BILL REQ. #:  H-4627.1 

READ FIRST TIME 02/04/04.   

     AN ACT Relating to a business and occupation tax exemption for qualifying small businesses; and adding a new section to chapter 82.04 RCW.

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) This chapter does not apply to amounts received by a small business when the requirements of this section are met. For the purposes of this section, a small business is a person whose:
     (a) Value of products, gross proceeds of sales, or gross income of the business is less than two hundred thousand dollars during a base period as specified under this section. For purposes of determining eligibility under the two hundred thousand dollar limitation in this subsection (1), persons taxable under this chapter on multiple activities associated with the same product, as identified in RCW 82.04.440, need only include the value of products or gross proceeds of sales for a single activity associated with the same product; and
     (b) Taxes due and paid under this chapter for the base period exceed the net income reported on the person's federal income tax return for the same base period. For purposes of determining net income reported on the person's federal income tax return, a sole proprietor may subtract the amount of self-employment tax shown on schedule 1040 SE from the net income reported on schedule C of the federal income tax return.
     (2) The small business selects the base period. The base period is a twelve-month period that is covered by a single federal income tax return. The small business must have operated during the entire twelve-month period.
     (3) The small business may take the exemption on twelve monthly tax returns if the business files tax returns monthly, four quarterly tax returns if the business files tax returns quarterly, or one annual tax return if the business files tax returns annually. Once a person has claimed the exemption on a tax return, the person may not later change the claim to a different tax return.
     (4) For small businesses filing returns on a monthly or quarterly basis, the base period must end no earlier than six months before the period covered by the first return on which a person qualifies under this section. A monthly or quarterly filer may not claim the exemption for any tax period starting more than twenty-four months after the first month covered by the first return on which the exemption is claimed. Annual filers may claim the exemption on one of the two annual tax returns due following the last month in the base period.
     (5) The amount of the exemption claimed must be reported on the small business' tax return as prescribed by the department. A claim by a person not entitled to this exemption is fraud or misrepresentation of a material fact and subject to interest and penalties prescribed by law.
     (6) The exemption provided in this section is not available for any period during or after which the small business:
     (a) Purchases or otherwise acquires, directly or indirectly, in bulk and not in the ordinary course of business, tangible or intangible assets of another taxpayer; or
     (b) Is a surviving corporation of a statutory merger.