Background:

Business and Occupation Tax.

Washington's major business tax is the business and occupation (B&O) tax. The B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the cost of doing business. The tax is imposed on the gross receipts from all business activities conducted within the state. There are several rate categories, and a business may be subject to more than one B&O tax rate, depending on the types of activities conducted. Current law authorizes multiple exemptions, deductions, and credits to reduce the B&O tax liability for specific taxpayers and business industries.

Public Utility Tax.

The public utility tax (PUT) is applied to gross income derived from operation of public and privately owned utilities, including the general categories of transportation, communications, and the supply of energy and water. The PUT is in lieu of the B&O tax. The applicable PUT rate depends upon the specific utility activity.

B&O Tax and PUT Credits for Alternative Fuel Commercial Vehicles.

B&O tax and PUT credits are available to businesses that use alternative fuel commercial vehicles to transport commodities, merchandise, produce, refuse, freight, or animals. The credit is earned on the purchase, conversion, or lease of an eligible vehicle.

Clean alternative fuels are defined as electricity, dimethyl ether, hydrogen, methane, natural gas, liquefied natural gas, compressed natural gas, and propane. Qualifying used commercial vehicle is defined as a vehicle with an odometer reading of less than 30,000 miles and is less than two years past the original manufacturing date.

To claim the credit, an applicant must submit several pieces of information, including a vehicle quote, the type of alternative fuel to be used, and the incremental cost of the system to the Department of Revenue (Department). Applicants must then notify the Department of their intent to claim the credit. The anticipated delivery date of the vehicle must be within 120 days of the applicant's notice of intent to claim the credit. Applicants must file an application for each vehicle.

A business or utility is limited to an annual maximum of $250,000 in credits or the amount of credit associated with 25 vehicles, whichever is less. The maximum credit amount per vehicle is $5,000, $10,000, or $20,000, based on the gross weight of the vehicle. The maximum amount of credit that may be claimed statewide is $6 million annually under both the B&O tax and the PUT. Amounts claimed represent reduced revenues to the State General Fund; however, the credits include provisions that transfer an equivalent amount of funding from the Multimodal Transportation Account to the State General Fund to offset the reductions.

Tax Preference Performance Statement.

In 2013 the Legislature passed Engrossed Substitute Senate Bill 5882, which requires tax preference legislation enacted, expanded or extended after August 1, 2013, to include a tax preference performance statement. Additionally, Engrossed Substitute Senate Bill 5882 also establishes an automatic 10-year expiration date for new tax preference if an alternative expiration date is not provided in the new tax preference legislation.

Summary of Bill:

The definition of eligible vehicles is expanded to include vehicles exclusively used to provide commercial services and vehicles transporting passengers. All commercial vehicles that provide transportation to passengers must operate within Washington between fixed points or over a regular route.

The mileage and manufacturing date limits for qualifying used commercial vehicles are increased to 450,000 miles and 10 years past the original manufacturing date. The amount of credit allowed per vehicle is doubled for each vehicle weight class.

Applicants can file for credits for multiple cars on one application. The anticipated delivery date of the vehicle must be within one year of the applicant's notice of intent to claim the credit.

The bill is exempt from the tax preference performance statement and expiration date requirements for new and modified tax preferences.