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.
