BILL REQ. #:  S-4078.1 

Read first time 01/25/12.   Referred to Committee on Ways & Means.

     AN ACT Relating to assessing a two percent tax on millionaires to fund the paramount duty trust fund and reduce class sizes in grades kindergarten through fourth; adding a new chapter to Title 82 RCW; and prescribing penalties.

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

NEW SECTION.  Sec. 101   INTENT. It is the intent of the legislature to insure that the top one percent of citizens in our state contribute to sustain the paramount duty of the state to educate our children by requiring these wealthiest, those who have benefited greatly in this great recession, to pay their fair share through a two percent marginal tax on annual income exceeding one million dollars.

NEW SECTION.  Sec. 201   THE PARAMOUNT DUTY TRUST FUND. (1) A new state trust fund is hereby established dedicated to meeting the paramount duty for the education of all children. This trust is funded by the excise tax assessed under this chapter.
     (2) Revenue received by the trust must be devoted to education, with the first priority being classroom size reduction in kindergarten through fourth grade. In no case may this new revenue be used to supplant current funding for these services.
     (3) The office of financial management must prepare an annual audit of the funds deposited in the paramount duty trust fund, reporting on how funds have been spent, determining if the intent of reducing class size has been met, and estimating the number of children benefited, as well as all state residents benefited, and public and private jobs created and/or maintained, including the multiplier effects of public expenditures. Monthly disclosure of tax collection and spending under this chapter must be posted on a web site maintained by the treasurer and the office of financial management and such disclosure must, at a minimum, include the information set forth in RCW 43.08.150.

NEW SECTION.  Sec. 301   DEFINITIONS. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Adjusted gross income" means adjusted gross income as determined under the federal internal revenue code.
     (2) "Individual" means a natural person.
     (3) "Internal revenue code" means the United States internal revenue code of 1986 and amendments thereto, as existing and in effect on January 1, 2012.
     (4) "Resident" includes an individual who:
     (a) Has resided in this state for the entire tax year; or
     (b) Is domiciled in this state unless the individual:
     (i) Maintains no permanent place of abode in this state; and
     (ii) Does not maintain a permanent place of abode elsewhere; and
     (iii) Spends in the aggregate not more than thirty days in the tax year in this state; or
     (c) Is not domiciled in this state, but maintains a permanent place of abode in this state and spends in the aggregate more than one hundred eighty-three days of the tax year in this state unless the individual establishes to the satisfaction of the department that the individual is in the state only for temporary or transitory purposes; or
     (d) Claims this state as the individual's tax home for federal income tax purposes.
     (5) "S corporation" means an S corporation as defined in section 1361 of the internal revenue code.
     (6) "Tax" means the tax imposed in this chapter, unless the context requires a different meaning.
     (7) "Taxable income" means adjusted gross income as modified under sections 502 and 601 of this act.
     (8) "Taxable year" means the taxpayer's taxable year as defined under the internal revenue code.
     (9) "Taxpayer" means a person receiving income subject to tax under this chapter.

NEW SECTION.  Sec. 302   DEFINITION OF TERMS GENERALLY. Except as provided in section 301 of this act and RCW 1.12.080, any term used in this chapter has the same meaning as when used in a comparable context in the internal revenue code.

NEW SECTION.  Sec. 401   EXCISE TAX IMPOSED--RATES. An excise tax is imposed on the receipt of adjusted gross income in excess of one million dollars by residents or qualifying nonresidents deriving income from sources within the state. The rate of tax is two percent multiplied by the amount of adjusted gross income in excess of one million dollars. An excise tax is not imposed on the assets held by a person resulting from income after its receipt, but only upon the receipt itself.

NEW SECTION.  Sec. 402   CREDIT FOR INCOME TAXES DUE ANOTHER JURISDICTION. (1) A resident individual is allowed a credit against the tax imposed under this chapter for the amount of any income tax imposed by another state or foreign country, or political subdivision of the state or foreign country, on income taxed under this chapter, subject to the following conditions, which must be imposed separately with respect to each taxing jurisdiction:
     (a) The credit is allowed only for taxes imposed by the other jurisdiction on net income from sources within that jurisdiction; and
     (b) The amount of the credit shall not exceed the smaller of:
     (i) The amount of tax paid to the other jurisdiction on net income from sources within the other jurisdiction; or
     (ii) The amount of tax due under this chapter before application of credits allowable by this chapter, multiplied by a fraction. The numerator of the fraction is the amount of the taxpayer's adjusted gross income subject to tax in the other jurisdiction. The denominator of the fraction is the taxpayer's total adjusted gross income as modified by this chapter. The fraction may never be greater than one.
     (2) If, in lieu of a credit similar to the credit allowed under subsection (1) of this section, the laws of the other taxing jurisdiction contain a provision exempting a resident of this state from liability for the payment of income taxes on income earned for personal services performed in such jurisdiction, then the director is authorized to enter into a reciprocal agreement with such jurisdiction providing a similar tax exemption on income earned for personal services performed in this state.
     (3) The amount of the tax credit received by any taxpayer under this section may not exceed the total amount of tax due, and there may be no carryback or carryforward of any unused excess credits.

NEW SECTION.  Sec. 403   DUAL RESIDENCE. If an individual is regarded as a resident both of this state and another jurisdiction for state personal income tax purposes, the department must reduce the tax on that portion of the taxpayer's income which is subjected to tax in both jurisdictions solely by virtue of dual residence, if the other taxing jurisdiction allows a similar reduction. The reduction must equal the lower of the two taxes applicable to the income taxed twice, multiplied by a fraction. The numerator of the fraction is the tax imposed by this state on the income taxed twice. The denominator of the fraction is the tax imposed by both jurisdictions on the income taxed twice. The fraction must never be greater than one.

NEW SECTION.  Sec. 404   PARTNERSHIPS AND S CORPORATIONS. (1) Partnerships are not subject to tax under this chapter. Partners are subject to tax under this chapter in their separate or individual capacities on their pro rata share.
     (2) S corporations are not subject to tax under this chapter. Shareholders of S corporations are subject to tax under this chapter in their separate or individual capacities.
     (3) As used in this section:
     (a) "S corporation income" includes both distributed and undistributed federal taxable income of the S corporation.
     (b) "Pro rata share" means pro rata share as determined under section 1366(a) of the internal revenue code.

NEW SECTION.  Sec. 501   ABSOLUTE TAX THRESHOLD. It is the intent of this act that in no event may excise tax be imposed upon adjusted gross income below one million dollars. No provision of this chapter may allow the imposition of tax upon adjusted gross income below one million dollars.

NEW SECTION.  Sec. 502   FEDERAL OBLIGATIONS. From adjusted gross income, deduct, to the extent included in adjusted gross income, income derived from obligations of the United States which this state is prohibited by federal law from subjecting to a net income tax.

NEW SECTION.  Sec. 601   APPORTIONMENT AND ALLOCATION OF INCOME. (1) For resident individuals, all income must be apportioned and allocated to this state.
     (2) For nonresident individuals, income derived from sources within this state must be apportioned and allocated to this state.
     (3) For purposes of this chapter:
     (a) The adjusted gross income of a nonresident derived from sources within this state is the net amount of items of income, gain, loss, and deduction of the nonresident's adjusted gross income that are derived from or connected with sources in this state including any distributive share of partnership income and deductions.
     (b) Items of income, gain, loss, and deduction derived from or connected with sources within this state are those items attributable to the ownership or disposition of any interest in real or tangible personal property in this state, and a business, trade, profession, or occupation carried on within this state. The department must issue rules to provide consistency of this section with other excise tax provisions.
     (c) Deduction with respect to expenses, capital losses, and net operating losses must be based solely on income, gains, losses, and deductions derived from or connected with sources in this state but must otherwise be determined in the same manner as the corresponding federal deduction except as provided in this chapter.
     (d) Income from intangible personal property, including annuities, dividends, interest, and gains from the disposition of intangible personal property, constitutes income derived from sources within the state of Washington only to the extent that such income is from property employed in a business, trade, profession, or occupation carried on within this state. However, distributed and undistributed income of an electing S corporation for federal tax purposes derived from or connected with sources within this state is income derived from sources within this state for a nonresident shareholder. A net operating loss of such corporation does constitute a loss or deduction connected with sources within this state for a nonresident shareholder.
     (e) Compensation paid by the United States for service in the armed forces of the United States performed in this state by a nonresident does not constitute income derived from sources within this state.
     (f) If a business, trade, profession, or occupation is carried on partly within and partly without this state, the determination of net income derived or connected with sources within this state as provided in this section must be made by apportionment and allocation of chapter 82.56 RCW.

NEW SECTION.  Sec. 701   METHOD OF ACCOUNTING. (1) A taxpayer's method of accounting for purposes of the tax imposed under this chapter is 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 chapter is computed by a method of accounting which in the opinion of the department fairly reflects income.
     (2) If a person's method of accounting is changed for federal income tax purposes, it must be similarly changed for purposes of this chapter.

NEW SECTION.  Sec. 702   PERSONS REQUIRED TO FILE RETURNS. (1) Only taxpayers with adjusted gross income of one million dollars or more are required to file a tax return with the department. The department must utilize such taxpayer's federal tax returns as a primary tool for obtaining taxpayers' information. The department may prescribe a simple supplement of no more than two pages for computing the excise tax owed under this chapter. Each person required to file a return under this chapter 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. Each person required by rule to file an informational return 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 informational return.
     (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. Notwithstanding any provision of this chapter or any other title to the contrary, 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. 703   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 must have the authority to grant extensions of times by which returns required to be filed by this chapter may be submitted. The department must also have the authority to grant extensions of time to pay tax with regard to taxes imposed by this chapter. 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 is 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. 704   JOINT RETURN. (1) If the federal income tax liabilities of both spouses are determined on a joint federal return for the taxable year, they must file a joint return under this chapter unless one spouse is a resident and the other is a nonresident.
     (2) If neither spouse is required to file a federal income tax return for the taxable year, a joint return may be filed under this chapter under the same conditions under which a joint return may be filed for purposes of the federal income tax.
     (3) If one spouse is a resident and the other is a nonresident, they must file separate returns under this chapter, unless they elect to determine their tax liabilities under this chapter on a joint return as if they were both residents, and:
     (a) Their federal tax liability for the taxable year was determined on a joint federal tax return; or
     (b) Neither spouse has filed a federal income tax return for the taxable year and they would be permitted to file a joint federal tax return for the taxable year.
     (4) In any case in which a joint return is filed under this section, the liability of the spouses is joint and several, unless the spouse is relieved of liability under section 6013 of the internal revenue code.
     (5) The department must take action and adopt rules, forms, and procedures to implement this act consistently with RCW 26.60.010 and 26.60.015, notwithstanding any term or provision of this section or act, provided there is full compliance with section 501 of this act.

NEW SECTION.  Sec. 705   RECORDS--RETURNS. (1) Every taxpayer with adjusted gross income of one million dollars or more and all others required to deduct and withhold the tax imposed under this chapter must keep records, render statements, make returns, file reports, and perform other acts as the department requires by rule. Each return must be 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 and any person required to deduct and withhold the tax imposed under this chapter to furnish to the department a correct copy of any return or document which 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 chapter are subject to inspection by the department at all times during business hours of the day.

NEW SECTION.  Sec. 706   PROVISIONS OF INTERNAL REVENUE CODE CONTROL. (1) To the extent possible without being inconsistent with this chapter, all of the provisions of the internal revenue code relating to the following subjects apply to the taxes imposed under this chapter:
     (a) Time of payment of tax deducted and withheld under sections 701 through 705 of this act and this section;
     (b) Liability of transferees;
     (c) 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 listed in subsection (1) of this section, if reasonably necessary to facilitate the prompt, efficient, and equitable collection of tax under this chapter.

NEW SECTION.  Sec. 707   REFUNDS OF OVERPAYMENTS--OTHER ADMINISTRATIVE PROVISIONS. (1) The department must refund all taxes improperly paid or collected.
     (2) The following sections apply to the administration of taxes imposed under this chapter: RCW 82.32.020, 82.32.050, 82.32.060, 82.32.070, 82.32.090, 82.32.100, 82.32.105, 82.32.110, 82.32.120, 82.32.130, 82.32.140, 82.32.150, 82.32.160, 82.32.170, 82.32.180, 82.32.190, 82.32.200, 82.32.210, 82.32.220, 82.32.230, 82.32.235, 82.32.237, 82.32.240, 82.32.245, 82.32.265, 82.32.290, 82.32.300, 82.32.310, 82.32.320, 82.32.330, 82.32.340, 82.32.350, 82.32.360, and 82.32.380.

NEW SECTION.  Sec. 708   RULES. The department may adopt rules under chapter 34.05 RCW for the administration and enforcement of this chapter, including a phase-in for fiscal year taxpayers. The rules, to the extent possible without being inconsistent with this chapter, must follow the internal revenue code and the regulations and rulings of the United States treasury department 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. 709   APPEALS. The board of tax appeals has jurisdiction over appeals relating to tax deficiencies and refunds, including penalties and interest, pursuant to this chapter. The taxpayer may elect a formal or informal hearing pursuant to RCW 82.03.140.

NEW SECTION.  Sec. 801   SEVERABILITY. 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. 802   APPLICATION. This chapter applies to taxes collectible in 2013 and thereafter.

NEW SECTION.  Sec. 803   The excise tax rate in section 401 of this act may not be increased for any income level without a majority vote of the legislature and submission of the changes to the people for approval.

NEW SECTION.  Sec. 804   CODIFICATION. Sections 101 through 803 of this act constitute a new chapter in Title 82 RCW.