BILL REQ. #: Z-0660.1
| State of Washington | 58th Legislature | 2003 Regular Session |
Read first time 02/19/2003. Referred to Committee on Ways & Means.
AN ACT Relating to changing requirements regarding state and local tax to provide for municipal business and occupation tax uniformity and fairness; adding new sections to chapter 35.21 RCW; creating new sections; prescribing penalties; and providing an effective date.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1
The legislature intends to provide for a more uniform system of
city business and occupation taxes that eliminates multiple taxation,
while allowing for some continued local control and flexibility to
cities.
NEW SECTION. Sec. 2
(1) A light and power business or a natural gas distribution
business, as defined in RCW 82.16.010;
(2) A telephone business, as defined in RCW 82.04.065;
(3) Cable television services;
(4) Sewer or water services;
(5) Drainage services;
(6) Solid waste services; or
(7) Steam services.
NEW SECTION. Sec. 3
(1) "Business" has the same meaning as given in chapter 82.04 RCW.
(2) "City" means a city, town, or code city.
(3) "Business and occupation tax" or "gross receipts tax" means a
tax 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 that is the legal liability of the business.
(4) "Value of products" has the same meaning as given in chapter
82.04 RCW.
(5) "Gross income of the business" has the same meaning as given in
chapter 82.04 RCW.
(6) "Gross proceeds of sales" has the same meaning as given in
chapter 82.04 RCW.
NEW SECTION. Sec. 4
(b) The municipal research council shall contract to post the model
ordinance on an internet web site and to make paper copies available
for inspection upon request. The department of revenue and the
department of licensing shall post copies of or links to the model
ordinance on their internet web sites. Additionally, a city that
imposes a business and occupation tax must make copies of its ordinance
available for inspection and copying as provided in chapter 42.17 RCW.
(c) The definitions and tax classifications in the model ordinance
may not be amended more frequently than once every four years, however
the model ordinance may be amended at any time to comply with changes
in state law. Any amendment to a mandatory provision of the model
ordinance must be adopted with the same effective date by all cities.
(2) A city that imposes a business and occupation tax must adopt
the mandatory provisions of the model ordinance. The following
provisions are mandatory:
(a) A system of credits that meets the requirements of section 6 of
this act and a form for such use;
(b) A uniform, minimum small business tax threshold of at least the
equivalent of twenty thousand dollars in gross income annually. A city
may elect to deviate from this requirement by creating a higher
threshold or exemption but it shall not deviate lower than the level
required in this subsection. A city with a small business tax
exemption or threshold in excess of that provided in this subsection
prior to January 1, 2003, shall retain its current threshold;
(c) Tax reporting frequencies that meet the requirements of section
7 of this act;
(d) Penalty and interest provisions that meet the requirements of
sections 8 and 9 of this act;
(e) Claim periods that meet the requirements of section 10 of this
act;
(f) Refund provisions that meet the requirements of section 11 of
this act; and
(g) Definitions, which at a minimum, must include the definitions
enumerated in sections 3 and 12 of this act. The definitions in
chapter 82.04 RCW shall be used as the baseline for all definitions in
the model ordinance, and any deviation in the model ordinance from
these definitions must be described by a comment in the model
ordinance.
(3) Except for the system of credits developed to address multiple
taxation under subsection (2)(a) of this section, a city may adopt its
own provisions for tax exemptions, tax credits, and tax deductions.
(4) Any city that adopts an ordinance that deviates from the
nonmandatory provisions of the model ordinance shall make a description
of such differences available to the public, in written and electronic
form.
NEW SECTION. Sec. 5
NEW SECTION. Sec. 6
(a) Persons who engage in business activities that are within the
purview of more than one classification of the tax shall be taxable
under each applicable classification.
(b) Notwithstanding anything to the contrary in this section, if
imposition of the tax would place an undue burden upon interstate
commerce or violate constitutional requirements, a taxpayer shall be
allowed a credit only to the extent necessary to preserve the validity
of the tax.
(c) Persons taxable under the retailing or wholesaling
classification with respect to selling products in a city shall be
allowed a credit against those taxes for any eligible gross receipts
taxes paid by the person (i) with respect to the manufacturing of the
products sold in the city, and (ii) with respect to the extracting of
the products, or the ingredients used in the products, sold in the
city. The amount of the credit shall not exceed the tax liability
arising with respect to the sale of those products.
(d) Persons taxable under the manufacturing classification with
respect to manufacturing products in a city shall be allowed a credit
against that tax for any eligible gross receipts tax paid by the person
with respect to extracting the ingredients of the products manufactured
in the city and with respect to manufacturing the products other than
in the city. The amount of the credit shall not exceed the tax
liability arising with respect to the manufacturing of those products.
(e) Persons taxable under the retailing or wholesaling
classification with respect to selling products in a city shall be
allowed a credit against those taxes for any eligible gross receipts
taxes paid by the person with respect to the printing, or the printing
and publishing, of the products sold within the city. The amount of
the credit shall not exceed the tax liability arising with respect to
the sale of those products.
(2) The model ordinance shall be drafted to address the issue of
multiple taxation for those tax classifications that are in addition to
those enumerated in subsection (1)(c) through (e) of this section. The
objective of any such provisions shall be to eliminate multiple
taxation of the same income by two or more cities.
NEW SECTION. Sec. 7
NEW SECTION. Sec. 8
(2) A city that imposes a business and occupation tax shall compute
interest paid on refunds or credits of amounts paid or other recovery
allowed a taxpayer in accordance with RCW 82.32.060.
NEW SECTION. Sec. 9
NEW SECTION. Sec. 10
NEW SECTION. Sec. 11
NEW SECTION. Sec. 12
(a) Eligible gross receipts tax.
(b) Extracting.
(c) Manufacturing. Software development may not be defined as a
manufacturing activity.
(d) Retailing.
(e) Retail sale.
(f) Services. The term "services" excludes retail or wholesale
services.
(g) Wholesale sale.
(h) Wholesaling.
(i) To manufacture.
(j) Commercial and industrial use.
(k) Engaging in business.
(l) Person.
(2) Any tax classifications in addition to those enumerated in
subsection (1) of this section that are included in the model ordinance
must be uniform among all cities.
NEW SECTION. Sec. 13
(1) Gross income derived from all activities other than those taxed
as service or royalties shall be allocated to the location where the
activity takes place.
(a) In the case of sales of tangible personal property, the
activity takes place where delivery to the buyer occurs.
(b) If a business activity allocated under this subsection (1)
takes place in more than one city and all cities impose a gross
receipts tax, a credit shall be allowed as provided in section 6 of
this act; if not all of the cities impose a gross receipts tax, the
affected cities shall allow another credit or allocation system as they
and the taxpayer agree.
(2) Gross income derived as royalties from the granting of
intangible rights shall be allocated to the commercial domicile of the
taxpayer.
(3) Gross income derived from activities taxed as services shall be
apportioned to a city by multiplying apportionable income by a
fraction, the numerator of which is the payroll factor plus the
service-income factor and the denominator of which is two.
(a) The payroll factor is a fraction, the numerator of which is the
total amount paid in the city during the tax period by the taxpayer for
compensation and the denominator of which is the total compensation
paid everywhere during the tax period. Compensation is paid in the
city if:
(i) The individual is primarily assigned within the city;
(ii) The individual is not primarily assigned to any place of
business for the tax period and the employee performs fifty percent or
more of his or her service for the tax period in the city; or
(iii) The individual is not primarily assigned to any place of
business for the tax period, the individual does not perform fifty
percent or more of his or her service in any city and the employee
resides in the city.
(b) The service income factor is a fraction, the numerator of which
is the total service income of the taxpayer in the city during the tax
period, and the denominator of which is the total service income of the
taxpayer everywhere during the tax period. Service income is in the
city if:
(i) The customer location is in the city; or
(ii) The income-producing activity is performed in more than one
location and a greater proportion of the service-income-producing
activity is performed in the city than in any other location, based on
costs of performance, and the taxpayer is not taxable at the customer
location; or
(iii) The service-income-producing activity is performed within the
city, and the taxpayer is not taxable in the customer location.
(c) If the allocation and apportionment provisions of this section
do not fairly represent the extent of the taxpayer's business activity
in the city or cities in which the taxpayer does business, the taxpayer
may petition for or the tax administrators may jointly require, in
respect to all or any part of the taxpayer's business activity, that
one of the following methods be used jointly by the cities to allocate
or apportion gross income, if reasonable:
(i) Separate accounting;
(ii) The use of a single factor;
(iii) The inclusion of one or more additional factors that will
fairly represent the taxpayer's business activity in the city; or
(iv) The employment of any other method to effectuate an equitable
allocation and apportionment of the taxpayer's income.
(4) The definitions in this subsection apply throughout this
section.
(a) "Apportionable income" means the gross income of the business
taxable under the service classifications of a city's gross receipts
tax, including income received from activities outside the city if the
income would be taxable under the service classification if received
from activities within the city, less any exemptions or deductions
available.
(b) "Compensation" means wages, salaries, commissions, and any
other form of remuneration paid to individuals for personal services
that are or would be included in the individual's gross income under
the federal internal revenue code.
(c) "Individual" means any individual who, under the usual common
law rules applicable in determining the employer-employee relationship,
has the status of an employee of that taxpayer.
(d) "Customer location" means the city or unincorporated area of a
county where the majority of the contacts between the taxpayer and the
customer take place.
(e) "Primarily assigned" means the business location of the
taxpayer where the individual performs his or her duties.
(f) "Service-taxable income" or "service income" means gross income
of the business subject to tax under either the service or royalty
classification.
(g) "Tax period" means the calendar year during which tax liability
is accrued. If taxes are reported by a taxpayer on a basis more
frequent than once per year, taxpayers shall calculate the factors for
the previous calendar year for reporting in the current calendar year
and correct the reporting for the previous year when the factors are
calculated for that year, but not later than the end of the first
quarter of the following year.
(h) "Taxable in the customer location" means either that a taxpayer
is subject to a gross receipts tax in the customer location for the
privilege of doing business, or that the government where the customer
is located has the authority to subject the taxpayer to gross receipts
tax regardless of whether, in fact, the government does so.
NEW SECTION. Sec. 14
NEW SECTION. Sec. 15
NEW SECTION. Sec. 16
NEW SECTION. Sec. 17 Sections 2 through 14 of this act are each
added to chapter
NEW SECTION. Sec. 18