BILL REQ. #:  H-0745.2 

Read first time 02/07/13.   Referred to Committee on Business & Financial Services.

     AN ACT Relating to providing for equal tax treatment of investment securities for in-state and out-of-state banks; amending RCW 82.04.460; and creating a new section.

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

NEW SECTION.  Sec. 1   The legislature finds that the financial services market is highly competitive, and that many financial services are being delivered electronically by institutions headquartered outside of our state. In order to maintain a stable tax base, the legislature has adopted a principle for the taxation of financial institutions that relies on the location of the borrower to determine whether interest payments are subject to state excise tax. The legislature finds that for financial institutions, interest income should be treated consistently according to this principle, regardless of the nature of the instrument through which the interest payments are secured. The intent of the legislature is to provide for a stable tax base that does not encourage Washington-headquartered taxpayers to move their treasury function, and the jobs associated with that function, outside of the state in order to benefit from a lower tax liability on interest income.

Sec. 2   RCW 82.04.460 and 2011 c 174 s 203 are each amended to read as follows:
     (1) Except as otherwise provided in this section, any person earning apportionable income taxable under this chapter and also taxable in another state must, for the purpose of computing tax liability under this chapter, apportion to this state, in accordance with RCW 82.04.462, that portion of the person's apportionable income derived from business activities performed within this state.
     (2) The department must by rule provide a method of apportioning the apportionable income of financial institutions, where such apportionable income is taxable under RCW 82.04.290. The rule adopted by the department must, to the extent feasible, be consistent with the multistate tax commission's recommended formula for the apportionment and allocation of net income of financial institutions as existing on June 1, 2010, or such subsequent date as may be provided by the department by rule, consistent with the purposes of this section, except that:
     (a) The department's rule must provide for a single factor apportionment method based on the receipts factor; ((and))
     (b) The definition of "financial institution" contained in appendix A to the multistate tax commission's recommended formula for the apportionment and allocation of net income of financial institutions is advisory only; and
     (c) The definition of "loan" contained in the multistate tax commission's recommended formula for the apportionment and allocation of net income of financial institutions must also include investment securities permissible for financial institutions by applicable bank regulatory rules and issued by the person obligated to pay the principal and interest thereon.
     (3) The department may by rule provide a method or methods of apportioning or allocating gross income derived from sales of telecommunications service and competitive telephone service taxed under this chapter, if the gross proceeds of sales subject to tax under this chapter do not fairly represent the extent of the taxpayer's income attributable to this state. The rule must provide for an equitable and constitutionally permissible division of the tax base.
     (4) For purposes of this section, the following definitions apply unless the context clearly requires otherwise:
     (a) "Apportionable income" means gross income of the business generated from engaging in apportionable activities, including income received from apportionable activities performed outside this state if the income would be taxable under this chapter if received from activities in this state, less the exemptions and deductions allowable under this chapter. For purposes of this subsection, "apportionable activities" means only those activities taxed under:
     (i) RCW 82.04.255;
     (ii) RCW 82.04.260 (3), (((4),)) (5), (6), (7), (8), (9), (10), and (((12))) (13);
     (iii) RCW 82.04.280 (1)(e);
     (iv) RCW 82.04.285;
     (v) RCW 82.04.286;
     (vi) RCW 82.04.290;
     (vii) RCW 82.04.2907;
     (viii) RCW 82.04.2908;
     (ix) RCW 82.04.263, but only to the extent of any activity that would be taxable under any of the provisions enumerated under (a)(i) through (viii) of this subsection (4) if the tax classification in RCW 82.04.263 did not exist; and
     (x) RCW 82.04.260(((13))) (14) and 82.04.280(1)(a), but only with respect to advertising.
     (b)(i) "Taxable in another state" means that the taxpayer is subject to a business activities tax by another state on its income received from engaging in apportionable activities; or the taxpayer is not subject to a business activities tax by another state on its income received from engaging in apportionable activities, but any other state has jurisdiction to subject the taxpayer to a business activities tax on such income under the substantial nexus standards in RCW 82.04.067(1).
     (ii) For purposes of this subsection (4)(b), "business activities tax" and "state" have the same meaning as in RCW 82.04.462.