[atlas:bill]

AN ACT Relating to municipal tax fairness; amending RCW 35.21.710; adding a new chapter to Title 35 RCW; and providing an effective date.

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

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

(a) City gross receipts taxes are complicated and inconsistent from city to city;

(b) Cities whose ordinances do not include apportionment provisions have been required to resolve potential instances of multiple taxation on a case-by-case basis; and

(c) Cities have had and should retain the flexibility to tailor their tax structures to meet unique needs, but that flexibility must be balanced with predictability and ease of administration of city taxes.

(2) It is the intent of the legislature to:

(a) Require cities that impose a gross receipts tax to adopt a model ordinance that creates greater uniformity and consistency among city gross receipts taxes;

(b) Make city gross receipts business and occupation taxes simpler, more predictable, and easier to administer;

(d) Establish methods for fair apportionment of gross income of businesses between and among local jurisdictions when a business is engaging in business in more than one local jurisdiction.

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 that provided in RCW 82.04.140.

(2) "City" means a city, town, or code city.

(3) "Business and occupation tax" or "gross receipts tax" means a tax which is imposed on or measured by the value of products, the gross income of the business, or the gross proceeds of sales, as the case may be and which is also not, pursuant to law or custom, separately stated from the sales price. As used in this subsection and throughout this chapter, the terms "value of products," "gross income of the business," and "gross proceeds of sales" have the same meaning as those provided in chapter 82.04 RCW.

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

NEW SECTION. Sec. 3. (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. The director shall ensure that the members of the special committee are balanced between small, medium, and large cities. The director shall seek nominations for the special committee from the largest statewide association representing cities.

(2) The special committee shall, by November 1, 2002, develop a model resolution and ordinance regarding the prospective implementation of local gross receipts taxes.

(3) To ensure ease of administration and compliance, the special committee shall draft a model ordinance that provides for a uniform system of city gross receipts taxation. In drafting the model ordinance, the special committee shall, at a minimum, include:

(a) The following core definitions from the state business and occupation tax: RCW 82.04.030 ("Person," "company."); RCW 82.04.040 ("Sale," "casual or isolated sale."); RCW 82.04.050 ("Sale at retail," "retail sale."); RCW 82.04.060 ("Sale at wholesale," "wholesale price."); RCW 82.04.070 ("Gross proceeds of sales."); RCW 82.04.080 ("Gross income of the business."); RCW 82.04.090 ("Value proceeding or accruing."); RCW 82.04.100 ("Extractor."); RCW 82.04.110 ("Manufacturer."); RCW 82.04.120 ("To manufacture."); RCW 82.04.130 ("Commercial or industrial use."); RCW 82.04.140 ("Business."); and RCW 82.04.150 ("Engaging in business.") The incorporation of these core definitions in the model ordinance shall be construed to include, as an extension of each definition, any state level determination, regulation, interpretation, or court opinion pertaining to any one of these definitions. In addition, if the model ordinance or an individual city uses a classification, exemption, deduction or credit substantially similar to one set forth in the state's gross receipts tax system, the definitions used for the classification, exemption, deduction, or credit shall be identical to those provided in the state's gross receipts tax system. However, this subsection shall not be construed to limit any individual city's flexibility to establish its own classifications or rate structures for gross receipts tax purposes subject to the provisions of RCW 35.21.710 nor shall it be construed to reduce, limit, or eliminate a city's ability to continue to tax an activity at a rate established for an activity prior to January 1, 2002, pursuant to either a gross receipts tax or utility tax.

(b) Uniform due dates.

(d) Reasonable penalties for the failure to timely file a tax return, the late payment of a tax assessment, the disregard of specific, written instructions from the taxing entity, and the intent to evade tax. However, the aggregate of penalties imposed for the failure to timely file a tax return, the late payment of a tax assessment, or the disregard of specific, written instructions from the taxing entity shall not exceed thirty-five percent of the tax due, or twenty dollars, whichever is greater. In addition, no taxing entity shall apply both the penalty for intent to evade tax and the penalty for disregard of specific written instructions. To the extent feasible, the penalty provisions provided for in chapter 82.32 RCW should guide the special committee.

(e) A uniform statute of limitation period for both assessments of additional taxes, penalties, and interest and refunds or credits of overpaid taxes, penalties, and interest. In establishing the uniform statute of limitation periods under this subsection, the special committee shall not establish a statute of limitation period that exceeds the equivalent of four years plus the current tax year. However, if it can be shown that the taxpayer did not properly register with the taxing authority, the special committee may provide for a statute of limitation in this instance of no more than seven years plus the current tax year. In the circumstance where it can be shown that the taxpayer engaged in fraudulent activities with respect to its tax liability, the statute of limitation provided pursuant to this subsection (3)(e) need not apply. The special committee shall provide for the written waiver of these statutes of limitation upon mutual agreement between the taxpayer and the taxing authority, but a written waiver shall extend, identically, the period for making assessments and claiming refunds.

(f) Provisions for the fair apportionment of gross income that will eliminate any circumstance that would result in a city or multiple cities imposing tax on greater than one hundred percent of the gross income of the business. Upon the effective date of this section, the model ordinance shall not contain any provisions regarding apportionment or allocation of gross income.

(g) A uniform, minimum small business tax exemption of at least the equivalent of twenty-five thousand dollars in gross income. A city may elect to deviate from this requirement by creating a higher threshold, but it shall not deviate lower than the level required in this subsection (3)(g).

(4) Upon completion of the model 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. In publishing the rule under this subsection (4), the department shall include a section noting any instance where the model ordinance deviates from the state gross receipts tax and for each deviation, shall provide an explanatory statement setting forth the rationale for the deviation.

(5) By January 1, 2003, a city levying a gross receipts tax shall, at a minimum, adopt the provisions of the model ordinance that were mandated by subsection (3)(a) through (g) of this section. While it is the intent of the legislature in this subsection (5) to allow some deviation from the nonmandatory provisions of the model ordinance, cities are encouraged to deviate as little as possible from the nonmandatory portions of the model ordinance to maintain the highest degree of uniformity among the cities imposing a gross receipts tax. If deviations from the nonmandatory provisions of the model ordinance are made by a city, the deviation should be noted along with an explanatory statement regarding the deviation and both the deviation and the explanatory statement shall then be placed in a centralized depository such as the municipal research services center to provide taxpayers with quick access to all deviations.

(6) When changes are made to the state's gross receipts tax that would require changes to the mandatory requirements of the model ordinance provided under subsection (3) of this section, the department of revenue shall reconvene a special committee using the same criteria as provided in subsection (1) of this section. The special committee formed under this subsection shall update the model ordinance where required to conform to the requirements of subsection (3) of this section. The department of revenue shall then readopt, by rule, the model ordinance with any changes required under this subsection by December 1 of each year and a city imposing a gross receipts tax shall adopt the changes by January 1 of the following year.

NEW SECTION. Sec. 4. (1) For the purposes of apportioning or allocating gross income of the business for city gross receipts taxes:

(a) The total tax measure apportioned or allocated to all applicable local jurisdictions shall not exceed the total tax measure computed for the purpose of state gross receipts taxation.

(b) All state and federal constitutional provisions and laws pertaining to the establishment of nexus for the taxation of interstate commerce shall be duly applicable to the establishment of nexus for the taxation of intrastate commerce.

(2) The following specific guidelines shall be applied by any city that imposes a gross receipts tax:

(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 sales, all sales are subject to tax in the local jurisdiction where the sales occur. For the purposes of determining where a retail sale occurs under this subsection (2)(b), the methods provided in RCW 82.14.020 (1) through (5) for determining where a retail sale occurs shall be applied.

(c) For the purposes of imposing a gross receipts tax on wholesale sales, all sales are subject to tax in the local jurisdiction where the sales occur. For the purposes of determining where a wholesale sale occurs under this subsection, the methods provided in RCW 82.14.020 (1) through (5) for determining where a retail sale occurs shall be applied as if the wholesale sale was a retail sale.

(d) 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.

(e) Under no circumstances may a business apportion or allocate gross receipts to a jurisdiction in which it has no nexus for tax purposes.

(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.

Sec. 5. RCW 35.21.710 and 1983 2nd ex.s. c 3 s 33 are each amended to read as follows:

(1) Any city which imposes a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property which are measured by gross receipts or gross income from such sales, shall impose such tax at a single uniform rate upon all such business activities. The taxing authority granted to cities for taxes upon business activities measured by gross receipts or gross income from sales shall not exceed a rate of .0020; except that any city with an adopted ordinance at a higher rate, as of January 1, 1982 shall be limited to a maximum increase of ten percent of the January 1982 rate, not to exceed an annual incremental increase of two percent of current rate: PROVIDED, That any adopted ordinance which classifies according to different types of business or services shall be subject to both the ten percent and the two percent annual incremental increase limitation on each tax rate: PROVIDED FURTHER, That all surtaxes on business and occupation classifications in effect as of January 1, 1982, shall expire no later than December 31, 1982, or by expiration date established by local ordinance. Cities which impose a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property which are measured by gross receipts or gross income from such sales shall be required to submit an annual report to the state auditor identifying the rate established and the revenues received from each fee or tax. This section shall not apply to any business activities subject to the tax imposed by chapter 82.16 RCW. For purposes of this section, the providing to consumers of competitive telephone service, as defined in RCW 82.04.065, shall be deemed to be the retail sale of tangible personal property.

(2) Subject to the full enactment of sections 3 and 4 of this act and notwithstanding subsection (1) of this section, the limitations contained in this subsection shall apply to any city imposing a gross receipts tax that fully complies with the provisions contained in section 3 (3)(a) through (g) and (5) of this act. A city subject to the limitations contained in this subsection shall have the sole authority to set the rate of tax on any particular class of business activity. However, the rate of tax on any particular class of business activity shall not exceed a rate of 0.0020. A city imposing a gross receipts tax on a business activity at a rate equal to or greater than 0.0020 as of January 1, 2002, may increase the rate of tax imposed on that particular business activity by an annual increment of not more than 0.00010, not to exceed a total of twenty-five percent of the rate in effect for that business activity on January 1, 2002.

(3) A city first imposing a gross receipts tax and fully complying with the provisions contained in section 3 (3)(a) through (g) and (5) of this act may do so only if the gross receipts tax is authorized by a proposition approved by a majority of the qualified voters of the city voting 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 the initial tax rate for any particular business activity does not exceed a rate of 0.0010. After an initial rate is established under this subsection (3), the rate for that particular business activity may not be increased by an annual increment of more than 0.00010 and shall not exceed a rate of 0.0020.

(4) Any city that classifies according to different types of business activities shall apply a single uniform rate to substantially similar business activities.

NEW SECTION. Sec. 6. Section 4 of this act takes effect January 1, 2005.

NEW SECTION. Sec. 7. Sections 1 through 4 of this act constitute a new chapter to be added to Title 35 RCW.