BILL REQ. #:  H-2593.2 

Read first time 04/14/11.   Referred to Committee on Ways & Means.

     AN ACT Relating to community reinvestment of oil windfall profits; adding a new title to the Revised Code of Washington to be codified as Title 82A RCW; prescribing penalties; and providing an effective date.

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

NEW SECTION.  Sec. 1   FINDINGS AND INTENT. (1) The legislature finds that in the process of mitigating a projected revenue shortfall of nine billion dollars for the 2009-2011 biennium during the 2009 legislative session, it faces yet again in the 2011 legislative session, only two years later, another projected revenue shortfall of at least two billion six hundred million, for a total projected revenue shortfall of eleven billion six hundred million dollars in the 2009-2011 biennium. Many of the programs that were cut by the 2009 and 2010 legislative sessions and that are under the threat of cuts during the 2011 legislative session, due to the current economic recession and the fundamental inadequacies and unfairness of our current revenue structure, threaten the health, safety, and security of a civilized Washington state. Some examples of these cuts are: Dropping forty thousand people off the Washington basic health plan; cutting early childhood education for one thousand five hundred three-year-olds; cutting all-day kindergarten for children living in poverty; cutting assistance for thirty thousand disabled and unemployable persons; cutting prescription drug assistance for eighty-five thousand seniors; cutting maternity support for fifty thousand high-risk pregnant women; cutting terminal care hospices for two thousand six hundred people; cutting children's health care for sixteen thousand low-income kids; making tuition costs out of reach for average income students; cutting medicaid medical care; and cutting services for mental health care, chemical dependency, home care, child care, public health, foster care, tobacco use prevention, cancer screening, nursing home care, supporting people with developmental disabilities, home visiting, universal vaccinations, hospital care, affordable housing, adult day health, and family planning, among many others.
     (2) The legislature further finds that the federal stimulus money and accounting procedures used to balance the 2009-2011 budget will most probably not be available to mitigate any projected revenue shortfall in the 2011-2013 budget. Therefore, it is in the best interests of the people of Washington state to mitigate the devastating effects of the aforementioned cuts by looking at new ways to raise revenue for the short term, and to look at long-term solutions to the state's revenue problems. This can be done while at the same time securing fairness, adequacy, and stability within our state revenue structure.
     (3) It is the legislature's intent with this act to move the state forward with two goals: (a) Raising immediate revenue to mitigate the cruel impacts of draconian budget cuts; and (b) initiating inquiry and proceedings toward long-term solutions to the state's unfair, inadequate, and volatile revenue problems. These goals allow all the people of the state to: Collectively share the financial responsibilities of this recession so that everyone is pitching in to get us all through the recession together; ensure that we leave no one behind; and position our state for recovery by reforming our revenue structure to encourage healthy economic development.

NEW SECTION.  Sec. 2   DEFINITIONS. Unless the context clearly requires otherwise, the definitions in this section apply throughout this title. Except as provided in this section, any term used in this title has the same meaning as when used in a comparable context in the internal revenue code.
     (1) "Affiliated corporation" means a corporation that is a member of a group of two or more corporations with a common owner or owners, either corporate or noncorporate, when more than fifty percent of the voting stock of each member corporation is directly or indirectly owned by the common owner or owners or by one or more of the member corporations.
     (2) "Business activity" means any activity engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly.
     (3) "Corporation" means any corporation as defined by the laws of this state or organization of any kind treated as a corporation for tax purposes under the laws of this state, wherever located, which if it were doing business in this state would be a taxpayer. The business conducted by a partnership which is directly or indirectly held by a corporation is considered the business of the corporation to the extent of the corporation's distributive share of the partnership income, inclusive of guaranteed payments to the extent prescribed by rule.
     (4) "Combined group" means the group of all persons whose income and apportionment factors are required to be taken into account under section 9 (1) or (2) of this act in determining the taxpayer's share of the net business income or loss apportionable to this state.
     (5) "Department" means the department of revenue.
     (6) "Gasoline price" means the average of the retail gasoline prices published during the taxable year for the west coast less California, as published by the federal energy information administration or its successor agency.
     (7) "Internal revenue code" means Title 26 of the United States Code of 1986, and amendments thereto, as existing on January 1, 2011.
     (8) "Person" means any individual, firm, partnership, general partner of a partnership, limited liability company, registered limited liability partnership, foreign limited liability partnership, association, corporation (whether or not the corporation is, or would be if doing business in this state, subject to tax under this title), company, syndicate, estate, trust, business trust, trustee, trustee in bankruptcy, receiver, executor, administrator, assignee, or organization of any kind.
     (9) "Partnership" means a general or limited partnership, or organization of any kind treated as a partnership for business purposes under the laws of this state.
     (10) "Petroleum business" means a corporation engaged in any of the following activities: Exploration, production, refining, manufacturing, processing, transportation, and marketing of oil and gas or any commodity, product, or feedstock derived from oil or gas, including petrochemicals.
     (11) "Petroleum refining" means refining crude petroleum into refined petroleum by fractionation, straight distillation of crude oil, cracking, or similar methods.
     (12) "Tax haven" means a jurisdiction that, during the tax year in question:
     (a) Is identified by the organization for economic cooperation and development (OECD) as a tax haven or as having a harmful preferential tax regime; or
     (b) Exhibits the following characteristics established by the OECD in its 1998 report entitled harmful tax competition: An emerging global issue as indicative of a tax haven or as a jurisdiction having a harmful preferential tax regime, regardless of whether it is listed by the OECD as an uncooperative tax haven:
     (i) Has no or nominal effective tax on the relevant income; and
     (ii)(A) Has laws or practices that prevent effective exchange of information for tax purposes with other governments on taxpayers benefiting from the tax regime;
     (B) Has tax regime which lacks transparency. A tax regime lacks transparency if the details of legislative, legal, or administrative provisions are not open and apparent or are not consistently applied among similarly situated taxpayers, or if the information needed by tax authorities to determine a taxpayer's correct tax liability, such as accounting records and underlying documentation, is not adequately available;
     (C) Facilitates the establishment of foreign-owned entities without the need for a local substantive presence or prohibits these entities from having any commercial impact on the local economy;
     (D) Explicitly or implicitly excludes the jurisdiction's resident taxpayers from taking advantage of the tax regime's benefits or prohibits enterprises that benefit from the regime from operating in the jurisdiction's domestic market; or
     (E) Has created a tax regime which is favorable for tax avoidance, based upon an overall assessment of relevant factors, including whether the jurisdiction has a significant untaxed offshore financial/other services sector relative to its overall economy.
     (13) "Taxable income" means federal taxable income after making the additions, subtractions, apportionments, and allocations provided under this title.
     (14) "Taxable year" means the taxpayer's taxable year as defined under the internal revenue code.
     (15) "Taxpayer" means a corporation receiving income subject to tax under this title.
     (16) "Unitary business" means a single economic enterprise that is made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. Any business conducted by a partnership must be treated as conducted by its partners, whether directly held or indirectly held through a series of partnerships, to the extent of the partner's distributive share of the partnership's income, regardless of the percentage of the partner's ownership interest or its distributive or any other share of partnership income. A business conducted directly or indirectly by one corporation is unitary with that portion of a business conducted by another corporation through its direct or indirect interest in a partnership if the conditions under this subsection are satisfied.
     (17) "United States" means the fifty states of the United States, the District of Columbia, and United States' territories and possessions.

NEW SECTION.  Sec. 3   PRIVILEGE TAX IMPOSED. A tax is imposed for each taxable year on the taxable income of each petroleum business for the privilege of engaging in any business activity within this state. The tax is equal to the taxable income multiplied by the rate according to the following table.

NEW SECTION.  Sec. 4   EXEMPTION. The tax imposed under this title does not apply to a corporation if neither the corporation nor any affiliated corporation engages in any petroleum refining within or outside this state during the taxable year or the five preceding years.

NEW SECTION.  Sec. 5   TAXABLE INCOME MODIFICATIONS. In computing taxable income, modifications must be made to the taxpayer's federal taxable income as required under this section, unless the modification has the effect of duplicating an item of income or deduction.
     (1) Add amounts that have been deducted in computing federal taxable income to the extent the amounts have been carried over from taxable years ending before the effective date of this section.
     (2) Add amounts that have been deducted in computing federal taxable income to the extent the amounts have been carried back from future taxable years.
     (3) Add taxes on or measured by net income that have been deducted under the internal revenue code in computing federal taxable income.
     (4) Add gross income that has been excluded under section 103 of the internal revenue code in computing federal taxable income, except gross income derived from obligations of the state of Washington or political subdivisions of the state of Washington. However, the amount added under this subsection must be reduced by any expenses incurred in the production of amounts added under this subsection, to the extent the expenses have not been deducted in computing federal taxable income.
     (5) Deduct gross income that the state is prohibited from taxing under the Constitution or laws of the United States, to the extent the gross income was included in computing federal taxable income. However, the amount deducted under this subsection must be reduced by any expenses incurred in the production of amounts subtracted under this subsection, to the extent the expenses have been deducted in computing federal taxable income.
     (6) Deduct income attributable to activities subject to tax under chapter 82.04 RCW for periods prior to the effective date of this section, to the extent the gross income was included in computing federal taxable income. However, the amount deducted under this subsection must be reduced by any expenses incurred in the production of such income, to the extent the expenses have been deducted in computing federal taxable income.
     (7) Deduct income attributable to activities subject to tax under chapter 82.16 RCW, to the extent the gross income was included in computing federal taxable income. However, the amount deducted under this subsection must be reduced by any expenses incurred in the production of such income to the extent the expenses have been deducted in calculating federal taxable income.
     (8) Deduct income attributable to insurance business upon which a tax based on gross premiums is paid to the state. However, the amount deducted under this subsection must be reduced by any expense incurred in the production of such income to the extent the expense has been deducted in calculating federal taxable income.
     (9) Add amounts upon which an S corporation is subject to tax under subchapter S, chapter 1, subtitle A of the internal revenue code.
     (10) Add amounts that have been deducted as intangible drilling and development expenses under Sec. 263(c) of the internal revenue code in excess of amounts that would have been deducted had the expenses been capitalized and depreciated.
     (11) Add amounts deducted on the percentage depletion basis under Sec. 613 of the internal revenue code in excess of the amounts that would have been deducted had the expenses been determined using the cost depletion basis under Sec. 612 of the internal revenue code.
     (12) Add amounts deducted as depreciation in excess of the amounts allowable under Sec. 167 of the internal revenue code as that section read on June 30, 1981.

NEW SECTION.  Sec. 6   TAX RETURNS FOR FRACTIONAL YEAR. If the first taxable year of any taxpayer with respect to which a tax is imposed by this title ends before December 31st of the calendar year in which this title becomes effective, referred to in this section as a fractional taxable year, the taxable income for the fractional taxable year is the taxpayer's taxable income for the entire taxable year, adjusted by one of the following methods, at the taxpayer's election:
     (1) The taxable income must be multiplied by a fraction. The numerator of the fraction is the number of days in the fractional taxable year. The denominator of the fraction is the number of days in the entire taxable year.
     (2) The taxable income must be adjusted, in accordance with rules of the department, so as to include only such income and be reduced only by such deductions as can be clearly determined from the permanent records of the taxpayer to be attributable to the fractional taxable year.

NEW SECTION.  Sec. 7   ESTIMATION AGREEMENTS. The department may reasonably estimate the items of business or nonbusiness income of a taxpayer having an office within the state and one or more other states or foreign countries that may be apportioned or allocated to the state and may enter into estimation agreements with such taxpayers for the determination of their liability for the tax imposed by this title.

NEW SECTION.  Sec. 8   APPORTIONMENT AND ALLOCATION OF INCOME. All income must be apportioned and allocated to this state except income that is apportioned or allocated to another state under RCW 82.56.010.

NEW SECTION.  Sec. 9   COMBINED REPORTING. (1) A taxpayer engaged in a unitary business with one or more other corporations must file a combined report which includes the income, determined under section 10 of this act, and apportionment factors, determined under RCW 82.56.010, of all corporations that are members of the unitary business, and such other information as required by the department.
     (2) The department may, by rule, require the combined report to include the income and associated apportionment factors of any persons that are not included under subsection (1) of this section, but that are members of a unitary business, in order to reflect proper apportionment of income of entire unitary businesses. Authority to require combination by rule under this subsection includes authority to require combination of persons that are not, or would not be if doing business in this state, subject to tax under this chapter.
     (a) In addition, if the department determines that the reported income or loss of a taxpayer engaged in a unitary business with any person not included under subsection (1) of this section represents an avoidance or evasion of tax by such taxpayer, the department may, on a case-by-case basis, require all or any part of the income and associated apportionment factors of such person to be included in the taxpayer's combined report.
     (b) With respect to inclusion of associated apportionment factors under this subsection, the department may require the exclusion of any one or more of the factors, the inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this state, or the employment of any other method to effectuate a proper reflection of the total amount of income subject to apportionment and an equitable allocation and apportionment of the taxpayer's income.

NEW SECTION.  Sec. 10   DETERMINATION OF TAXABLE INCOME OR LOSS USING COMBINED REPORT. The use of a combined report does not disregard the separate identities of the taxpayer members of the combined group. Each taxpayer member is responsible for tax based on its taxable income or loss apportioned or allocated to this state, which includes, in addition to other types of income, the taxpayer member's apportioned share of business income of the combined group, where business income of the combined group is calculated as a summation of the individual net business incomes of all members of the combined group. A member's net business income is determined by removing all but business income, expense, and loss from that member's total income of the combined group, as provided in this section.
     (1)(a) Each taxpayer member is responsible for tax based on its taxable income or loss apportioned or allocated to this state, which includes:
     (i) Its share of any business income apportionable to this state of each of the combined groups of which it is a member, determined under subsection (2) of this section;
     (ii) Its share of any business income apportionable to this state of a distinct business activity conducted within and without the state wholly by the taxpayer member, determined under RCW 82.56.010;
     (iii) Its income from a business conducted wholly by the taxpayer member entirely within the state;
     (iv) Its income sourced to this state from the sale or exchange of capital or assets, and from involuntary conversions, as determined under subsection (3)(a)(vii) of this section, below;
     (v) Its nonbusiness income or loss allocable to this state, determined under RCW 82.56.010;
     (vi) Its income or loss allocated or apportioned in an earlier year, required to be taken into account as state source income during the income year, other than a net operating loss; and
     (vii) Its net operating loss carryover or carryback. If the taxable income computed under this section results in a loss for a taxpayer member of the combined group, that taxpayer member has a state net operating loss. Such net operating loss is applied as a deduction in a prior or subsequent year only if that taxpayer has state source positive net income, whether or not the taxpayer is or was a member of a combined reporting group in the prior or subsequent year.
     (b) Except where otherwise provided, no tax credit or post-apportionment deduction earned by one member of the group, but not fully used by or allowed to that member, may be used in whole or in part by another member of the group or applied in whole or in part against the total income of the combined group; and a post-apportionment deduction carried over into a subsequent year as to the member that incurred it, and available as a deduction to that member in a subsequent year, will be considered in the computation of the income of that member in the subsequent year, regardless of the composition of that income as apportioned, allocated, or wholly within this state.
     (2) The taxpayer's share of the business income apportionable to this state of each combined group of which it is a member is the product of:
     (a) The business income of the combined group, determined under subsection (3) of this section; and
     (b) The taxpayer member's apportionment percentage, determined under RCW 82.56.010, including in the property, payroll, and sales factor numerators the taxpayer's property, payroll, and sales, respectively, associated with the combined group's unitary business in this state, and including in the denominator the property, payroll, and sales of all members of the combined group, including the taxpayer, which property, payroll, and sales are associated with the combined group's unitary business wherever located. The property, payroll, and sales of a partnership must be included in the determination of the partner's apportionment percentage in proportion to a ratio the numerator of which is the amount of the partner's distributive share of partnership's unitary income included in the income of the combined group in accordance with subsection (3)(b)(iii) of this section and the denominator of which is the amount of the partnership's total unitary income.
     (3) The business income of a combined group is determined as follows:
     (a) From the total income of the combined group, determined under (b) of this subsection, subtract any income, and add any expense or loss, other than the business income, expense, or loss of the combined group.
     (b) Except as otherwise provided, the total income of the combined group is the sum of the incomes, separately determined, of each member of the combined group. The income of each member of the combined group must be determined as follows:
     (i) For any member incorporated in the United States, or included in a consolidated federal corporate income tax return, the income to be included in the total income of the combined group is the taxable income for the corporation after making appropriate adjustments under section 5 of this act.
     (ii)(A) For any member not included in (a) of this subsection, the income to be included in the total income of the combined group must be determined as follows:
     (I) A profit and loss statement must be prepared for each foreign branch or corporation in the currency in which the books of account of the branch or corporation are regularly maintained.
     (II) Adjustments must be made to the profit and loss statement to conform it to the accounting principles generally accepted in the United States for the preparation of such statements except as modified under this title.
     (III) Adjustments must be made to the profit and loss statement to conform it to the tax accounting standards required by the department by rule.
     (IV) Except as otherwise provided by rule, the profit and loss statement of each member of the combined group, and the apportionment factors related thereto, whether United States or foreign, must be translated into the currency in which the parent company maintains its books and records.
     (V) Income apportioned to this state must be expressed in United States dollars.
     (B) In lieu of the procedures set forth in (b)(ii)(A) of this subsection, and subject to the determination of the department that it reasonably approximates income, any member not included in (b)(i) of this subsection may determine its income on the basis of the consolidated profit and loss statement which includes the member and which is prepared for filing with the securities and exchange commission by related corporations. If the member is not required to file with the securities and exchange commission, the department may allow the use of the consolidated profit and loss statement prepared for reporting to shareholders and subject to review by an independent auditor. If above statements do not reasonably approximate income as determined by the department, the department may accept those statements with appropriate adjustments to approximate that income.
     (iii) If a unitary business includes income from a partnership, the income to be included in the total income of the combined group must be the member of the combined group's direct and indirect distributive share of the partnership's unitary business income.
     (iv) All dividends paid by one to another of the members of the combined group must, to the extent those dividends are paid out of the earnings and profits of the unitary business included in the combined report, in the current or an earlier year, be eliminated from the income of the recipient. This provision does not apply to dividends received from members of the unitary business which are not a part of the combined group.
     (v) Except as otherwise provided by rule, business income from an intercompany transaction between members of the same combined group must be deferred in a manner similar to 26 C.F.R. 1.1502-13. Upon the occurrence of any of the following events, deferred business income resulting from an intercompany transaction between members of a combined group must be restored to the income of the seller, and is apportioned as business income earned immediately before the event:
     (A) The object of a deferred intercompany transaction is:
     (I) Resold by the buyer to an entity that is not a member of the combined group;
     (II) Resold by the buyer to an entity that is a member of the combined group for use outside the unitary business in which the buyer and seller are engaged; or
     (III) Converted by the buyer to a use outside the unitary business in which the buyer and seller are engaged; or
     (B) The buyer and seller are no longer members of the same combined group, regardless of whether the members remain unitary.
     (vi) A charitable expense incurred by a member of a combined group must, to the extent allowable as a deduction under internal revenue code section 170, be subtracted first from the business income of the combined group (subject to the income limitations of that section applied to the entire business income of the group), and any remaining amount must then be treated as a nonbusiness expense allocable to the member that incurred the expense (subject to the income limitations of that section applied to the nonbusiness income of that specific member). Any charitable deduction disallowed under the foregoing rule, but allowed as a carryover deduction in a subsequent year, must be treated as originally incurred in the subsequent year by the same member, and the rules of this section apply in the subsequent year in determining the allowable deduction in that year.
     (vii) Gain or loss from the sale or exchange of capital assets, property described by internal revenue code section 1231(a)(3), and property subject to an involuntary conversion, must be removed from the total separate net income of each member of a combined group and must be apportioned and allocated as follows:
     (A) For each class of gain or loss (short-term capital, long-term capital, internal revenue code section 1231, and involuntary conversions) all members' business gain and loss for the class must be combined (without netting between such classes), and each class of net business gain or loss separately apportioned to each member using the member's apportionment percentage determined under subsection (2) of this section.
     (B) Each taxpayer member must then net its apportioned business gain or loss for all classes, including any such apportioned business gain and loss from other combined groups, against the taxpayer member's nonbusiness gain and loss for all classes allocated to this state, using the rules of internal revenue code sections 1231 and 1222, without regard to any of the taxpayer member's gains or losses from the sale or exchange of capital assets, internal revenue code section 1231 property, and involuntary conversions which are nonbusiness items allocated to another state.
     (C) Any resulting state source income (or loss, if the loss is not subject to the limitations of internal revenue code section 1211) of a taxpayer member produced by the application of this section must then be applied to all other state source income or loss of that member.
     (D) Any resulting state source loss of a member that is subject to the limitations of internal revenue code section 1211 must be carried forward by that member, and must be treated as state source short-term capital loss incurred by that member for the year for which the carryover applies.
     (viii) Any expense of one member of the unitary group which is directly or indirectly attributable to the nonbusiness or exempt income of another member of the unitary group must be allocated to that other member as corresponding nonbusiness or exempt expense, as appropriate.

NEW SECTION.  Sec. 11   DESIGNATION OF SURETY. As a filing convenience, and without changing the respective liability of the group members, members of a combined reporting group may annually elect to designate one taxpayer member of the combined group to file a single return in the form and manner prescribed by the department, in lieu of filing their own respective returns, provided that the taxpayer designated to file the single return consents to act as surety with respect to the tax liability of all other taxpayers properly included in the combined report, and agrees to act as agent on behalf of those taxpayers for the year of the election for tax matters relating to the combined report for that year. If for any reason the surety is unwilling or unable to perform its responsibilities, tax liability may be assessed against the taxpayer members.

NEW SECTION.  Sec. 12   WATER'S-EDGE ELECTION; INITIATION AND WITHDRAWAL. (1) Taxpayer members of a unitary group that meet the requirements of subsection (2) of this section may elect to determine each of their apportioned shares of the net business income or loss of the combined group under a water's-edge election. Under this election, taxpayer members must take into account all or a portion of the income and apportionment factors of only the following members otherwise included in the combined group under section 9 of this act, as follows:
     (a) The entire income and apportionment factors of any member incorporated in the United States or formed under the laws of any state, the District of Columbia, or any territory or possession of the United States;
     (b) The entire income and apportionment factors of any member, regardless of the place incorporated or formed, if the average of its property, payroll, and sales factors within the United States is twenty percent or more;
     (c) The entire income and apportionment factors of any member which is a domestic international sales corporation as described in internal revenue code sections 991 to 994, inclusive; a foreign sales corporation as described in internal revenue code sections 921 to 927, inclusive; or any member which is an export trade corporation, as described in internal revenue code sections 970 to 971, inclusive;
     (d) Any member not described in (a) through (c) of this subsection, inclusive, must include the portion of its income derived from or attributable to sources within the United States, as determined under the internal revenue code without regard to federal treaties, and its apportionment factors related thereto;
     (e) Any member that is a "controlled foreign corporation," as defined in internal revenue code section 957, to the extent of the income of that member that is defined in section 952 of subpart F of the internal revenue code ("subpart F income") not excluding lower-tier subsidiaries' distributions of such income which were previously taxed, determined without regard to federal treaties, and the apportionment factors related to that income; any item of income received by a controlled foreign corporation is excluded if such income was subject to an effective rate of income tax imposed by a foreign country greater than ninety percent of the maximum rate of tax specified in internal revenue code section 11;
     (f) Any member that earns more than twenty percent of its income, directly or indirectly, from intangible property or service related activities that are deductible against the business income of other members of the combined group, to the extent of that income and the apportionment factors related thereto; and
     (g) The entire income and apportionment factors of any member that is doing business in a tax haven, where "doing business in a tax haven" is defined as being engaged in activity sufficient for that tax haven jurisdiction to impose a tax under United States constitutional standards. If the member's business activity within a tax haven is entirely outside the scope of the laws, provisions, and practices that cause the jurisdiction to meet the criteria established in section 2(12) of this act, the activity of the member must be treated as not having been conducted in a tax haven.
     (2)(a) A water's-edge election is effective only if made on a timely filed, original return for a taxable year by every member of the unitary business subject to tax under this title. The department must develop rules, and rules governing the impact if any, on the scope or application of a water's-edge election, including termination or deemed election, resulting from a change in the composition of the unitary group, the combined group, the taxpayer members, and any other similar change.
     (b) Such election constitutes consent to the reasonable production of documents and taking of depositions.
     (c) In the discretion of the department, a water's-edge election may be disregarded in part or in whole, and the income and apportionment factors of any member of the taxpayer's unitary group may be included in the combined report without regard to the provisions of this section, if any member of the unitary group fails to comply with any provision of this title or if a person otherwise not included in the water's-edge combined group was availed of with a substantial objective of avoiding state income tax.
     (d) A water's-edge election is binding for and applicable to the tax year it is made and all taxable years thereafter. It may be withdrawn or reinstituted after withdrawal, only upon written request for reasonable cause based on extraordinary hardship due to unforeseen changes in state tax statutes, law, or policy, and only with the written permission of the department. If the department grants a withdrawal of election, he or she must impose reasonable conditions as necessary to prevent the evasion of tax or to clearly reflect income for the election period prior to or after the withdrawal.

NEW SECTION.  Sec. 13   ESTIMATED TAX IMPOSED--DUE DATE OF ESTIMATED TAXES--AMOUNT OF ESTIMATED TAX--UNDERPAYMENT PENALTY. (1) Each taxpayer who is required by the internal revenue code to make payment of estimated taxes must pay to the department on forms prescribed by the department the estimated taxes due under this title.
     (2) The provisions of the internal revenue code relating to the determination of reporting periods and due dates of payments of estimated tax apply to the estimated tax payments due under this section.
     (3) The amount of the estimated tax is the annualized tax divided by the number of months in the reporting period. No estimated tax is due if the annualized tax is less than five hundred dollars. The provisions of RCW 82.32.050 and 82.32.090 apply to underpayments of estimated tax but do not apply to underpayments if the tax remitted to the department under this title is either ninety percent of the tax shown on the return or one hundred percent of the tax shown on the previous year's tax return.
     (4) For purposes of this section, the annualized tax is the taxpayer's projected tax liability for the taxable year as computed under section 6654 of the internal revenue code and the regulations thereunder.

NEW SECTION.  Sec. 14   METHOD OF ACCOUNTING. (1) A taxpayer's method of accounting for purposes of the tax imposed under this title must be the same as the taxpayer's method of accounting for federal income tax purposes. If no method of accounting has been regularly used by a taxpayer for federal income tax purposes or if the method used does not clearly reflect income, tax due under this title is computed by a method of accounting that in the opinion of the department fairly reflects income.
     (2) If a corporation's method of accounting is changed for federal income tax purposes, it must be similarly changed for purposes of this title.

NEW SECTION.  Sec. 15   CORPORATIONS REQUIRED TO FILE RETURNS. (1) All taxpayers must file with the department, on forms prescribed by the department, an income tax return for each taxable year. A corporation owing no tax for a taxable year is not required to file a return for that year. Each corporation required to file a return under this title must, without assessment, notice, or demand, pay any tax due thereon to the department on or before the date fixed for the filing of the return.
     (2) The department may by rule require that certain taxpayers file, on forms prescribed by the department, informational returns for any period.
     (3) If an adjustment to a taxpayer's federal return is made by the taxpayer or the internal revenue service, the taxpayer must, within ninety days of the final determination of the adjustment by the internal revenue service or within thirty days of the filing of a federal return adjusted by the taxpayer, file with the department on forms prescribed by the department, a corrected return reflecting the adjustments as finally determined. The taxpayer must pay any additional tax due resulting from the finally determined internal revenue service adjustment or a taxpayer adjustment without notice and assessment. The period of limitation for the collection of the additional tax, interest, and penalty due as a result of an adjustment by the taxpayer or a finally determined internal revenue service adjustment must begin at the later of thirty days following the final determination of the adjustment or the date of the filing of the corrected return.

NEW SECTION.  Sec. 16   DUE DATE FOR FILING A RETURN--EXTENSIONS--INTEREST AND PENALTIES. The due date of a return required to be filed with the department is the due date of the federal income tax return or informational return for federal income tax purposes. The department has the authority to grant extensions of times by which returns required to be filed by this title may be submitted. The department also has the authority to grant extensions of time to pay tax with regard to taxes imposed by this title. Interest at the rate as specified in RCW 82.32.050 accrues during any extension period and the interest and penalty provisions of chapter 82.32 RCW apply to late payments and deficiencies. Notwithstanding the limitation of RCW 82.32.090, in the case of the late filing of an informational return, there is imposed a penalty the amount of which must be established by the department by rule. The penalty may not exceed fifty dollars per month for a maximum of ten months. RCW 82.32.105 applies to this section.

NEW SECTION.  Sec. 17   RECORDS--RETURNS. (1) Every taxpayer required to deduct and withhold the tax imposed under this title must keep records, render statements, make returns, file reports, and perform other acts as the department requires by rule. Each return is made under penalty of perjury and on forms prescribed by the department. The department may require other statements and reports be made under penalty of perjury and on forms prescribed by the department. The department may require any taxpayer required to deduct and withhold the tax imposed under this title to furnish to the department a correct copy of any return or document that the taxpayer has filed with the internal revenue service or received from the internal revenue service.
     (2) All books and records and other papers and documents required to be kept under this title are subject to inspection by the department at all times during business hours of the day.

NEW SECTION.  Sec. 18   PROVISIONS OF INTERNAL REVENUE CODE CONTROL. (1) To the extent possible without being inconsistent with this title, all of the provisions of the internal revenue code relating to the following subjects apply to the taxes imposed under this title:
     (a) Liability of transferees;
     (b) Time and manner of making returns, extensions of time for filing returns, verification of returns, and the time when a return is deemed filed.
     (2) The department by rule may provide modifications and exceptions to the provisions in subsection (1) of this section, if reasonably necessary to facilitate the prompt, efficient, and equitable collection of tax under this title.

NEW SECTION.  Sec. 19   ADMINISTRATIVE PROVISIONS. Chapter 82.32 RCW applies to the taxes imposed in this chapter.

NEW SECTION.  Sec. 20   RULES. The department may adopt rules under chapter 34.05 RCW for the administration and enforcement of this title. The rules, to the extent possible without being inconsistent with this title, must follow the internal revenue code and the regulations and rulings of the United States department of the treasury with respect to the federal income tax. The department may adopt as a part of these rules any portions of the internal revenue code and treasury department regulations and rulings, in whole or in part.

NEW SECTION.  Sec. 21   CRIMES. (1) Any person who knowingly attempts to evade the tax imposed under this title or payment thereof is guilty of a class C felony as provided in chapter 9A.20 RCW.
     (2) Any person required to collect tax imposed under this title who knowingly fails to collect, truthfully account for, or pay over the tax is guilty of a class C felony as provided in chapter 9A.20 RCW.
     (3) Any person who knowingly fails to pay tax, pay estimated tax, make returns, keep records, or supply information, as required under this title, is guilty of a gross misdemeanor as provided in chapter 9A.20 RCW.

NEW SECTION.  Sec. 22   USE OF TAX RECEIPTS. All receipts from the tax imposed in this chapter must be deposited in equal amounts into the Washington investment trust established in section 4, chapter . . . (House Bill No. 1320), Laws of 2011 and the public works assistance account for the purposes of chapter . . . (House Bill No. 2040), Laws of 2011. However, if the Washington investment trust is not created, the portion of the receipts from the tax imposed under this chapter for the Washington investment trust must be deposited in the education legacy trust account to be used as follows:
     (1) Thirty percent for early childhood education and wraparound services;
     (2) Thirty percent for postsecondary education programs;
     (3) Thirty percent for K-12 programs; and
     (4) Ten percent for youth development and mentoring programs.

NEW SECTION.  Sec. 23   CODIFICATION. Sections 1 through 22 of this act constitute a new title, to be codified as Title 82A RCW.

NEW SECTION.  Sec. 24   SEVERABILITY CLAUSE. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 25   EFFECTIVE DATE. This act takes effect January 1, 2012.