment of income of entire unitary businesses. Authority to
require combination by rule under this subsection includes authority to
require combination of persons that are not, or would not be if doing
business in this state, subject to tax under this chapter.
(a) In addition, if the department determines that the reported
income or loss of a taxpayer engaged in a unitary business with any
person not included under subsection (1) of this section represents an
avoidance or evasion of tax by such taxpayer, the department may, on a
case-by-case basis, require all or any part of the income and
associated apportionment factors of such person to be included in the
taxpayer's combined report.
(b) With respect to inclusion of associated apportionment factors
under this subsection, the department may require the exclusion of any
one or more of the factors, the inclusion of one or more additional
factors which will fairly represent the taxpayer's business activity in
this state, or the employment of any other method to effectuate a
proper reflection of the total amount of income subject to
apportionment and an equitable allocation and apportionment of the
taxpayer's income.
NEW SECTION. Sec. 9
(1)(a) Each taxpayer member is responsible for tax based on its
taxable income or loss apportioned or allocated to this state, which
includes:
(i) Its share of any business income apportionable to this state of
each of the combined groups of which it is a member, determined under
subsection (2) of this section;
(ii) Its share of any business income apportionable to this state
of a distinct business activity conducted within and without the state
wholly by the taxpayer member, determined under RCW 82.56.010;
(iii) Its income from a business conducted wholly by the taxpayer
member entirely within the state;
(iv) Its income sourced to this state from the sale or exchange of
capital or assets, and from involuntary conversions, as determined
under subsection (3)(a)(vii) of this section, below;
(v) Its nonbusiness income or loss allocable to this state,
determined under RCW 82.56.010;
(vi) Its income or loss allocated or apportioned in an earlier
year, required to be taken into account as state source income during
the income year, other than a net operating loss; and
(vii) Its net operating loss carryover or carryback. If the
taxable income computed under this section results in a loss for a
taxpayer member of the combined group, that taxpayer member has a state
net operating loss. Such net operating loss is applied as a deduction
in a prior or subsequent year only if that taxpayer has state source
positive net income, whether or not the taxpayer is or was a member of
a combined reporting group in the prior or subsequent year.
(b) Except where otherwise provided, no tax credit or
post-apportionment deduction earned by one member of the group, but not
fully used by or allowed to that member, may be used in whole or in
part by another member of the group or applied in whole or in part
against the total income of the combined group; and a
post-apportionment deduction carried over into a subsequent year as to
the member that incurred it, and available as a deduction to that
member in a subsequent year, will be considered in the computation of
the income of that member in the subsequent year, regardless of the
composition of that income as apportioned, allocated, or wholly within
this state.
(2) The taxpayer's share of the business income apportionable to
this state of each combined group of which it is a member is the
product of:
(a) The business income of the combined group, determined under
subsection (3) of this section; and
(b) The taxpayer member's apportionment percentage, determined
under RCW 82.56.010, including in the property, payroll, and sales
factor numerators the taxpayer's property, payroll, and sales,
respectively, associated with the combined group's unitary business in
this state, and including in the denominator the property, payroll, and
sales of all members of the combined group, including the taxpayer,
which property, payroll, and sales are associated with the combined
group's unitary business wherever located. The property, payroll, and
sales of a partnership must be included in the determination of the
partner's apportionment percentage in proportion to a ratio the
numerator of which is the amount of the partner's distributive share of
partnership's unitary income included in the income of the combined
group in accordance with subsection (3)(b)(iii) of this section and the
denominator of which is the amount of the partnership's total unitary
income.
(3) The business income of a combined group is determined as
follows:
(a) From the total income of the combined group, determined under
(b) of this subsection, subtract any income, and add any expense or
loss, other than the business income, expense, or loss of the combined
group.
(b) Except as otherwise provided, the total income of the combined
group is the sum of the incomes, separately determined, of each member
of the combined group. The income of each member of the combined group
must be determined as follows:
(i) For any member incorporated in the United States, or included
in a consolidated federal corporate income tax return, the income to be
included in the total income of the combined group is the taxable
income for the corporation after making appropriate adjustments under
section 4 of this act.
(ii)(A) For any member not included in (a) of this subsection, the
income to be included in the total income of the combined group must be
determined as follows:
(I) A profit and loss statement must be prepared for each foreign
branch or corporation in the currency in which the books of account of
the branch or corporation are regularly maintained.
(II) Adjustments must be made to the profit and loss statement to
conform it to the accounting principles generally accepted in the
United States for the preparation of such statements except as modified
under this title.
(III) Adjustments must be made to the profit and loss statement to
conform it to the tax accounting standards required by the department
by rule.
(IV) Except as otherwise provided by rule, the profit and loss
statement of each member of the combined group, and the apportionment
factors related thereto, whether United States or foreign, must be
translated into the currency in which the parent company maintains its
books and records.
(V) Income apportioned to this state must be expressed in United
States dollars.
(B) In lieu of the procedures set forth in (b)(ii)(A) of this
subsection, and subject to the determination of the department that it
reasonably approximates income, any member not included in (b)(i) of
this subsection may determine its income on the basis of the
consolidated profit and loss statement which includes the member and
which is prepared for filing with the securities and exchange
commission by related corporations. If the member is not required to
file with the securities and exchange commission, the department may
allow the use of the consolidated profit and loss statement prepared
for reporting to shareholders and subject to review by an independent
auditor. If above statements do not reasonably approximate income as
determined by the department, the department may accept those
statements with appropriate adjustments to approximate that income.
(iii) If a unitary business includes income from a partnership, the
income to be included in the total income of the combined group must be
the member of the combined group's direct and indirect distributive
share of the partnership's unitary business income.
(iv) All dividends paid by one to another of the members of the
combined group must, to the extent those dividends are paid out of the
earnings and profits of the unitary business included in the combined
report, in the current or an earlier year, be eliminated from the
income of the recipient. This provision does not apply to dividends
received from members of the unitary business which are not a part of
the combined group.
(v) Except as otherwise provided by rule, business income from an
intercompany transaction between members of the same combined group
must be deferred in a manner similar to 26 C.F.R. 1.1502-13. Upon the
occurrence of any of the following events, deferred business income
resulting from an intercompany transaction between members of a
combined group must be restored to the income of the seller, and is
apportioned as business income earned immediately before the event:
(A) The object of a deferred intercompany transaction is:
(I) Resold by the buyer to an entity that is not a member of the
combined group;
(II) Resold by the buyer to an entity that is a member of the
combined group for use outside the unitary business in which the buyer
and seller are engaged; or
(III) Converted by the buyer to a use outside the unitary business
in which the buyer and seller are engaged; or
(B) The buyer and seller are no longer members of the same combined
group, regardless of whether the members remain unitary.
(vi) A charitable expense incurred by a member of a combined group
must, to the extent allowable as a deduction under internal revenue
code section 170, be subtracted first from the business income of the
combined group (subject to the income limitations of that section
applied to the entire business income of the group), and any remaining
amount must then be treated as a nonbusiness expense allocable to the
member that incurred the expense (subject to the income limitations of
that section applied to the nonbusiness income of that specific
member). Any charitable deduction disallowed under the foregoing rule,
but allowed as a carryover deduction in a subsequent year, must be
treated as originally incurred in the subsequent year by the same
member, and the rules of this section apply in the subsequent year in
determining the allowable deduction in that year.
(vii) Gain or loss from the sale or exchange of capital assets,
property described by internal revenue code section 1231(a)(3), and
property subject to an involuntary conversion, must be removed from the
total separate net income of each member of a combined group and must
be apportioned and allocated as follows:
(A) For each class of gain or loss (short-term capital, long-term
capital, internal revenue code section 1231, and involuntary
conversions) all members' business gain and loss for the class must be
combined (without netting between such classes), and each class of net
business gain or loss separately apportioned to each member using the
member's apportionment percentage determined under subsection (2) of
this section.
(B) Each taxpayer member must then net its apportioned business
gain or loss for all classes, including any such apportioned business
gain and loss from other combined groups, against the taxpayer member's
nonbusiness gain and loss for all classes allocated to this state,
using the rules of internal revenue code sections 1231 and 1222,
without regard to any of the taxpayer member's gains or losses from the
sale or exchange of capital assets, internal revenue code section 1231
property, and involuntary conversions which are nonbusiness items
allocated to another state.
(C) Any resulting state source income (or loss, if the loss is not
subject to the limitations of internal revenue code section 1211) of a
taxpayer member produced by the application of this section must then
be applied to all other state source income or loss of that member.
(D) Any resulting state source loss of a member that is subject to
the limitations of internal revenue code section 1211 must be carried
forward by that member, and must be treated as state source short-term
capital loss incurred by that member for the year for which the
carryover applies.
(viii) Any expense of one member of the unitary group which is
directly or indirectly attributable to the nonbusiness or exempt income
of another member of the unitary group must be allocated to that other
member as corresponding nonbusiness or exempt expense, as appropriate.
NEW SECTION. Sec. 10
NEW SECTION. Sec. 11
(a) The entire income and apportionment factors of any member
incorporated in the United States or formed under the laws of any
state, the District of Columbia, or any territory or possession of the
United States;
(b) The entire income and apportionment factors of any member,
regardless of the place incorporated or formed, if the average of its
property, payroll, and sales factors within the United States is twenty
percent or more;
(c) The entire income and apportionment factors of any member which
is a domestic international sales corporation as described in internal
revenue code sections 991 to 994, inclusive; a foreign sales
corporation as described in internal revenue code sections 921 to 927,
inclusive; or any member which is an export trade corporation, as
described in internal revenue code sections 970 to 971, inclusive;
(d) Any member not described in (a) through (c) of this subsection,
inclusive, must include the portion of its income derived from or
attributable to sources within the United States, as determined under
the internal revenue code without regard to federal treaties, and its
apportionment factors related thereto;
(e) Any member that is a "controlled foreign corporation," as
defined in internal revenue code section 957, to the extent of the
income of that member that is defined in section 952 of subpart F of
the internal revenue code ("subpart F income") not excluding lower-tier
subsidiaries' distributions of such income which were previously taxed,
determined without regard to federal treaties, and the apportionment
factors related to that income; any item of income received by a
controlled foreign corporation is excluded if such income was subject
to an effective rate of income tax imposed by a foreign country greater
than ninety percent of the maximum rate of tax specified in internal
revenue code section 11;
(f) Any member that earns more than twenty percent of its income,
directly or indirectly, from intangible property or service related
activities that are deductible against the business income of other
members of the combined group, to the extent of that income and the
apportionment factors related thereto; and
(g) The entire income and apportionment factors of any member that
is doing business in a tax haven, where "doing business in a tax haven"
is defined as being engaged in activity sufficient for that tax haven
jurisdiction to impose a tax under United States constitutional
standards. If the member's business activity within a tax haven is
entirely outside the scope of the laws, provisions, and practices that
cause the jurisdiction to meet the criteria established in section
1(12) of this act, the activity of the member must be treated as not
having been conducted in a tax haven.
(2)(a) A water's-edge election is effective only if made on a
timely filed, original return for a taxable year by every member of the
unitary business subject to tax under this title. The department must
develop rules, and rules governing the impact if any, on the scope or
application of a water's-edge election, including termination or deemed
election, resulting from a change in the composition of the unitary
group, the combined group, the taxpayer members, and any other similar
change.
(b) Such election constitutes consent to the reasonable production
of documents and taking of depositions.
(c) In the discretion of the department, a water's-edge election
may be disregarded in part or in whole, and the income and
apportionment factors of any member of the taxpayer's unitary group may
be included in the combined report without regard to the provisions of
this section, if any member of the unitary group fails to comply with
any provision of this title or if a person otherwise not included in
the water's-edge combined group was availed of with a substantial
objective of avoiding state income tax.
(d) A water's-edge election is binding for and applicable to the
tax year it is made and all taxable years thereafter. It may be
withdrawn or reinstituted after withdrawal, only upon written request
for reasonable cause based on extraordinary hardship due to unforeseen
changes in state tax statutes, law, or policy, and only with the
written permission of the department. If the department grants a
withdrawal of election, he or she must impose reasonable conditions as
necessary to prevent the evasion of tax or to clearly reflect income
for the election period prior to or after the withdrawal.
NEW SECTION. Sec. 12
(2) The provisions of the internal revenue code relating to the
determination of reporting periods and due dates of payments of
estimated tax apply to the estimated tax payments due under this
section.
(3) The amount of the estimated tax is the annualized tax divided
by the number of months in the reporting period. No estimated tax is
due if the annualized tax is less than five hundred dollars. The
provisions of RCW 82.32.050 and 82.32.090 apply to underpayments of
estimated tax but do not apply to underpayments if the tax remitted to
the department under this title is either ninety percent of the tax
shown on the return or one hundred percent of the tax shown on the
previous year's tax return.
(4) For purposes of this section, the annualized tax is the
taxpayer's projected tax liability for the taxable year as computed
under section 6654 of the internal revenue code and the regulations
thereunder.
NEW SECTION. Sec. 13
(2) If a corporation's method of accounting is changed for federal
income tax purposes, it must be similarly changed for purposes of this
title.
NEW SECTION. Sec. 14
(2) The department may by rule require that certain taxpayers file,
on forms prescribed by the department, informational returns for any
period.
(3) If an adjustment to a taxpayer's federal return is made by the
taxpayer or the internal revenue service, the taxpayer must, within
ninety days of the final determination of the adjustment by the
internal revenue service or within thirty days of the filing of a
federal return adjusted by the taxpayer, file with the department on
forms prescribed by the department, a corrected return reflecting the
adjustments as finally determined. The taxpayer must pay any
additional tax due resulting from the finally determined internal
revenue service adjustment or a taxpayer adjustment without notice and
assessment. The period of limitation for the collection of the
additional tax, interest, and penalty due as a result of an adjustment
by the taxpayer or a finally determined internal revenue service
adjustment must begin at the later of thirty days following the final
determination of the adjustment or the date of the filing of the
corrected return.
NEW SECTION. Sec. 15
NEW SECTION. Sec. 16
(2) All books and records and other papers and documents required
to be kept under this title are subject to inspection by the department
at all times during business hours of the day.
NEW SECTION. Sec. 17
(a) Liability of transferees;
(b) Time and manner of making returns, extensions of time for
filing returns, verification of returns, and the time when a return is
deemed filed.
(2) The department by rule may provide modifications and exceptions
to the provisions in subsection (1) of this section, if reasonably
necessary to facilitate the prompt, efficient, and equitable collection
of tax under this title.
NEW SECTION. Sec. 18
NEW SECTION. Sec. 19
NEW SECTION. Sec. 20
(2) Any person required to collect tax imposed under this title who
knowingly fails to collect, truthfully account for, or pay over the tax
is guilty of a class C felony as provided in chapter 9A.20 RCW.
(3) Any person who knowingly fails to pay tax, pay estimated tax,
make returns, keep records, or supply information, as required under
this title, is guilty of a gross misdemeanor as provided in chapter
9A.20 RCW.
NEW SECTION. Sec. 21
(1) Thirty percent for early childhood education and wraparound
services;
(2) Thirty percent for postsecondary education programs;
(3) Thirty percent for K-12 programs; and
(4) Ten percent for youth development and mentoring programs.
NEW SECTION. Sec. 22
NEW SECTION. Sec. 23
NEW SECTION. Sec. 24