AN ACT Relating to
implementing the recommendations of the investment income tax deduction task
force for the business and occupation tax; amending RCW 82.04.4281; creating a
new section; and providing an effective date.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF
WASHINGTON:
NEW SECTION. Sec.
1. The legislature finds
that the application of the business and occupation tax deductions provided in
RCW 82.04.4281 for investment income of persons deemed to be "other
financial businesses" has been the subject of uncertainty, and therefore,
disagreement and litigation between taxpayers and the state. The legislature
further finds that the decision of the state supreme court in Simpson
Investment Co. v. Department of Revenue could lead to a restrictive, narrow
interpretation of the deductibility of investment income for business and
occupation tax purposes. As a result, the legislature directed the department
of revenue to work with affected businesses to develop a revision of the
statute that would provide certainty and stability for taxpayers and the
state. The legislature intends, by adopting this recommended revision of the
statute, to provide a positive environment for capital investment in this
state, while continuing to treat similarly situated taxpayers fairly.
Sec. 2. RCW 82.04.4281 and 1980
c 37 s 2 are each amended to read as follows:
(1) In computing
tax there may be deducted from the measure of tax:
(a) Amounts
derived ((by persons, other than those engaging in banking, loan, security,
or other financial businesses,)) from investments ((or the use of money
as such, and also));
(b) Amounts
derived as dividends or distributions from capital account by a parent
from its subsidiary ((corporations)) entities; and
(c) Amounts derived
from interest on loans between subsidiary entities and a parent entity or
between subsidiaries of a common parent entity, but only if the total
investment and loan income is less than five percent of gross receipts of the
business annually.
(2) The following
are not deductible under subsection (1)(a) of this section:
(a) Amounts received
from loans, except as provided in subsection (1)(c) of this section, or the
extension of credit to another, revolving credit arrangements, installment
sales, the acceptance of payment over time for goods or services, or any of the
foregoing that have been transferred by the originator of the same to an
affiliate of the transferor; or
(b) Amounts received
by a banking, lending, or security business.
(3) The definitions
in this subsection apply only to this section.
(a) "Banking
business" means a person engaging in business as a national or
state-chartered bank, a mutual savings bank, a savings and loan association, a
trust company, an alien bank, a foreign bank, a credit union, a stock savings
bank, or a similar entity that is chartered under Title 30, 31, 32, or 33 RCW,
or organized under Title 12 U.S.C.
(b) "Lending
business" means a person engaged in the business of making secured or
unsecured loans of money, or extending credit, and (i) more than one-half of
the person's gross income is earned from such activities and (ii) more than
one-half of the person's total expenditures are incurred in support of such
activities.
(c) The terms
"loan" and "extension of credit" do not include ownership
of or trading in publicly traded debt instruments, or substantially equivalent
instruments offered in a private placement.
(d) "Security
business" means a person, other than an issuer, who is engaged in the
business of effecting transactions in securities as a broker, dealer, or
broker-dealer, as those terms are defined in the securities act of Washington,
chapter 21.20 RCW, or the federal securities act of 1933. "Security
business" does not include any company excluded from the definition of
broker or dealer under the federal investment company act of 1940 or any entity
that is not an investment company by reason of sections 3(c)(1) and 3(c)(3)
through 3(c)(14) thereof.
NEW
SECTION. Sec. 3. This act takes effect
July 1, 2002.
