BILL REQ. #:  H-1547.4 

Read first time 02/27/2007.   Referred to Committee on Finance.

     AN ACT Relating to the model gross receipts business and occupation tax code; amending RCW 35.102.030, 35.102.040, 35.102.070, 35.102.130, 35.102.140, and 42.56.230; amending 2003 c 79 s 19 (uncodified); adding a new section to chapter 35.102 RCW; and providing an effective date.

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

Sec. 1   RCW 35.102.030 and 2003 c 79 s 3 are each amended to read as follows:
     The definitions in this section apply throughout this chapter ((79, Laws of 2003,)) unless the context clearly requires otherwise.
     (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 use of rates or percentages against 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.

Sec. 2   RCW 35.102.040 and 2006 c 301 s 7 are each amended to read as follows:
     (1)(a) The cities, working through the association of Washington cities, a nonprofit private organization, shall form a model ordinance development committee made up of a representative sampling of cities that as of July 27, 2003, impose a business and occupation tax. This committee shall work through the association of Washington cities to adopt a model ordinance on municipal gross receipts business and occupation ((tax)) taxes. The model ordinance and subsequent amendments shall be adopted using a process that includes opportunity for substantial input from business stakeholders and other members of the public. Input shall be solicited from statewide business associations and from local chambers of commerce and downtown business associations in cities that levy a business and occupation tax.
     (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 42.56 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. When the mandatory provisions of the model ordinance are directly tied to a statute, any amendment to that statute will supersede the model ordinance if the model ordinance is not amended by the effective date of the amended statute. The following provisions are mandatory:
     (a) A system of credits that meets the requirements of RCW 35.102.060 and a form for such use;
     (b) A uniform, minimum ((small business)) tax threshold or exemption 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. If a city has a ((small business)) minimum tax threshold or exemption in excess of that provided in this subsection as of January 1, 2003, and chooses to deviate below the threshold or exemption level that was in place as of January 1, 2003, the city must notify all businesses licensed to do business within the city at least one hundred twenty days prior to the potential implementation of a lower threshold or exemption amount;
     (c) Tax reporting frequencies that meet the requirements of RCW 35.102.070;
     (d) Penalty and interest provisions that meet the requirements of RCW 35.102.080 and 35.102.090;
     (e) Claim periods that meet the requirements of RCW 35.102.100;
     (f) Refund provisions that meet the requirements of RCW 35.102.110; and
     (g) Definitions, which at a minimum, must include the definitions enumerated in RCW 35.102.030 and 35.102.120. 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 deduction required by RCW 35.102.160 and 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.

Sec. 3   RCW 35.102.070 and 2003 c 79 s 7 are each amended to read as follows:
     A city that imposes a business and occupation tax shall allow reporting and payment of tax on a monthly, quarterly, or annual basis. The frequency for any particular person may be assigned at the discretion of the city, except that monthly reporting may be assigned only if it can be demonstrated that the taxpayer is remitting excise tax to the state on a monthly basis. For persons assigned a monthly frequency, payment ((is)) may not be due ((within the same)) prior to the time period provided for monthly taxpayers under RCW 82.32.045. For persons assigned a quarterly or annual frequency, payment ((is)) may not be due ((within the same)) prior to the time period as provided for quarterly or annual frequency under RCW 82.32.045.

Sec. 4   RCW 35.102.130 and 2003 c 79 s 13 are each amended to read as follows:
     A city that imposes a business and occupation tax shall provide for the allocation and apportionment of a person's gross income, other than persons subject to the provisions of chapter 82.14A RCW, as follows:
     (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 RCW 35.102.060; 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, or from ((the)) any other granting of intangible rights shall be allocated to the commercial domicile of the taxpayer.
     (3) Gross income derived from activities taxed ((as services)) under the service and other classifications shall be apportioned to a city by multiplying apportionable income by a fraction, the numerator of which is the sum of the payroll factor ((plus)), the service-income factor, and the property factor, and the denominator of which is ((two)) three.
     (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 any one of the following tests, applied consecutively, is met:
     (i) The ((individual is primarily assigned)) employee's service, including those of corporate officers, is performed entirely within the city; or
     (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)) employee's service is performed both within and without the city, but the service performed without the city is incidental to the employee's service within the city. For the purposes of this subsection (3)(a)(ii), the word "incidental" means any service which is temporary or transitory in nature, or which is rendered in connection with an isolated transaction. If the employee's services are performed both within and without the city, the employee's compensation will be attributed to the city:
     (A) If the employee's base of operations is in the city;
     (B) If there is no base of operations in any city in which some part of the service is performed, but the place from which the service is directed or controlled is in the city; or
     (C) If the base of operations or the place from which the service is directed or controlled is not in any city in which some part of the service is performed, but the employee's residence is in the city. For the purposes of this subsection (3)(a)(ii)(C), the term "base of operations" is the place of more or less permanent nature from which the employee starts work and to which he or she customarily returns in order to receive instructions from the taxpayer or communications from customers or other persons or to replenish stock or other materials, repair equipment, or perform any other functions necessary to the exercise of the employee's trade or profession at some other point or points.
     (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)) income-producing activity is performed wholly within 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)). For the purposes of this subsection (3)(b):
     (A) The term "income-producing activity" applies to each separate item of income and means the transactions and activity directly engaged in by the taxpayer in the regular course of its trade or business for the ultimate purpose of obtaining gains or profit. Such activity does not include transactions and activities performed on behalf of the taxpayer, such as those conducted on its behalf by an independent contractor; and
     (B) "Cost of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer.
     (c) The property factor is a fraction, the numerator of which is the total property of the taxpayer in the city during the tax period, and the denominator of which is the total property of the taxpayer everywhere during the tax period. The numerator of the property factor shall include the average value of the real and tangible personal property owned or rented by the taxpayer and used in the city during the tax period in the regular course of the trade or business of the taxpayer. The property shall be assigned as follows:
     (i) Property in transit between taxpayer locations shall be assigned to the destination.
     (ii) Property in transit between a seller and the taxpayer, as buyer, shall be assigned to the destination city.
     (iii) The value of mobile or movable property shall be assigned on the basis of total time within the city during the tax period.
     (iv) The automobile assigned to traveling employees shall be assigned to the city in which the employee's compensation is assigned under the payroll factor.
     (d)(i) A taxpayer may also choose not to apportion their service and other revenues as provided in (a) through (c) of this subsection, and if so, must then select the option in (d)(i)(A) or (B) of this subsection that applies to their situation and conforms with (d)(i)(C) of this subsection:
     (A) If the taxpayer is located within a city imposing a gross receipts business and occupation tax, the gross income from the transaction shall be assigned to the city where the taxpayer is located; or
     (B) If the taxpayer is located outside a city imposing a gross receipts business and occupation tax, the gross income from the transaction shall be assigned to the city in which the service is rendered.
     (C) The two options in (d)(i)(A) and (B) of this subsection will apply unless there are two or more cities that impose a business and occupation tax involved in the transaction, in which case the revenue will be assigned to the city in which: (I) The service contract was signed with the city; (II) the taxpayer is domiciled if the revenue was derived from intangibles; or (III) the service is provided; in that order of priority.
     (ii) If the taxpayer selects a method of reporting gross income contained in this subsection (3)(d), the method of reporting must be documented and used throughout the calendar year.
     (e)(i) If the allocation and apportionment provisions of (a) through (c) of this subsection 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))) (A) Separate accounting;
     (((ii))) (B) The ((use of a single factor)) exclusion of any one or more of the factors;
     (((iii))) (C) The inclusion of one or more additional factors that will fairly represent the taxpayer's business activity in the city; or
     (((iv))) (D) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.
     (((4))) (ii) A taxpayer must obtain approval from the city before reporting under any method contained in this subsection (3)(e). Such approval may be subject to audit verification before issuance. Once approved, the same method must be used for all subsequent tax reporting periods unless approval is again received from the city.
     (4) The definitions in this subsection apply throughout this section.
     (a) "Apportionable income" means the gross income of the business taxable under the service and other classifications of a city's gross receipts business and occupation tax, including income received from activities outside the city if the income would be taxable under the service and other classifications 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)) Employee" 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.))

Sec. 5   RCW 35.102.140 and 2003 c 79 s 14 are each amended to read as follows:
     Cities imposing business and occupation taxes must comply with all requirements of RCW 35.102.020 through 35.102.130 ((by December 31, 2004. A city that has not complied with the requirements of RCW 35.102.020 through 35.102.130 by December 31, 2004, may not impose a tax that is imposed by a city on the privilege of engaging in business activities. Cities imposing business and occupation taxes after December 31, 2004, must comply with RCW 35.102.020 through 35.102.130)). Any city imposing a business and occupation tax and not complying with the requirements contained in RCW 35.102.020 through 35.102.130 may not impose a business and occupation tax in an amount greater than the tax that would be due if the city had complied with all of the requirements contained in RCW 35.102.020 through 35.102.130.

NEW SECTION.  Sec. 6   A new section is added to chapter 35.102 RCW to read as follows:
     A city that imposes a business and occupation tax may provide that return or tax information shall be confidential, privileged, and subject to disclosure in the manner provided by RCW 82.32.330.

Sec. 7   RCW 42.56.230 and 2005 c 274 s 403 are each amended to read as follows:
     The following personal information is exempt from public inspection and copying under this chapter:
     (1) Personal information in any files maintained for students in public schools, patients or clients of public institutions or public health agencies, or welfare recipients;
     (2) Personal information in files maintained for employees, appointees, or elected officials of any public agency to the extent that disclosure would violate their right to privacy;
     (3) Information required of any taxpayer in connection with the assessment or collection of any tax if the disclosure of the information to other persons would (a) be prohibited to such persons by RCW 84.08.210, 82.32.330, 84.40.020, ((or)) 84.40.340, or section 6 of this act or (b) violate the taxpayer's right to privacy or result in unfair competitive disadvantage to the taxpayer; and
     (4) Credit card numbers, debit card numbers, electronic check numbers, card expiration dates, or bank or other financial account numbers, except when disclosure is expressly required by or governed by other law.

Sec. 8   2003 c 79 s 19 (uncodified) is amended to read as follows:
     Section 13 of this act takes effect January 1, ((2008)) 2009.

NEW SECTION.  Sec. 9   Section 4 of this act takes effect January 1, 2009.