S-962                 _______________________________________________

                                                   SENATE BILL NO. 5527

                        _______________________________________________

State of Washington                               51st Legislature                              1989 Regular Session

By Senators Amondson and Craswell

Read first time 1/26/89 and referred to Committee on   Economic Development & Labor.

AN ACT Relating to business and occupation tax credits for new businesses; adding new sections to chapter 82.04 RCW; providing an effective date; and declaring an emergency.

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

NEW SECTION. Sec. 1.  A new section is added to chapter 82.04 RCW to read as follows:

          (1) New businesses which have experienced a loss during any year of their first five years of operation shall be allowed a credit for taxes payable under this chapter.  The amount of allowable credit shall be the amount paid in taxes under this chapter by the new business for the year of the loss. Only those taxes based on activities of the new business may be used as credits under this section.  Excess credits allowed under this section may be carried over to successive years.  No credit claimed under this section may be deducted on any return until the claimed amount has been approved by the department.

          (2) For the purposes of this section:

          (a) "Loss" means a loss as defined by the internal revenue code as of January 1, 1989, for federal income tax reporting purposes as follows:

          (i) For sole proprietorships, "loss" shall be based on the figure reported to the Internal Revenue Service for net profit or loss, plus depreciation, for the previous reporting year by the proprietorship on Schedule C, Form 1040, "Profit (or Loss) From Business or Profession", as redesignated or amended.

          (ii) For partnerships, "loss" shall be based on the figure reported to the Internal Revenue Service for total partnership ordinary income or loss, plus depreciation and guaranteed payments to partners, for the previous reporting year by the partnership on Form 1065, "U.S. Partnership Return of Income", as redesignated or amended.

          (iii) For corporations, "loss" shall be based on the figure reported to the Internal Revenue Service for taxable income, plus depreciation and compensation of officers, for the previous reporting year by the corporation on  Form 1120, "U.S. Corporation Income Tax Return", as redesignated or amended.

          If the reported figure reflects activities not taxable under this chapter, the figure shall be adjusted using the allocation formula in RCW 82.56.010, in accordance with the rules of the department, to determine the portion allocable to activities taxable in Washington under this chapter.

          (b) "New business" means a sole proprietorship, partnership, or corporation located in this state which first registered, or which was first legally required to register, with the department within the five-year period preceding application for a credit under this section.  For out-of-state entities first engaging in business in this state, "new business" means a sole proprietorship, partnership, or corporation located outside this state which first registered, or which was first legally required to register, for tax purposes with any state or federal agency within the five-year period preceding application for a credit under this section; and

          "New business" does not include a pre-existing sole proprietorship, partnership, or corporation which is restructured, reorganized, or sold, unless the business to be conducted after restructuring, reorganization, or sale is significantly different from the business previously conducted.  "New business" does not include the establishment of a new branch location or other expansion except by an existing out-of-state entity first doing business in this state.

          (c) "Year" means twelve calendar months.

NEW SECTION. Sec. 2.  A new section is added to chapter 82.04 RCW to read as follows:

          The department shall adopt rules to implement section 1 of this act including rules on the procedure to be followed and information to be submitted to qualify for a credit under section 1 of this act.  Copies of federal income tax forms as filed with the Internal Revenue Service, and as thereafter amended, shall be submitted as required by the department.

NEW SECTION. Sec. 3.     This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect on June 1, 1989, and shall be effective for credits based on taxes paid under chapter 82.04 RCW beginning June 1, 1989, and thereafter.