[atlas:bill]

AN ACT Relating to municipal tax fairness; adding a new chapter to Title 35 RCW; repealing RCW 35.21.706, 35.21.710, and 35.21.711; and prescribing penalties.

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

NEW SECTION. Sec. 1. (1) The legislature finds that:

(a) Persons engaging in business in multiple local jurisdictions face inconsistent, complicated, and burdensome systems of local gross receipts taxation;

(b) In some instances, the same gross income may be taxed by more than one local jurisdiction resulting in unacceptable double taxation; and

(c) While cities need flexibility and choices in the method of taxation they employ to support their public services, that flexibility and choice must not inhibit a person's right to expect predictability and ease of administration from a gross receipts tax system that relies so heavily on voluntary compliance.

(2) It is the intent of the legislature to produce a system of gross receipts taxation by cities that:

(a) Strives for uniform and consistent treatment of taxpayers through the creation of a model ordinance that reflects the basic framework of the state system of gross receipts;

(b) Prevents multiple taxation of the same gross income;

(d) Allows for fair division of gross income of businesses between and among local jurisdictions.

NEW SECTION. Sec. 2. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "Business" has the same meaning as provided in RCW 82.04.140.

(2) "City" means a first class city as defined in RCW 35.01.010, a second class city as defined in RCW 35.01.020, or a town as defined in RCW 35.01.040.

(3) "Engaging in business" has the same meaning as provided in RCW 82.04.150.

(4) "Gross income" means the gross income of the business as defined in RCW 82.04.080.

(5) "Gross receipts tax" means a tax that is imposed on or measured by the gross volume of business, in terms of gross income or in other terms, and in the determination of which the deductions allowed would not constitute an income tax or value added tax and which is also not, pursuant to law or custom, separately stated from the sales price.

(6) "Local jurisdiction" means any city, town, county, municipal district or corporation, political subdivision, Indian reservation, or federal area located in the state of Washington.

(7) "Tax year" means either the calendar year, or if given the permission of the city, the taxpayer's fiscal year may be used in lieu of the calendar year.

NEW SECTION. Sec. 3. (1) A city may levy and collect from every person a tax for the act or privilege of engaging in business activity within the geographical boundaries of the city. The tax shall be measured by the application of rates against the gross income of the business.

(2) The taxes authorized under this section shall be imposed at a single uniform rate upon all persons engaging in the same business activity.

(3) If a city levies the tax under subsection (1) of this section, it may not impose any other tax or fee for the privilege of engaging in business upon the same business activity. However, this subsection is not intended to limit a city's ability to impose fees or licenses on a business for strictly regulatory purposes.

(4) In levying the tax authorized under this section, all state and federal constitutional provisions and laws pertaining to the taxation of interstate commerce shall be duly applicable to the taxation of intrastate commerce including, but not limited to, apportioning or allocating gross income when a person is engaged in business both within and without a local jurisdiction, establishing nexus for purposes of determining the application of a local jurisdiction's taxes, and providing a multiple activities tax credit similar to that provided in RCW 82.04.440.

NEW SECTION. Sec. 4. (1) Subject to the limitations contained in this section, a city imposing a tax authorized under section 3 of this act has the sole authority to set the rate of tax on any particular business activity.

(2) Unless otherwise specifically provided for by law, a city may not impose a tax under section 3 of this act at a rate that exceeds two-tenths of one percent.

(3) If a city imposed a tax on gross receipts allowed in section 3 of this act prior to January 1, 2002, at a rate in excess of those allowed in subsection (2) of this section, it may continue to apply those same rates after the effective date of this act. However, any increase in a rate after December 31, 2001, is subject to the provisions of subsection (6) of this section.

(4) A city first imposing the gross receipts tax provided for in section 3 of this act may do so only if:

(a) The gross receipts tax is authorized by a proposition approved by a majority of the qualified voters of the city at a general election held within the city or at a special election called by the city for the purpose of submitting the proposition to the voters; and

(b) The initial tax rate does not exceed thirty percent of the limits set forth in subsection (2) of this section.

(5) A city may impose rates in excess of those provided for in subsection (2) of this section only upon the approval of a majority of the qualified voters of the city at a general election held within the city or at a special election called by the city for the purpose of submitting the proposition to the voters.

(6) A city may increase the rate of a tax authorized under section 3 of this act only upon the approval of a majority of the qualified voters of the city at a general election held within the city or at a special election called by the city for the purpose of submitting the proposition to the voters. In addition, the rate of a tax may not be increased by more than ten percent of the rate in effect as of the date of the submittal of the proposal to the people.

NEW SECTION. Sec. 5. (1) The director of the department of revenue shall appoint a special committee consisting of tax administrators from a representative sampling of cities that currently apply a gross receipts tax under section 3 of this act. The director shall ensure that the members of the special committee are balanced between small, medium, and large cities and shall seek nominations for the special committee from the largest statewide association representing cities. A representative of the cities shall serve as chair of the special committee.

(2) The special committee established in subsection (1) of this section shall, by September 1, 2001, develop a model resolution and ordinance regarding the prospective implementation of local gross receipts taxes. To the extent possible, the special committee shall seek the advice of businesses affected by gross receipts taxes during the development of the model resolution and ordinance.

(3) To ensure ease of administration and compliance, the special committee created under subsection (1) of this section shall, with respect to definitions and classifications, draft a model ordinance and any updates that are substantially similar to those provided for the state's gross receipts taxes. However, the model ordinance and any updates may provide for deviations from the state's gross receipts tax provisions, but shall only do so with regard to deductions, credits, or exemptions.

(4) Upon completion of a model resolution and ordinance by the special committee, the department of revenue shall, by rule, propose the formal adoption of the model ordinance in conformance with chapter 34.05 RCW.

(5) Each year following the initial adoption of the model ordinance, the department of revenue shall reconvene a special committee using the same criteria as provided in subsection (1) of this section. The special committee shall review any changes to the state's gross receipts taxes and update the model ordinance to:

(a) Incorporate the changes made to the state's gross receipts taxes into the model ordinance;

(b) Amend the model ordinance to address, in a different manner, the substance of the changes made to the state's gross receipts taxes;

(d) Perform a combination of the actions provided for in (a), (b), or (c) of this subsection.

(6) By January 1, 2002, any city levying a gross receipts tax under section 3 of this act must either:

(a) Adopt the model resolution and ordinance and all updates adopted under subsection (5) of this section; or

(b) Adopt and follow all statutory and regulatory provisions in existence for the state's gross receipts taxes.

(7) A city taking either of the actions allowed in subsection (6) of this section may on January 1st of any subsequent year choose the alternative action allowed in subsection (6) of this section.

NEW SECTION. Sec. 6. For the purposes of applying penalties or interest upon a taxpayer subject to the tax in section 3 of this act or granting a waiver or cancellation of such penalties or interest, a city must apply penalties and interest and grant waivers and cancellations in the same manner as provided to the department of revenue in chapter 82.32 RCW.

NEW SECTION. Sec. 7. (1) For the purposes of determining and administering an assessment or correction of an assessment for additional gross receipts taxes, penalties or interest due upon a taxpayer subject to the tax in section 3 of this act, a city must calculate and administer the assessment or correction of an assessment in the same manner as provided to the department of revenue in chapter 82.32 RCW.

(2) For the purposes of determining and administering any refund or credit for gross receipts taxes, penalties, or interest for a taxpayer subject to the tax in section 3 of this act, a city must calculate and administer the refund or credit in the same manner as provided to the department of revenue in chapter 82.32 RCW.

NEW SECTION. Sec. 8. (1) For the purposes of apportioning or allocating gross income for gross receipts taxes authorized under section 3 of this act, the total tax measure apportioned or allocated to applicable local jurisdictions shall not exceed the total tax measure computed for the purpose of state gross receipts taxation.

(2) The following specific guidelines shall be applied by any city that imposes a gross receipts tax under section 3 of this act:

(a) For the purposes of imposing a gross receipts tax on extracting, manufacturing, or processing for hire activities, the activities are subject to tax in the local jurisdiction where the activities occur. If the activities occur in more than one local jurisdiction, the activities are consistently, equitably, and reasonably apportioned between or among those local jurisdictions even though the taxpayer may not have an office or other permanent place of business in each jurisdiction.

(b) For the purposes of imposing a gross receipts tax on retail or wholesale sales, all sales are subject to tax in the local jurisdiction where the sales occur. The provisions of RCW 82.14.020 are to be followed in determining where a sale occurs.

(c) For the purposes of imposing a gross receipts tax on any person rendering services, other than services defined as a retail sale under RCW 82.04.050, the services are subject to tax in the local jurisdiction where the services were primarily performed. If the person rendering services performs substantial service activities in more than one local jurisdiction, the person shall apportion to each local jurisdiction that portion of the total gross income that is derived from services rendered in each local jurisdiction. Where apportionment cannot be accurately made by separate accounting methods, the person shall apportion to each local jurisdiction that proportion of the total gross income which is derived from services which the cost of performing the services within a local jurisdiction bears to the total cost of performing the services in all local jurisdictions. The city shall apportion the gross receipts derived from services even though the taxpayer may not have an office or other permanent place of business in each jurisdiction where it performs the services.

(3) The following credits are allowed for persons performing multiple activities in multiple local jurisdictions:

(a) Every person engaged in manufacturing activities is allowed a credit against the measure of tax of any manufacturing gross receipts tax imposed by a local jurisdiction for any portion of the measure of tax which has been previously subjected to a local jurisdiction gross receipts tax on either extracting or previously performed manufacturing activities.

(b) Every person engaged in making retail or wholesale sales is allowed a credit against the measure of tax of any retailing or wholesaling gross receipts tax imposed by a local jurisdiction for any portion of the measure of tax which has been previously subjected to a local jurisdiction gross receipts tax on either extracting or manufacturing activities.

NEW SECTION. Sec. 9. The following acts or parts of acts are each repealed:

(1) RCW 35.21.706 (Imposition or increase of business and occupation tax--Referendum procedure required--Exclusive procedure) and 1983 c 99 s 6;

(2) RCW 35.21.710 (License fees or taxes on certain business activities--Uniform rate required--Maximum rate established) and 1983 2nd ex.s. c 3 s 33, 1983 c 99 s 7, 1982 1st ex.s. c 49 s 7, 1981 c 144 s 6, & 1972 ex.s. c 134 s 6; and

(3) RCW 35.21.711 (License fees or taxes on certain business activities--Excess rates authorized by voters) and 1982 1st ex.s. c 49 s 8.

NEW SECTION. Sec. 10. Sections 1 through 8 of this act constitute a new chapter in Title 35 RCW.