AN ACT Relating to revenue and taxation; amending RCW 82.04.230, 82.04.240, 82.04.250, 82.04.255, 82.04.270, 82.04.280, 82.04.290, 82.04.300, 82.04.440, and 82.02.030; adding new chapters to Title 82 RCW; adding a new section to chapter 82.04 RCW; creating new sections; repealing RCW 82.04.260, 82.04.2901, and 82.04.2904; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

PART I

CAPITAL STOCK TAX‑-DEFINITIONS

NEW SECTION. Sec. 101. INTRODUCTORY. The terms used in this chapter have the meanings given in sections 102 through 120 of this act unless the context clearly requires otherwise.

NEW SECTION. Sec. 102. BUSINESS AND OCCUPATION TAX DEFINITIONS. The definitions in chapter 82.04 RCW apply equally to the provisions of this chapter.

NEW SECTION. Sec. 103. CAPITAL. (1) "Capital" of a taxpayer means:

(a) In the case of a corporation, the average of the beginning and ending year balances of the sum of the following entries from schedule L of federal form 1120, as filed by the taxpayer with the internal revenue service for the taxable year:

(i) The value of all common stock and preferred stock of the taxpayer;

(ii) The amount of paid-in or capital surplus;

(iii) Retained earnings, appropriated and unappropriated;

(iv) The value of all liabilities payable in one year or more;

(v) Less the cost of treasury stock.

(b) In the case of a partnership, the average of the beginning and ending year balances of the sum of the following entries from schedule L of federal form 1065, as filed by the taxpayer with the internal revenue service for the taxable year:

(i) The value of partners' capital accounts;

(ii) The value of all liabilities payable in one year or more.

(2) "Capital" includes such additional items from the accounts of the taxpayer as the director may by rule prescribe, which fairly represent the invested capital of the taxpayer as defined in accordance with generally accepted accounting principles.

(3) "Capital" shall be adjusted for certain obligations as provided in this subsection (3). As to both corporations and partnerships, capital shall be multiplied by a fraction equal to one minus a fraction calculated as follows:

(a) The numerator of the fraction is the sum of the average of the daily beginning and ending account balances during the taxable year (account balances to be determined at cost in the same manner that such obligations, investments, and loans are reported on schedule L of the federal form 1120 or federal form 1065) of the following:

(i) Obligations and securities of the United States, or of any agency, authority, commission, or instrumentality of the United States and any other corporation or entity created under the authority of the United States Congress for the purpose of implementing or furthering an objective of national policy, which is specifically made exempt from state taxes by federal law;

(ii) Obligations of this state and any political subdivision of this state;

(iii) Investments or loans primarily secured by mortgages, or deeds of trust, on residential property located in this state and occupied by nontransients; and

(iv) Loans primarily secured by a lien or security agreement on residential property in the form of a mobile home, modular home or double-wide, located in this state and occupied by nontransients.

(b) The denominator of the fraction is the average of the daily beginning and ending year account balances of the total assets of the taxpayer which are shown on schedule L of the federal form 1120, as filed by the taxpayer with the internal revenue service or, in the case of partnerships, schedule L of federal form 1065, as filed by the taxpayer with the internal revenue service.

NEW SECTION. Sec. 104. COMMERCIAL DOMICILE. "Commercial domicile" means the principal place from which the trade or business of the taxpayer is directed or managed.

NEW SECTION. Sec. 105. COMMON STOCK. "Common stock" includes shares in a corporation, association, or joint stock company. It does not include nonvoting stock which is limited and preferred as to dividends, or treasury stock.

NEW SECTION. Sec. 106. CORPORATION. "Corporation" includes any corporation, any S corporation, any joint-stock company, and any association or other organization which is taxable as a corporation under federal income tax laws or the income tax laws of this state.

NEW SECTION. Sec. 107. DOMESTIC CORPORATION. "Domestic corporation" means a corporation organized under the laws of this state.

NEW SECTION. Sec. 108. FEDERAL FORM 1120. "Federal form 1120" means the annual federal income tax return of any corporation made pursuant to Section 6012, 6037, 6038, or 6046 of the United States internal revenue code of 1954, as amended or renumbered, or in successor provisions of the laws of the United States, in respect to the taxable income of a corporation, and filed with the federal internal revenue service. In the case of a corporation that is not required to make and file a federal form 1120 with the federal internal revenue service, "federal form 1120" means its federal form 1120 in its pro forma return.

NEW SECTION. Sec. 109. FEDERAL FORM 1065. "Federal form 1065" means the annual federal income tax return of a partnership made pursuant to Section 6031 of the United States internal revenue code of 1954, as amended or renumbered, or in successor provisions of the laws of the United States, in respect to the taxable income of a partnership, and filed with the federal internal revenue service.

NEW SECTION. Sec. 110. FISCAL YEAR. "Fiscal year" means an accounting period of twelve months ending on any day other than the last day of December, and on the basis of which the taxpayer is required to report for federal income tax purposes.

NEW SECTION. Sec. 111. INCLUDES AND INCLUDING. "Includes" and "including" when used in a definition in this chapter does not exclude other things otherwise within the meaning of the term being defined.

NEW SECTION. Sec. 112. OWNS STOCK. "Owns stock" includes options to acquire stock.

NEW SECTION. Sec. 113. PARENT AND SUBSIDIARY CORPORATIONS. A corporation which owns on average during the taxable year more than fifty percent of the common stock of all classes of another corporation is defined to be the "parent corporation" and the corporation which is so owned by the parent is defined to be a "subsidiary corporation."

NEW SECTION. Sec. 114. PARTNERSHIP AND PARTNER. "Partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on and which is not a trust or estate, a corporation, or a sole proprietorship. The term "partner" includes a member in such a syndicate, group, pool, joint venture, or organization.

NEW SECTION. Sec. 115. PRO FORMA RETURN. "Pro forma return" means the forms or return which the taxpayer would have filed with the internal revenue service if it were required to do so.

NEW SECTION. Sec. 116. STATE. "State" means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States.

NEW SECTION. Sec. 117. TAXABLE YEAR. The term "taxable year" means the taxable year required under section 501 of this act. "Taxable year" means, in case of a return made for a fractional part of a year under this chapter, or under rules adopted by the department, the period for which the return is made.

NEW SECTION. Sec. 118. TAXPAYER. "Taxpayer" means any person subject to the tax imposed by this chapter.

NEW SECTION. Sec. 119. TREASURY STOCK. "Treasury stock" means shares of a corporation which have been issued and have been subsequently acquired by and belong to such corporation, and have not been canceled or restored to the status of authorized but unissued shares. Treasury stock is deemed to be issued shares, but not outstanding shares.

NEW SECTION. Sec. 120. FEDERAL INCOME TAX DEFINITIONS. Any term used in this chapter shall have the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required by the context or by definition in this chapter. Any reference in this chapter to the laws of the United States, or to the internal revenue code, or to the federal income tax law shall mean the provisions of the laws of the United States as related to the determination of income for federal income tax purposes as in effect on the effective date of this section.

PART II

CAPITAL STOCK TAX‑-TAX BASE DETERMINATIONS

NEW SECTION. Sec. 201. TAX BASE DETERMINED. The tax base of a taxpayer, for purposes of this chapter, shall be its capital. If the taxpayer is also taxable in another state within the meaning of section 3 of Article IV of RCW 82.56.010, then the tax base of the taxpayer shall be its capital multiplied by its apportionment factor determined under section 202 of this act. When the taxpayer's first taxable year under this chapter is for a fractional part of a year, the taxpayer's tax base shall be prorated based upon the ratio which the number of months in the fractional taxable year bears to twelve.

NEW SECTION. Sec. 202. APPORTIONMENT OF TAX BASE. (1) The apportionment factor for a taxpayer, other than a financial organization or a public utility, is a fraction. The numerator of the fraction is the sum of the property factor plus the payroll factor plus the sales factor. The denominator of the fraction is four. The property, payroll, and sales factors shall be determined as provided in RCW 82.56.010. (2) For financial organizations and public utilities (as defined respectively in subsections (d) and (f) of section 1 of Article IV of RCW 82.56.010) which are taxable in another state within the meaning of section 3 of Article IV of RCW 82.56.010, the amount of capital to be apportioned and/or allocated to this state shall be determined in accordance with rules promulgated by the department. The rules shall, as far as the department deems practicable, be consistent with the provisions of Article IV of RCW 82.56.010. In developing the rules, the department shall also give appropriate consideration to any uniform regulations adopted by the multistate tax commission pursuant to Article VIII of RCW 82.56.010, and to the rules of other states in which the financial organizations and public utilities are also taxable.

NEW SECTION. Sec. 203. OTHER METHODS OF ALLOCATION. (1) If the allocation and apportionment provisions of section 202 of this act do not fairly represent the extent of the taxpayer's business activities in this state, the taxpayer may petition for, or the department may require, in respect to all or any part of the taxpayer's business activities, if reasonable:

(a) Separate accounting;

(b) The exclusion of one of the factors;

(c) The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this state; or

(d) The employment of any other method to effectuate an equitable allocation or apportionment of the taxpayer's tax base.

(2) In any proceeding before the department or in any court in which employment of one of the methods of allocation or apportionment provided in subsection (1) of this section is sought, on the ground that the allocation and apportionment provisions of section 202 of this act do not fairly represent the extent of the taxpayer's business activities in this state, the burden of proof shall be:

(a) On the department if the department seeks employment of one of such other methods; or

(b) On the taxpayer if the taxpayer seeks employment of one of such other methods.

PART III

CAPITAL STOCK TAX‑-IMPOSITION OF TAX

NEW SECTION. Sec. 301. IMPOSITION OF TAX. An annual business franchise tax is hereby imposed on the privilege of engaging in business activities in this state. The tax shall be collected from every domestic corporation, every corporation having its commercial domicile in this state, every foreign or domestic corporation owning or leasing property located in this state or doing business in this state, and every partnership owning or leasing property located in this state or doing business in this state. The amount of tax shall be thirty-five one-hundredths of one percent of the value of the tax base, as determined under section 201 of this act.

NEW SECTION. Sec. 302. CREDIT FOR SUBSIDIARIES. A parent taxpayer who files a separate return under this chapter shall be allowed a credit against such taxpayer's liability for the tax under this chapter for the amount of net taxes that would have been paid without regard to the adjustment required in section 103(3) of this act for the taxable year by a subsidiary corporation or partnership: PROVIDED, That the amount of credit allowed shall not exceed the amount of tax that would have been paid, without regard to the adjustment, under this chapter by the subsidiary or partnership, multiplied by the percentage of the parent's ownership of the subsidiary corporation or partnership. In the case of corporations, this percentage shall be equal to the percentage of stock of all classes owned by the parent. In no case may any credit allowable by this section, which is not used on an annual return, be carried forward or back, but instead the same shall be forfeited.

PART IV

CAPITAL STOCK TAX‑-EXEMPTIONS

NEW SECTION. Sec. 401. NATURAL PERSONS. The tax imposed in this chapter does not apply to natural persons doing business in this state that are not doing business in the form of a partnership or in the form of a corporation. Such persons include persons doing business as sole proprietors, sole practitioners, and other self-employed persons.

NEW SECTION. Sec. 402. EXEMPT BUSINESSES. The tax imposed in this chapter does not apply to that portion of a company's capital which is used directly in a business activity which is exempt from tax under chapter 82.04 RCW, other than a business exempt under section 1201 of this act.

PART V

CAPITAL STOCK TAX‑-ADMINISTRATIVE PROVISIONS@EC

NEW SECTION. Sec. 501. ACCOUNTING PERIODS. (1) For purposes of the tax imposed by this chapter a taxpayer's taxable year shall be the same as the taxpayer's taxable year for federal income tax purposes.

(2) If a taxpayer's taxable year is changed for federal income tax purposes, the taxpayer's taxable year for purposes of this chapter shall be similarly changed. The taxpayer shall provide a copy of the authorization for such change from the internal revenue service with its return for the taxable year filed under this chapter.

NEW SECTION. Sec. 502. METHODS OF ACCOUNTING. (1) A taxpayer's method of accounting under this chapter shall be the same as the taxpayer's method of accounting for federal income tax purposes. In the absence of any method of accounting for federal income tax purposes, the accrual method of accounting shall be used unless the department, in writing, consents to the use of another method.

(2) If a taxpayer's method of accounting is changed for federal income tax purposes, the taxpayer's method of accounting for purposes of this chapter shall similarly be changed. The taxpayer shall provide a copy of the authorization for such change from the internal revenue service with its return for the taxable year filed under this chapter.

NEW SECTION. Sec. 503. ANNUAL RETURNS. (1) Every person subject to the tax imposed by this chapter shall make and file an annual return for the taxable year with the department on or before:

(a) The fifteenth day of the third month of the next succeeding taxable year if the taxpayer is a corporation; or

(b) The fifteenth day of the fourth month of the next succeeding taxable year if the taxpayer is a partnership.

(2) The annual return shall include such information as the department may require for determining the amount of taxes due under this chapter for the taxable year.

NEW SECTION. Sec. 504. COMBINED REPORTING. (1) The department may permit or require an affiliated corporation that is subject to taxation under this chapter and that is a part of a unitary group of affiliated corporations to file a combined report covering the unitary operation of the group. The report shall contain such information as shall be designated in rules adopted by the department.

(2) An affiliated corporation is a corporation that is a member of a group of two or more corporations with a common owner or owners, either corporate or noncorporate, where 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.

(3) An affiliated corporation is a part of a unitary group when it is engaged in business activities which are integrated with, dependent upon, or which contribute to the business activities of the group as a whole, and the business activities of the group are carried on and are taxable in more than one state.

(4) The capital attributable to the Washington activities of an affiliated corporation which is a part of a unitary group of affiliated corporations shall be determined by the apportionment of the entire capital of the unitary group, using the factors and methods in section 202 of this act and the rules of the department.

NEW SECTION. Sec. 505. GENERAL ADMINISTRATIVE PROVISIONS. All provisions of chapter 82.32 RCW, insofar as applicable, apply to the tax imposed under this chapter.

NEW SECTION. Sec. 506. DECLARATION AND PAYMENT OF ESTIMATED TAX. (1) Every taxpayer shall file a declaration of estimated tax for the taxable year if the taxpayer's liability for tax under this chapter can reasonably be expected to exceed twelve thousand dollars for the taxable year. A taxpayer not required by this section to file a declaration and pay estimated tax may elect to so file and pay.

(2) As used in this section, "estimated tax" means the amount which a taxpayer estimates to be his or her liability under this chapter for the taxable year.

(3) The declaration shall contain such information as the department may, by rule, require, including, but not limited to, such detailed information as may be necessary to estimate the taxpayer's liability under this chapter.

(4) A declaration of estimated tax shall be filed on or before the fifteenth day of the fourth month of the taxable year.

(5) A taxpayer may amend his or her declaration at any time during the taxable year in accordance with rules prescribed by the department. If any amendment of a declaration is filed by a taxpayer, the remaining installments, if any, shall be ratably increased or decreased, as the case may be, to reflect any increase or decrease in the estimated tax by reason of the amendment. If any amendment is made after the fifteenth day of the ninth month of the taxable year, any increase in the estimated tax by reason thereof shall be paid at the time of making the amendment.

(6) The estimated tax shall be paid in four equal installments. At the time the declaration of estimated payment is filed, the taxpayer shall pay one-fourth of the estimated tax liability for the taxable year. The second, third, and fourth installments shall be paid on the following fifteenth day of the sixth, ninth, and twelfth months of the taxable year, respectively.

(7) This section shall apply to a taxable year of less than twelve months in accordance with rules of the department.

(8) Any taxpayer may elect to pay any installment of its estimated tax prior to the date prescribed for its payment.

NEW SECTION. Sec. 507. COPIES OF FEDERAL RETURNS. As a part of a full and complete tax return, the taxpayer shall provide:

(1) A copy of pages one through four of its signed, federal corporation income tax return or its signed federal partnership income tax return, as filed with the internal revenue service for the taxable year; and

(2) If a consolidated federal income tax return was filed for the taxable year:

(a) Supporting schedules showing the consolidation of its income statement and balance sheets, including schedules supporting any eliminations and adjustments made to the income statement and balance sheets;

(b) A copy of federal form 851 as filed with the internal revenue service and supporting schedules displaying any subsidiary corporations in which the taxpayer owns stock; and

(c) A signed statement explaining the relationship and differences, if any, between the income statement and the balance sheet reported for federal consolidated filing purposes and the income statement and the balance sheet reported to this state for the tax imposed by this chapter.

NEW SECTION. Sec. 508. TAX ADDITIONAL. The returns, requirements, and taxes imposed under this chapter are in addition to all other reports, requirements, and taxes imposed by law.

PART VI

CORPORATE PROFITS TAX‑-DEFINITIONS

NEW SECTION. Sec. 601. INTRODUCTORY. Unless the context clearly requires otherwise, the definitions in this part apply throughout this chapter.

NEW SECTION. Sec. 602. ADJUSTED GROSS INCOME. "Adjusted gross income" means adjusted gross income as determined under the Internal Revenue Code.

NEW SECTION. Sec. 603. CORPORATION. "Corporation" means a taxpayer taxable as a corporation under the Internal Revenue Code.

NEW SECTION. Sec. 604. DEPARTMENT. "Department" means the state department of revenue.

NEW SECTION. Sec. 605. FEDERAL BASE INCOME. "Federal base income" means:

(1) For regulated investment companies, investment company income as defined in section 852 of the Internal Revenue Code;

(2) For real estate investment trusts, real estate investment trust income as defined in section 857 of the Internal Revenue Code;

(3) For an S corporation, as defined in section 1361 of the Internal Revenue Code, only those amounts subject to federal tax under sections 1374 and 1375 of the Internal Revenue Code;

(4) For an electing GSOC, as defined in section 1391 of the Internal Revenue Code, the amount subject to federal tax under section 1396 of the Internal Revenue Code; and

(5) For all other taxpayers, federal taxable income as determined under the Internal Revenue Code.

NEW SECTION. Sec. 606. INTERNAL REVENUE CODE. "Internal Revenue Code" means the United States Internal Revenue Code of 1954 and amendments thereto, as existing on January 1, 1987.

NEW SECTION. Sec. 607. PERSON. "Person" includes individuals, corporations, partnerships, firms, companies, fiduciaries, estates, trusts, and any other group or combination acting as a unit.

NEW SECTION. Sec. 608. S CORPORATION. "S corporation" means an S corporation as defined in section 1361 of the Internal Revenue Code.

NEW SECTION. Sec. 609. TAXABLE INCOME. "Taxable income" means federal base income as modified under sections 801 through 812 of this act.

NEW SECTION. Sec. 610. TAXABLE YEAR. "Taxable year" means the taxpayer's taxable year as defined under the Internal Revenue Code.

NEW SECTION. Sec. 611. TAXPAYER. "Taxpayer" means a corporation receiving income subject to tax under this chapter.

NEW SECTION. Sec. 612. DEFINITION OF TERMS GENERALLY. Except as provided in this part, any term used in this chapter has the same meaning as when used in a comparable context in the Internal Revenue Code.

PART VII

CORPORATE PROFITS TAX‑-DETERMINATION OF TAX

NEW SECTION. Sec. 701. TAX IMPOSED. A tax is imposed at the rate of six and thirty-five one-hundredths percent on all taxable income received by corporations, for each taxable year.

PART VIII

CORPORATE PROFITS TAX‑-TAXABLE INCOME MODIFICATIONS

NEW SECTION. Sec. 801. INTRODUCTORY. In computing taxable income, modifications shall be made to the taxpayer's federal base income as required under this Part and Part IX of this act, unless the modification has the effect of duplicating an item of income or deduction.

NEW SECTION. Sec. 802. STATE AND LOCAL BONDS. To federal base income, add income which has been excluded under section 103 of the Internal Revenue Code in computing federal base income, except interest on obligations of the state of Washington or political subdivisions of the state of Washington. However, the amount added under this subsection shall be reduced by related expenses not deducted in computing federal base income because of section 265 of the Internal Revenue Code.

NEW SECTION. Sec. 803. STATE AND LOCAL INCOME TAXES. To federal base income, add taxes on or measured by income which have been deducted under section 164 of the Internal Revenue Code in computing federal base income.

NEW SECTION. Sec. 804. CARRY-OVERS. To federal base income, add amounts which have been deducted in computing federal base income to the extent the amounts have been carried over from taxable years ending before the effective date of this section.

NEW SECTION. Sec. 805. FEDERAL BONDS. From federal base income, deduct, to the extent included in federal base income, income derived from obligations of the United States which this state is prohibited by federal law from subjecting to a net income tax. However, the amount deducted under this section shall be reduced by any expense, including amortizable bond premium, incurred in the production of such income to the extent the expense has been deducted in calculating federal base income.

NEW SECTION. Sec. 806. DEPRECIATION. To federal base income, add amounts which have been deducted under section 168 of the Internal Revenue Code in computing federal base income, in excess of amounts allowable as a deduction under section 167 of the Internal Revenue Code.

NEW SECTION. Sec. 807. CAPITAL GAINS. To federal base income, add amounts which have been deducted under section 1202 of the Internal Revenue Code in computing federal base income.

NEW SECTION. Sec. 808. DIVIDENDS. To federal base income, add amounts which have been deducted under sections 241 through 245 of the Internal Revenue Code in computing federal base income.

NEW SECTION. Sec. 809. ACTIVITIES SUBJECT TO BUSINESS AND OCCUPATION TAX. From federal base income, deduct, to the extent included in federal base income, income attributable to amounts which were required to be reported for purposes of chapter 82.04 RCW for periods prior to the effective date of this section.

NEW SECTION. Sec. 810. NONPROFIT ORGANIZATIONS. From federal base income, deduct income exempt from federal income tax under subchapter F of chapter 1 of the Internal Revenue Code, to the extent included in federal base income. However, add to federal base income those amounts subject to federal income taxation to the extent not included in federal base income.

NEW SECTION. Sec. 811. PUBLIC UTILITIES. From federal base income, deduct income attributable to activities subject to tax under chapter 82.16 RCW. However, the amount deducted under this section shall be reduced by any expense incurred in the production of such income to the extent the expense has been deducted in calculating federal base income.

NEW SECTION. Sec. 812. INSURANCE PREMIUMS. From federal base income, deduct income received as premiums by insurers holding valid certificates of authority issued by the insurance commissioner of this state if the premiums are subject to tax under RCW 48.14.020. However, the amount deducted under this section shall be reduced by any expense incurred in the production of such income to the extent the expense has been deducted in calculating federal base income. Income received by agents of insurers and brokers for insurers shall not be deducted under this section.

NEW SECTION. Sec. 813. TAX RETURNS FOR FRACTIONAL YEAR. If the first taxable year of any taxpayer with respect to which a tax is imposed in this chapter ends before December 31st of the calendar year in which this chapter becomes effective (referred to in this section as a fractional taxable year), the taxable income for the fractional taxable year shall be the taxpayer's taxable income for the entire taxable year, adjusted by one of the following methods, at the taxpayer's election:

(1) The taxable income shall 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 shall 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. 814. DISPOSITION, SALE, OR EXCHANGE OF PROPERTY HELD PRIOR TO EFFECTIVE DATE OF SECTION. Taxable income shall be computed without including any gain or deducting any loss on the disposition, sale, or exchange of property if such gain or loss is attributable to holding the property prior to the effective date of this section. The portion of gain or loss attributable to the taxpayer's holding period prior to the effective date of this section shall be the ratio that the holding period of the taxpayer expressed in months prior to the effective date of this section bears to the total holding period of the taxpayer expressed in months. This section applies only to gain or loss which is considered as a capital gain or loss under the Internal Revenue Code for property for which the holding period under the Internal Revenue Code is greater than one year.

For purposes of this section, a fractional part of a month shall be treated as a full month.

PART IX

CORPORATE PROFITS TAX‑-DIVISION OF INCOME, MODIFICATIONS, AND CREDITS

NEW SECTION. Sec. 901. APPORTIONMENT AND ALLOCATION OF INCOME. (1) For corporations other than financial organizations or public utilities, all income shall be apportioned and allocated to this state except income which is apportioned or allocated to another state under RCW 82.56.010.

(2) For financial organizations and public utilities (as defined respectively in subsections (d) and (f) of section 1 of Article IV of RCW 82.56.010) which are taxable both within this state and in another state (within the meaning of section 3 of Article IV of RCW 82.56.010) the amount of net income to be apportioned and/or allocated to this state shall be determined in accordance with rules promulgated by the department. The rules shall, as far as the department deems practicable, be consistent with the provisions of Article IV of RCW 82.56.010. In developing the rules, the department shall also give appropriate consideration to any uniform regulations adopted by the multistate tax commission pursuant to Article VIII of RCW 82.56.010, and to the rules of other states in which the financial organizations and public utilities are also taxable.

NEW SECTION. Sec. 902. COMBINED REPORTING. (1) The department may permit or require an affiliated corporation that is subject to taxation under this chapter and that is a part of a unitary group of affiliated corporations to file a combined report covering the unitary operation of the group. The report shall contain such information as shall be designated in rules adopted by the department.

(4) The income attributable to the Washington activities of an affiliated corporation which is a part of a unitary group of affiliated corporations shall be determined by the apportionment of the entire business net income of the unitary group and the allocation of nonbusiness income of the corporation, using the factors and methods in section 901 of this act and the rules of the department adopted under section 901 of this act.

(5) As used in this section, "business income" and "nonbusiness" income have the meanings given in RCW 82.56.010.

PART X

CORPORATE PROFITS TAX‑-ADMINISTRATIVE PROVISIONS

NEW SECTION. Sec. 1001. METHOD OF ACCOUNTING. (1) A taxpayer's method of accounting for purposes of the tax imposed in this chapter shall be the same as the taxpayer's method of accounting for federal income tax purposes. If no method of accounting has been regularly used by a taxpayer for federal income tax purposes, tax due under this chapter shall be computed by a method of accounting which in the opinion of the department fairly reflects income.

(2) If a taxpayer's method of accounting is changed for federal income tax purposes, it shall be similarly changed for purposes of this chapter.

NEW SECTION. Sec. 1002. RECORDS‑-RETURNS. (1) Every taxpayer and every person required to collect the tax imposed in this chapter shall keep records, render statements, make returns, file reports, and perform other acts, as the department requires by rule. Each return shall be made under penalty of perjury and on forms prescribed by the department. The department may require other statements and reports be made under penalty of perjury and on forms prescribed by the department. The department may require any taxpayer and any person required to collect the tax imposed in this chapter to furnish to the department a correct copy of any return or document which the taxpayer has filed with the internal revenue service or received from the internal revenue service.

(2) All books and records and other papers and documents required to be kept under this chapter are subject to inspection by the department at all times during business hours of the day.

NEW SECTION. Sec. 1003. ESTIMATION AGREEMENTS. The department may reasonably estimate the items of business or nonbusiness income of a taxpayer having an office within the state and one or more other states or foreign countries which may be apportioned or allocated to the state and may enter into estimation agreements with such taxpayers for the determination of their liability for the tax imposed in this chapter.

NEW SECTION. Sec. 1004. PROVISIONS OF INTERNAL REVENUE CODE CONTROL. (1) To the extent possible without being inconsistent with this chapter, all of the provisions of the Internal Revenue Code relating to the following subjects apply to the taxes imposed in this chapter:

(a) Time and manner of payment of tax imposed in this chapter.

(b) Periods of limitation upon assessment and collection of taxes. However, if a taxpayer fails to report a change or correction increasing the taxpayer's federal taxable income, or fails to report a change or correction which is treated as if it were a deficiency for federal income tax purposes, an assessment may be made at any time within one year of the date on which the department first learns of the change or correction.

(d) Liability of transferees.

(e) Closing agreements and compromises.

(f) Deficiency procedures, except that the state board of tax appeals shall review deficiencies under chapter 82.03 RCW.

(g) Penalties and additions for failure to timely file returns or pay taxes.

(h) Timing, amount, and manner of payment of estimated tax payments.

(i) Time and manner of making returns, verification of returns, and the time when a return is deemed filed.

(j) Powers of the secretary of the treasury, exercised under this chapter by the department, to prepare and execute returns, to prescribe forms, to enforce collection of the tax through liens and seizure of property, and to impose penalties.

(2) The department by rule may provide modifications and exceptions to the provisions listed in subsection (1) of this section if reasonably necessary to facilitate the prompt, efficient, and equitable collection of tax under this chapter.

NEW SECTION. Sec. 1005. RULES. The department may adopt rules under chapter 34.04 RCW for the administration and enforcement of this chapter. The rules, to the extent possible without being inconsistent with this chapter, shall follow the Internal Revenue Code, and the regulations and rulings of the United States treasury department with respect to the federal income tax. The department may adopt as a part of these rules any portions of the Internal Revenue Code and treasury department regulations and rulings, in whole or in part.

NEW SECTION. Sec. 1006. REFUNDS OF OVERPAYMENTS‑-OTHER ADMINISTRATIVE PROVISIONS. (1) The department shall refund all taxes and penalties improperly paid or collected.

(2) RCW 82.32.110, 82.32.120, 82.32.130, 82.32.320, 82.32.330, 82.32.340, and 82.32.380 apply to the administration of the taxes imposed in this chapter.

NEW SECTION. Sec. 1007. CRIMES. (1) Any person who knowingly attempts to evade or defeat the tax imposed in this chapter or payment thereof is guilty of a class C felony as provided in chapter 9A.20 RCW.

(2) Any person required to collect tax imposed in this chapter 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 chapter, is guilty of a gross misdemeanor as provided in chapter 9A.20 RCW.

PART XI

BUSINESS AND OCCUPATION TAX MODIFICATIONS

NEW SECTION. Sec. 1101. EXEMPTIONS. A new section is added to chapter 82.04 RCW to read as follows:

This chapter does not apply to corporations and partnerships as defined in sections 106 and 114 of this act.

Sec. 1102. TAX UPON EXTRACTORS. Section 82.04.230, chapter 15, Laws of 1961 as last amended by section 2, chapter 281, Laws of 1971 ex. sess. and RCW 82.04.230 are each amended to read as follows:

Upon every person engaging within this state in business as an extractor; as to such persons the amount of the tax with respect to such business shall be equal to the value of the products, including byproducts, extracted for sale or for commercial or industrial use, multiplied by the rate of ((~~forty-four one-hundredths~~)) two-tenths of one percent;

The measure of the tax is the value of the products, including byproducts, so extracted, regardless of the place of sale or the fact that deliveries may be made to points outside the state.

Sec. 1103. TAX ON MANUFACTURERS. Section 82.04.240, chapter 15, Laws of 1961 as last amended by section 1, chapter 172, Laws of 1981 and RCW 82.04.240 are each amended to read as follows:

Upon every person ((~~except persons taxable under subsections (2), (3), (4), (5), (7), (8), or (9) of RCW 82.04.260~~)) engaging within this state in business as a manufacturer; as to such persons the amount of the tax with respect to such business shall be equal to the value of the products, including byproducts, manufactured, multiplied by the rate of ((~~forty-four one-hundredths~~)) two-tenths of one percent.

The measure of the tax is the value of the products, including byproducts, so manufactured regardless of the place of sale or the fact that deliveries may be made to points outside the state.

Sec. 1104. TAX ON RETAILERS. Section 82.04.250, chapter 15, Laws of 1961 as last amended by section 2, chapter 172, Laws of 1981 and RCW 82.04.250 are each amended to read as follows:

Upon every person ((~~except persons taxable under RCW 82.04.260(8)~~)) engaging within this state in the business of making sales at retail, as to such persons, the amount of tax with respect to such business shall be equal to the gross proceeds of sales of the business, multiplied by the rate of ((~~forty-four one-hundredths~~)) two-tenths of one percent.

Sec. 1105. TAX ON REAL ESTATE BROKERS. Section 3, chapter 65, Laws of 1970 ex. sess. as last amended by section 2, chapter 32, Laws of 1985 and RCW 82.04.255 are each amended to read as follows:

Upon every person engaging within the state as a real estate broker; as to such persons, the amount of the tax with respect to such business shall be equal to the gross income of the business, multiplied by the rate of ((~~1.50~~)) one percent.

The measure of the tax on real estate commissions earned by the real estate broker shall be the gross commission earned by the particular real estate brokerage office including that portion of the commission paid to salesmen or associate brokers in the same office on a particular transaction: PROVIDED, HOWEVER, That where a real estate commission is divided between an originating brokerage office and a cooperating brokerage office on a particular transaction, each brokerage office shall pay the tax only upon their respective shares of said commission: AND PROVIDED FURTHER, That where the brokerage office has paid the tax as provided herein, salesmen or associate brokers within the same brokerage office shall not be required to pay a similar tax upon the same transaction.

Sec. 1106. TAX ON WHOLESALERS, DISTRIBUTORS. Section 82.04.270, chapter 15, Laws of 1961 as last amended by section 4, chapter 172, Laws of 1981 and RCW 82.04.270 are each amended to read as follows:

(1) Upon every person ((~~except persons taxable under subsections (1) or (8) of RCW 82.04.260~~)) engaging within this state in the business of making sales at wholesale; as to such persons the amount of tax with respect to such business shall be equal to the gross proceeds of sales of such business multiplied by the rate of ((~~forty-four one-hundredths~~)) two-tenths of one percent.

(2) The tax imposed by this section is levied and shall be collected from every person engaged in the business of distributing in this state articles of tangible personal property, owned by them from their own warehouse or other central location in this state to two or more of their own retail stores or outlets, where no change of title or ownership occurs, the intent hereof being to impose a tax equal to the wholesaler's tax upon persons performing functions essentially comparable to those of a wholesaler, but not actually making sales: PROVIDED, That the tax designated in this section may not be assessed twice to the same person for the same article. The amount of the tax as to such persons shall be computed by multiplying ((~~forty-four one-hundredths~~)) two-tenths of one percent of the value of the article so distributed as of the time of such distribution: PROVIDED, That persons engaged in the activities described in this subsection shall not be liable for the tax imposed if by proper invoice it can be shown that they have purchased such property from a wholesaler who has paid a business and occupation tax to the state upon the same articles. This proviso shall not apply to purchases from manufacturers as defined in RCW 82.04.110. The department of revenue shall prescribe uniform and equitable rules for the purpose of ascertaining such value, which value shall correspond as nearly as possible to the gross proceeds from sales at wholesale in this state of similar articles of like quality and character, and in similar quantities by other taxpayers: PROVIDED FURTHER, That delivery trucks or vans will not under the purposes of this section be considered to be retail stores or outlets.

Sec. 1107. TAX ON MISCELLANEOUS ACTIVITIES. Section 2, chapter 8, Laws of 1970 ex. sess. as last amended by section 2, chapter 226, Laws of 1986 and RCW 82.04.280 are each amended to read as follows:

Upon every person engaging within this state in the business of: (1) Printing, and of publishing newspapers, periodicals or magazines; (2) building, repairing or improving any street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle which is owned by a municipal corporation or political subdivision of the state or by the United States and which is used or to be used, primarily for foot or vehicular traffic including mass transportation vehicles of any kind and including any readjustment, reconstruction or relocation of the facilities of any public, private or cooperatively owned utility or railroad in the course of such building, repairing or improving, the cost of which readjustment, reconstruction, or relocation, is the responsibility of the public authority whose street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle is being built, repaired or improved; (3) extracting for hire or processing for hire; (4) operating a cold storage warehouse or storage warehouse, but not including the rental of cold storage lockers; (5) representing and performing services for fire or casualty insurance companies as an independent resident managing general agent licensed under the provisions of RCW 48.05.310; (6) radio and television broadcasting, excluding network, national and regional advertising computed as a standard deduction based on the national average thereof as annually reported by the Federal Communications Commission, or in lieu thereof by itemization by the individual broadcasting station, and excluding that portion of revenue represented by the out-of-state audience computed as a ratio to the station's total audience as measured by the 100 micro-volt signal strength and delivery by wire, if any; (7) engaging in activities which bring a person within the definition of consumer contained in RCW 82.04.190(6), as now or hereafter amended; as to such persons, the amount of tax on such business shall be equal to the gross income of the business multiplied by the rate of ((~~forty-four one hundredths~~)) two-tenths of one percent.

As used in this section, "cold storage warehouse" means a storage warehouse used to store fresh and/or frozen perishable fruits or vegetables, meat, seafood, dairy products, or fowl, or any combination thereof, at a desired temperature to maintain the quality of the product for orderly marketing.

As used in this section, "storage warehouse" means a building or structure, or any part thereof, in which goods, wares, or merchandise are received for storage for compensation, except field warehouses, fruit warehouses, fruit packing plants, warehouses licensed under chapter 22.09 RCW, public garages storing automobiles, railroad freight sheds, docks and wharves, and "self-storage" or "mini storage" facilities whereby customers have direct access to individual storage areas by separate entrance.

Sec. 1108. TAX ON OTHER BUSINESS OR SERVICE ACTIVITIES. Section 82.04.290, chapter 15, Laws of 1961 as last amended by section 3, chapter 32, Laws of 1985 and RCW 82.04.290 are each amended to read as follows:

Upon every person engaging within this state in any business activity other than or in addition to those enumerated in RCW 82.04.230, 82.04.240, 82.04.250, 82.04.255, ((~~82.04.260,~~)) 82.04.270, and 82.04.280; as to such persons the amount of tax on account of such activities shall be equal to the gross income of the business multiplied by the rate of ((~~1.50~~)) one percent. This section includes, among others, and without limiting the scope hereof (whether or not title to materials used in the performance of such business passes to another by accession, confusion or other than by outright sale), persons engaged in the business of rendering any type of service which does not constitute a "sale at retail" or a "sale at wholesale." The value of advertising, demonstration, and promotional supplies and materials furnished to an agent by his principal or supplier to be used for informational, educational and promotional purposes shall not be considered a part of the agent's remuneration or commission and shall not be subject to taxation under this section.

Sec. 1109. TAX THRESHOLD. Section 82.04.300, chapter 15, Laws of 1961 as last amended by section 213, chapter 3, Laws of 1983 and RCW 82.04.300 are each amended to read as follows:

This chapter shall apply to any person engaging in any business activity taxable under RCW 82.04.230, 82.04.240, 82.04.250, ((~~82.04.260,~~)) 82.04.270, 82.04.280 and 82.04.290 other than those whose value of products, gross proceeds of sales, or gross income of the business is less than ((~~one~~)) eight thousand dollars per month: PROVIDED, That where one person engages in more than one business activity and the combined measures of the tax applicable to such businesses equal or exceed ((~~one~~)) eight thousand dollars per month, no exemption or deduction from the amount of tax is allowed by this section.

Any person claiming exemption under the provisions of this section may be required to file returns even though no tax may be due: PROVIDED, FURTHER, That the department of revenue may allow exemptions, by general rule or regulation, in those instances in which quarterly, semiannual, or annual returns are permitted. Exemptions for such periods shall be equivalent in amount to the total of exemptions for each month of a reporting period.

Sec. 1110. PERSONS TAXABLE ON MULTIPLE ACTIVITIES. Section 82.04.440, chapter 15, Laws of 1961 as last amended by section 1, chapter 190, Laws of 1985 and RCW 82.04.440 are each amended to read as follows:

(1) Except as provided in subsections (2) and (3) of this section, every person engaged in activities which are within the purview of the provisions of two or more of sections RCW 82.04.230 to 82.04.290, inclusive, shall be taxable under each paragraph applicable to the activities engaged in.

(2) Persons taxable under RCW 82.04.250 or 82.04.270 shall not be taxable under RCW 82.04.230((,)) or 82.04.240((~~, or subsection (2), (3), (4), (5), or (7) of RCW 82.04.260~~)) with respect to extracting or manufacturing of the products so sold.

(3) Persons taxable under RCW 82.04.240 ((~~or 82.04.260 subsection (4)~~)) shall not be taxable under RCW 82.04.230 with respect to extracting the ingredients of the products so manufactured.

(4)(a) If it is determined by a court of competent jurisdiction, in a judgment not subject to review, that subsection (2) of this section results in an unconstitutional discrimination against interstate or foreign commerce, and that relief is appropriate for any tax reporting periods either before or after April 30, 1985, it is the intent of the legislature that the credit provided in (b) of this subsection shall be applied to such reporting periods and that relief for such periods be limited to the granting of such credit. It is further the intent of the legislature that such credit shall be applicable only under the conditions and to the extent provided in this subsection (4).

(b) As provided in (a) of this subsection, a person taxable under RCW 82.04.230((,)) or 82.04.240((~~, or subsection (2), (3), (4), (5), or (7) of RCW 82.04.260~~)) with respect to extracting or manufacturing products in this state shall be allowed a credit against those taxes for any gross receipts taxes paid to another state with respect to the sales of the products so extracted or manufactured in this state. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the extraction or manufacturing of those products.

(i) Which is imposed on or measured by the gross volume of business, in terms of gross receipts or in other terms, and in the determination of which the deductions allowed would not constitute the tax an income tax or value added tax; and

(ii) Which is also not, pursuant to law or custom, separately stated from the sales price.

(d) For the purpose of this subsection, "state" means state of the United States, any political subdivision thereof, or the District of Columbia, and any foreign country or political subdivision thereof.

Sec. 1111. ADDITIONAL TAX RATES. Section 31, chapter 35, Laws of 1982 1st ex. sess. as last amended by section 5, chapter 296, Laws of 1986 and RCW 82.02.030 are each amended to read as follows:

(1) The rate of the additional taxes under RCW 54.28.020(2), 54.28.025(2), 66.24.210(2), 66.24.290(2), ((~~82.04.2901,~~)) 82.16.020(2), 82.26.020(2), 82.27.020(5), 82.29A.030(2), 82.44.020(5), and 82.45.060(2) shall be seven percent;

(2) The rate of the additional taxes under RCW 82.08.150(4) shall be fourteen percent; and

(3) The rate of the additional taxes under RCW 82.24.020(2) shall be fifteen percent.

NEW SECTION. Sec. 1112. REPEAL. The following acts or parts of acts are each repealed:

(1) Section 5, chapter 3, Laws of 1983 2nd ex. sess., section 2, chapter 135, Laws of 1985, section 1, chapter 471, Laws of 1985 and RCW 82.04.260;

(2) Section 4, chapter 32, Laws of 1985 and RCW 82.04.2901; and

(3) Section 3, chapter 9, Laws of 1983, section 3, chapter 3, Laws of 1983 2nd ex. sess., section 5, chapter 32, Laws of 1985 and RCW 82.04.2904.

PART XII

MISCELLANEOUS

NEW SECTION. Sec. 1201. SEVERABILITY. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 1202. SAVINGS. This act shall not be construed as affecting any existing right acquired or liability or obligation incurred under the sections amended or repealed in this act or under any rule, regulation, or order adopted under those sections, nor as affecting any proceeding instituted under those sections.

NEW SECTION. Sec. 1203. CAPTIONS. As used in this act, captions constitute no part of the law.

NEW SECTION. Sec. 1204. CODIFICATION. (1) Sections 101 through 508 of this act shall constitute a new chapter in Title 82 RCW.

(2) Sections 601 through 1007 of this act shall constitute a new chapter in Title 82 RCW.

NEW SECTION. Sec. 1205. EFFECTIVE DATE. This act shall take effect on January 1, 1988, if the proposed amendment to Article VII of the state Constitution authorizing an income tax and capital tax (HJR ---) is validly submitted and is approved and ratified by the voters at a general election held in November, 1987. If the proposed amendment is not so approved and ratified, this act shall be null and void in its entirety.