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 costs of doing business.  Businesses must pay the B&O tax even though they may not have any profits or may be operating at a loss.
 
A taxpayer may have more than one B&O tax rate, depending on the types of activities conducted.  Major B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 percent (businesses with taxable income of less than $1 million) or 1.75 percent (businesses with taxable income of $1 million or more) for services and for activities not classified elsewhere.  Several preferential rates also apply to specific business activities.
 
Business and Occupation Income Apportionment.
Depending on the type of business activity, businesses generating gross income from sources in this state and sources in other states, allocate/source their income to the state where the business activity occurred or use an apportionment formula to determine how much of their apportionable gross income is subject to B&O tax in Washington.  Businesses engaged in multiple types of business activities may need to both allocate/source and apportion income to Washington to calculate their B&O tax liability.
 
To apportion income for B&O tax purposes, Washington uses a single factor apportionment formula based on the taxpayer’s gross receipts.  A taxpayer may calculate the receipts factor for the current tax year based on the most recent calendar year for which a full calendar year of information is available or based on the current tax year.  Once a taxpayer determines the receipts factor for an entire calendar year, they are required to file an annual reconciliation of apportionable income (ARAI) form with the Department of Revenue (DOR) to correct their reporting by October 31 of the following calendar year.  Once this is filed, the taxpayer will receive a refund or pay any additional tax due.  If there is additional tax due, interest applies, and late payment penalties apply if not paid by the due date.  The late payment penalty is a percentage of the additional tax due and is graduated based on the length of delinquency.  The penalty rates are:

• 9 percent when not paid by the October 31 due date;
• 19 percent when not paid by November 30; and
• 29 percent when not paid by December 31.

 
A general waiver, applicable for most taxes, from the late payment penalty is available, if:

• the failure to pay timely is a result of circumstances beyond the taxpayer’s control; or
• the taxpayer has timely filed and paid taxes due for the 24-months immediately preceding the period for which a waiver is requested.

The bill modifies the penalty and penalty waivers applicable to the ARAI.  If a taxpayer does not pay the additional tax due by October 31, replacing the graduated penalty schedule is a penalty equal to the greater of 9 percent of the unpaid tax due or $25.
 
The bill creates two new penalty waivers, in addition to existing waivers, for delinquent taxes due specifically for an ARAI return for circumstances in which:

• the taxpayer has timely filed and paid taxes due for the 24-months immediately preceding the period for which a waiver is requested; or
• the tax deficiency occurs due to the DOR's reclassification of the taxpayer's income to an apportionable tax classification from a non-apportionable tax classification resulting from a DOR audit or examination of the taxpayer's returns or records.  

 
Additionally, the waiver can only be granted once and applies to all tax years included in the DOR's audit or examination.  The waiver will not be granted if the tax deficiency is due to the taxpayer's failure to follow specific written instructions provided to the taxpayer by the DOR or if the taxpayer previously reported the apportionable income incorrectly.