State Business and Occupation Tax. Washington's major business tax is the business and occupation (B&O) tax. The B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the costs of doing business. Businesses must pay the B&O tax even though they may not have any profits or may be operating at a loss. A taxpayer may have more than one B&O tax rate, depending on the types of activities conducted. Major B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and depending on the size of the business as determined by gross income, either 1.5 or 1.75 percent for services and activities not classified elsewhere. Several preferential rates as well as increased rates or surcharges also apply to specific business activities. A B&O tax credit is a one-for-one reduction in tax liability. State law currently provides a number of credits against B&O tax liability.
Tax Preference Review Requirements. State law provides a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer. Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits. Legislation that establishes or expands a tax preference must include a Tax Preference Performance Statement (TPPS) that identifies the public policy objective of the preference, as well as specific metrics the Joint Legislative Audit and Review Committee (JLARC) can use to review the effectiveness of the preference in achieving its stated public policy objectives. Tax preferences must be reviewed by JLARC at least once every ten years, unless state statute requires otherwise. All new tax preferences automatically expire after ten years unless an alternative expiration date is provided or the tax preference is exempted from expiration. To assist the Legislature in its evaluation of economic development-related tax preferences, taxpayer beneficiaries are required to file annual tax preference performance reports detailing wages and employment of the taxpayer as well as tax savings from the tax preference.
A B&O tax credit is allowed for qualified donation items donated to a qualified food bank by a qualified food retailer. A credit earned during one calendar year may be carried over to be credited against taxes incurred in the subsequent calendar year, but may not be carried over a second year. Generally, the amount of B&O tax credit is equal to 100 percent of the qualified value of qualified donation items; however, the amount of credit is equal to 50 percent of the fuel cost charged by a food distributor for transporting qualified donation items to a food bank.
A qualified food retailer may not claim a B&O tax credit for qualified donation items donated on or after July 1, 2034.
A person claiming credits for qualified donation items must file an annual tax performance report with the Department of Revenue.
The bill indicates the Legislature's specific public policy objective is to encourage the increased donation of food items to food banks by food retailers and specifies an intent to extend the tax credit if the total value of qualified donation items has increased over the period of evaluation. The Joint Legislative Audit and Review Committee will perform the evaluation by looking at the year-to-year change in the number of taxpayers claiming the tax credit and the year-to-year change in the amount of credit claimed by taxpayers.
The following definitions are applicable to the bill: