WSR 98-10-123
EXPEDITED ADOPTION
DEPARTMENT OF REVENUE
[Filed May 6, 1998, 11:46 a.m.]
Title of Rule: WAC 458-20-104 Small business tax relief based on volume of business.
Purpose: To explain the small business B&O tax credit and public utility tax income exemption.
Statutory Authority for Adoption: RCW 82.32.300.
Statute Being Implemented: RCW 82.04.4451 and 82.16.040.
Summary: This rule is being revised to provide a step-ranged tax credit table that taxpayers will use to determine the amount of B&O tax credit that may be available to them under the provisions of RCW 82.04.4451. Separate tax credit tables are provided for monthly, quarterly, and annual basis taxpayers.
Reasons Supporting Proposal: Chapter 238, Laws of 1997, revised RCW 82.04.4451 to authorize the department to adopt these tax credit tables. These tables will eliminate the calculation requirements that have proven confusing for taxpayers. These tables are prepared in a manner that no taxpayer will owe a greater amount of tax by using a table than would be owed by performing the statutory calculation in RCW 82.04.4451.
Name of Agency Personnel Responsible for Drafting: Pat Moses, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 753-1063; Implementation: Claire Hesselholt, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 753-3446; and Enforcement: Russell Brubaker, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 586-0257.
Name of Proponent: Department of Revenue, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: This rule explains the gross receipts tax relief for small business. The rule explains the B&O tax credit system provided by RCW 82.04.4451, and the public utility tax income exemption provided by RCW 82.16.040. It explains that the B&O tax credit should be computed after claiming any other B&O tax credits available under chapter 82.04 RCW, but prior to any credits provided under other chapters of Title 82 RCW. The amendments to this rule will help businesses better understand Washington's gross receipts tax relief for small business.
Proposal Changes the Following Existing Rules: This is an amendment to WAC 458-20-104. This rule is being revised to provide a step-ranged tax credit table that taxpayers will use to determine the amount of B&O tax credit that may be available to them under the provisions of RCW 82.04.4451. Separate tax credit tables are provided for monthly, quarterly, and annual basis taxpayers. Some taxpayers that may be eligible to claim a small business B&O tax credit may also be eligible for B&O tax credits available elsewhere in Title 82 RCW. This rule provides a worksheet that taxpayers can use to ensure that these credits are applied in the appropriate order.
NOTICE
THIS RULE IS BEING PROPOSED TO BE ADOPTED USING AN EXPEDITED RULE-MAKING PROCESS THAT WILL ELIMINATE THE NEED FOR THE AGENCY TO HOLD PUBLIC HEARINGS, PREPARE A SMALL BUSINESS ECONOMIC IMPACT STATEMENT, OR PROVIDE RESPONSES TO THE CRITERIA FOR A SIGNIFICANT LEGISLATIVE RULE. IF YOU OBJECT TO THIS RULE BEING ADOPTED USING THE EXPEDITED RULE-MAKING PROCESS, YOU MUST EXPRESS YOUR OBJECTIONS IN WRITING AND THEY MUST BE SENT TO Alan R. Lynn, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, FAX (360) 664-0693, AND RECEIVED BY July 6, 1998.
May 6, 1998
Russell W. Brubaker
Assistant Director
OTS-2228.1
AMENDATORY SECTION (Amending WSR 97-08-050, filed 3/31/97, effective 5/1/97)
WAC 458-20-104 Small business tax relief based on volume of
business. (((1) Introduction. This section explains the small
business B&O tax credit (RCW 82.04.4451), and the public utility
tax income exemptions (RCW 82.16.040). Chapter 111, Laws of
1996, amended RCW 82.16.040 to increase the income exemptions for
the public utility tax, effective July 1, 1996. (See also WAC
458-20-101 on tax registration and tax reporting requirements.)
(2) Business and occupation tax. Persons subject to B&O tax
may be eligible to claim a small business tax credit against the
amount of B&O tax otherwise due. The B&O tax credit operates
completely independent of the volume exemption which applies to
the public utility tax. This tax credit should be computed after
claiming any other B&O tax credits available under chapter 82.04
RCW, but prior to any credits provided under other chapters of
Title 82 RCW. The maximum amount of small business tax credit
available to a person is thirty-five dollars multiplied by the
number of months in the reporting period assigned by the
department of revenue under the provisions of RCW 82.32.045. The
small business tax credit applies to the entire reporting period,
even though the business may not have been operating during the
entire period.
(a) If the amount of B&O tax from all activities engaged in
by the taxpayer is equal to or less than the maximum credit, a
small business tax credit equal to the amount of the B&O tax will
be allowed. If the amount of B&O tax from all activities is
greater than the maximum credit, a reduced credit may be
available. This reduced credit will be equal to twice the
maximum credit minus the B&O tax otherwise due. The credit
cannot be less than zero. RCW 82.04.4451.
(b) Persons having multiple tax reporting accounts are
eligible for only one small business tax credit per tax reporting
period.
(c) Spouses who operate distinct and separate businesses
that have different tax registrations are each eligible for the
small business tax credit.
(3) Retail sales tax. Persons making retail sales must
collect and remit all applicable retail sales taxes even if B&O
tax is not due. There is no small business tax credit or volume
of business exemption for retail sales tax.
(4) Public utility tax. Persons subject to public utility
tax are exempt from payment of this tax for any reporting period
in which the taxable amount reported under the combined total of
all public utility tax classifications does not equal or exceed
the maximum exemption for the assigned reporting period. RCW
82.16.040. The maximum exemptions for public utility tax are:
If the taxable amount for a reporting period equals or
exceeds the maximum exemption, tax must be remitted on the full
taxable amount. The public utility tax maximum exemptions apply
to the entire reporting period, even though the business may not
have operated during the entire period.
(5) Tax reporting frequencies. Persons interested in
knowing the thresholds used by the department when assigning tax
reporting frequencies should refer to WAC 458-20-22801 (Tax
reporting frequency--forms).
(6) Examples. The following examples illustrate how the
small business B&O tax credit and public utility income exemption
systems apply to typical situations. These examples should be
used only as a general guide. The tax status of other situations
must be determined after a review of all of the facts and
circumstances.
(a) JD Inc. has been assigned a quarterly reporting period
by the department of revenue. JD Inc.'s B&O tax liability from
all business activities for the third quarter is ninety dollars.
This B&O tax liability is less than the one hundred five-dollar
maximum small business B&O tax credit available for a quarterly
reporting period (three times the monthly credit amount of
thirty-five dollars). JD Inc. may claim a small business B&O tax
credit for the entire ninety-dollar B&O tax liability.
| ---- | |
(b) HM Corporation has been assigned a quarterly reporting
period by the department of revenue. HM's B&O tax liability from
all business activities for the fourth quarter is one hundred
twenty dollars. This tax liability exceeds the one hundred five-dollar maximum small business B&O tax credit available for a
quarterly period (three times the monthly credit amount of
thirty-five dollars). However, a reduced small business tax
credit is available. This credit is computed by subtracting HM's
B&O tax liability of one hundred twenty dollars from the figure
of two hundred ten dollars (twice the maximum credit available
for a quarterly reporting period). HM Corporation may claim a
small business tax credit of ninety dollars.
| ---- | |
(c) XY Inc. has been assigned a quarterly reporting period
by the department of revenue. XY's B&O tax liability for the
first quarter is two hundred fifty dollars. As XY's B&O tax
liability exceeds the two hundred ten-dollar figure used to
determine any reduced B&O tax credit (twice the maximum credit
available for a quarterly reporting period), XY Inc. is not
eligible for the small business B&O tax credit.
| ---- | |
(d) BG Manufacturing has been assigned a quarterly reporting
period. BG has incurred a ninety-dollar tax liability under the
wholesaling B&O tax classification, and a seventy-dollar tax
liability under the manufacturing B&O tax classification, for a
total B&O tax liability of one hundred sixty dollars during the
first quarter. As BG manufactures much of what it sells at
wholesale, BG qualifies for an internal multiple activities tax
credit (MATC) of sixty dollars. (See WAC 458-20-19301 on
multiple activities tax credits.) BG Manufacturing would claim
its MATC prior to computing its small business B&O tax credit.
BG's B&O tax liability net of the MATC is one hundred dollars,
which is less than the one hundred five-dollar maximum credit
available for the reporting period. BG may claim a one hundred-dollar small business B&O tax credit.
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Maximum Credit available for quarterly | |
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(e) OK Inc. has two separate tax reporting accounts with the
department, both of which have been assigned quarterly reporting
periods. OK Inc. is only allowed one small business B&O tax
credit for the activity of both accounts. The total B&O tax for
both accounts for this quarter is one hundred fifty dollars (one
hundred dollars from the first account and fifty dollars from the
second account). Its maximum small business tax credit is sixty
dollars.
| ---- | |
Twice the Maximum Credit available for | |
| ---- | |
The credit should be taken from the account that will allow
for it to be deducted in full. If one account does not have
enough B&O tax to absorb the full credit, it can be applied on
the other account until the full credit is used. If the
reporting frequency is different between the two accounts, the
small business tax credit should not be taken until the filing of
the less frequent tax reporting account (the credit computation
for the two accounts must cover the same period of time).
(f) BB Corporation has been assigned a quarterly reporting
period by the department of revenue. BB's total taxable public
utility income for the third quarter is five thousand eight
hundred dollars. BB Corporation is exempt for the payment of
public utility tax because BB's taxable public utility income
does not exceed the six thousand-dollar maximum exemption for
this reporting period.)) (1) Introduction. This rule explains
the small business B&O tax credit (RCW 82.04.4451), and the
public utility tax income exemption (RCW 82.16.040). The public
utility tax exemption is a fixed amount, or threshold, based on
the reporting frequency assigned to the account. The amount of
small business B&O tax credit available on a return can increase
or decrease, depending on the reporting frequency of the account
and the net B&O tax liability for that return. Readers should
refer to WAC 458-20-22801 (Tax reporting frequency--Forms) for an
explanation of how the department assigns a particular reporting
frequency to each account. Readers may also want to refer to WAC
458-20-101 for an explanation of Washington's tax registration
and tax reporting requirements.
(2) The small business B&O tax credit. Persons subject to B&O tax may be eligible to claim a small business tax credit against the amount of B&O tax otherwise due. The B&O tax credit operates completely independent of the volume exemption which applies to the public utility tax. RCW 82.04.4451 authorizes the department of revenue to create a tax credit table to be used by all taxpayers when determining the amount of their small business B&O tax credit. Taxpayers are required to use the tax credit table to determine the appropriate amount of their small business credit. A tax credit table for each of the monthly, quarterly and annual reporting frequencies is provided in this rule (see subsection (5) of this section). As required by statute, the table has been prepared in such a manner that no taxpayer owes a greater amount of tax by using the mandatory table than would have been owed by using the statutory credit formula.
(a) The small business tax credit applies to the entire reporting period, even though the business may not have been operating during the entire period.
(b) Taxpayers who are spouses that operate distinct and separate businesses are each eligible for the small business tax credit.
(c) Taxpayers who are eligible for the small business credit should follow the steps outlined in subsection (4) of this section to find the amount of credit available to them. Taxpayers who have other B&O credits to apply on a return, in addition to the small business credit, may need to refer to the multiple business and occupation tax credit worksheet in subsection (3) of this section before determining the amount of small business credit available to them. Subsection (5) of this section contains the tax credit tables for taxpayers with assigned reporting frequencies of either monthly, quarterly, or annual.
(3) Multiple business and occupation tax credit worksheet. The small business tax credit should be computed after claiming any other B&O tax credits available under chapter 82.04 RCW (Business and occupation tax), but prior to any B&O tax credits provided under other chapters of Title 82 RCW (Excise taxes). For example, the multiple activities tax credit, high technology credit and ride share credit should be taken before the small business credit is determined and applied, but the pollution control credit and cogeneration fee credit should be taken only after the small business credit has been applied. Proper application of the small business credit may never result in a B&O tax liability less than zero and cannot create a carryover amount for future periods. The following multiple B&O tax credit worksheet gives taxpayers an example of the process they should follow to ensure that credits are applied in the necessary order.
From Schedule C (if applicable) from chapter 82.04 RCW that will be applied to this return period) (a) For example, ABC Manufacturing and Distributing has been
assigned a quarterly reporting frequency. During one quarter,
ABC owes one hundred ninety dollars in wholesaling B&O tax, plus
another seventy dollars in manufacturing B&O tax, for a total B&O
tax due of two hundred sixty dollars. ABC qualifies for a
multiple activities tax credit (MATC) and completes a Schedule C
which identifies a MATC of seventy dollars. The MATC is one of
the credits from chapter 82.04 RCW and should be subtracted from
the B&O tax due amount before referring to the small business tax
credit table. Using the worksheet, line one for ABC is the two
hundred sixty dollars of total B&O tax due. Line two is the
total of B&O credits available, in this case the MATC, and equals
seventy dollars. Line three directs that the seventy dollars of
B&O credits should be subtracted from the original two hundred
sixty dollars of B&O taxes due, which leaves one hundred ninety
dollars of B&O taxes potentially available for application of the
small business credit (subsections (4) and (5) of this section). (4) Using the tax credit table to determine your small
business credit. The following steps explain how to use the tax
credit table: (a) Determine the total B&O tax amount from the combined
excise tax return. This amount will normally be the total of the
tax amounts calculated for each classification in the B&O section
of the combined excise tax return. However, if additional B&O
credits will be taken on the return, refer to subsection (3) of
this section and the multiple B&O tax credit worksheet before
going to step (b). (b) Find the small business tax credit table that matches
the assigned reporting frequency (i.e., the monthly table shown
in subsection (5)(a) of this section, the quarterly table in
subsection (5)(b) of this section, or the annual table in
subsection (5)(c) of this section). (c) Find the "If Your Total Business and Occupation Tax is"
column of the tax credit table and come down the column until you
find the range of amounts which includes the total B&O tax due
figure obtained from the combined excise tax return or multiple
B&O tax credit worksheet. (d) Read across to the "Your Small Business Credit is"
column. The figure shown is the amount of the small business tax
credit that can be claimed on the "Small Business B&O Tax Credit"
line in the "Credits" section of the combined excise tax return. (e) For example, continue with ABC Manufacturing and
Distribution which was introduced in subsection (3)(a) of this
section. After completing the multiple B&O tax credit worksheet,
ABC had one hundred and ninety dollars of B&O tax liability left
for potential application of the small business credit. ABC
refers to the quarterly small business tax credit table
(subsection (5)(b) of this section) and finds the "If Your Total
Business and Occupation Tax is" column. Following down that
column, ABC finds the tax range of one hundred eighty-six to one
hundred ninety-one dollars and comes over to the "Your Small
Business Credit is" column which shows that a credit in the
amount of twenty-five dollars is available. This credit amount
should be entered in the "Credits" section of ABC's combined
excise tax return before calculating the total tax due for that
return. (5) Tax credit tables. Taxpayers must use the tax credit
table to determine the correct amount of small business credit
available to them. The monthly, quarterly and annual reporting
frequencies each have their own corresponding tax credit table.
Taxpayers must be careful to use the table that matches their
assigned reporting frequency. (a) Small business credit table for monthly reporting
frequency: (b) Small business credit table for quarterly reporting
frequency: (c) Small business credit table for annual reporting
frequency: (6) Retail sales tax must be reported. Persons making
retail sales must collect and pay all applicable retail sales
taxes even if B&O tax is not due. There is no small business tax
credit or volume of business exemption for retail sales tax. (7) The public utility tax income exemption. Persons
subject to public utility tax are exempt from payment of this tax
for any reporting period in which the gross taxable amount
reported under the combined total of all public utility tax
classifications does not equal or exceed the maximum exemption
for the assigned reporting period. Effective July 1, 1996, the
public utility tax exemption amounts stated in RCW 82.16.040 were
increased to: (a) If the taxable amount for a reporting period equals or
exceeds the maximum exemption, tax must be remitted on the full
taxable amount. (b) The public utility tax maximum exemptions apply to the
entire reporting period, even though the business may not have
operated during the entire period. (c) The public utility tax exemption or threshold is not
affected by the amounts reported in the B&O tax section or any of
the other tax sections of the combined excise tax return. (d) For example, assume that the DEF corporation registers
and starts business activities on February 1st. A quarterly
reporting frequency is assigned to DEF by the department of
revenue. During the two months of the first quarter that DEF is
actively in business, DEF's public utility tax gross is seven
thousand dollars, but after deductions the total taxable amount
is five thousand dollars. In this case, DEF does not owe any
public utility tax because the taxable amount of five thousand
dollars is less than the six thousand dollar threshold for
quarterly taxpayers. The fact that DEF was in business during
only two months out of the three months in the quarter has no
effect on the threshold amount. However, if DEF had no
deductions available, the taxable amount would be seven thousand
dollars and public utility tax would be due on the full taxable
amount. [Statutory Authority: RCW 82.32.300. 97-08-050, § 458-20-104,
filed 3/31/97, effective 5/1/97; 95-07-088, § 458-20-104, filed
3/17/95, effective 4/17/95; 83-07-034 (Order ET 83-17), § 458-20-104, filed 3/15/83; Order ET 70-3, § 458-20-104 (Rule 104), filed
5/29/70, effective 7/1/70.]
MULTIPLE B&O TAX CREDIT WORKSHEET
1.
Determine the total Business and Occupation (B&O) tax due
from the B&O section of your Combined Excise Tax Return.
$
2.
Add together the credit amounts taken for:
Multiple Activities Tax Credit
$
(Add any other B&O tax credits
+
$
Total (Enter 0 if none of these credits are being
taken.)
$
3.
Subtract line 2 from line 1. This is the total B&O tax
allowable for the Small Business Credit.
$
4.
Find the tax credit table which matches the reporting frequency assigned to
the account, then find the total B&O tax due amount which include your
figure from item 3, above.
5.
Read across to the next column. This is the amount of the Small Business
Credit to be used on the Combined Excise Tax Return.
$
If Your Total Business
and Occupation Tax is:
Your Small Business
Credit is: At Least
But Less
Than
$0
$36
The Amount of Business
and Occupation Tax Due $36
$41
$35 $41
$46
$30 $46
$51
$25 $51
$56
$20 $56
$61
$15 $61
$66
$10 $66
$71
$5 $71
or more
$0
If Your Total Business
and Occupation Tax is:
Your Small Business
Credit is: At least
But Less
Than
$0
$106
The Amount of Business
and Occupation Tax Due $106
$111
$105 $111
$116
$100 $116
$121
$95 $121
$126
$90 $126
$131
$85 $131
$136
$80 $136
$141
$75 $141
$146
$70 $146
$151
$65 $151
$156
$60 $156
$161
$55 $161
$166
$50 $166
$171
$45 $171
$176
$40 $176
$181
$35 $181
$186
$30 $186
$191
$25 $191
$196
$20 $196
$201
$15 $201
$206
$10 $206
$211
$5 $211
or more
$0
If Your Total Business
and Occupation Tax is:
Your Small Business
Credit is: At Least
But Less
Than
$0
$421
The Amount of Business
and Occupation Tax Due $421
$426
$420 $426
$431
$415 $431
$436
$410 $436
$441
$405 $441
$446
$400 $446
$451
$395 $451
$456
$390 $456
$461
$385 $461
$466
$380 $466
$471
$375 $471
$476
$370 $476
$481
$365 $481
$486
$360 $486
$491
$355 $491
$496
$350 $496
$501
$345 $501
$506
$340 $506
$511
$335 $511
$516
$330 $516
$521
$325 $521
$526
$320 $526
$531
$315 $531
$536
$310 $536
$541
$305 $541
$546
$300 $546
$551
$295 $551
$556
$290 $556
$561
$285 $561
$566
$280 $566
$571
$275 $571
$576
$270 $576
$581
$265 $581
$586
$260 $586
$591
$255 $591
$596
$250 $596
$601
$245 $601
$606
$240 $606
$611
$235 $611
$616
$230 $616
$621
$225 $621
$626
$220 $626
$631
$215 $631
$636
$210 $636
$641
$205 $641
$646
$200 $646
$651
$195 $651
$656
$190 $656
$661
$185 $661
$666
$180 $666
$671
$175 $671
$676
$170 $676
$681
$165 $681
$686
$160 $686
$691
$155 $691
$696
$150 $696
$701
$145 $701
$706
$140 $706
$711
$135 $711
$716
$130 $716
$721
$125 $721
$726
$120 $726
$731
$115 $731
$736
$110 $736
$741
$105 $741
$746
$100 $746
$751
$95 $751
$756
$90 $756
$761
$85 $761
$766
$80 $766
$771
$75 $771
$776
$70 $776
$781
$65 $781
$786
$60 $786
$791
$55 $791
$796
$50 $796
$801
$45 $801
$806
$40 $806
$811
$35 $811
$816
$30 $816
$821
$25 $821
$826
$20 $826
$831
$15 $831
$836
$10 $836
$841
$5 $841
or more
$0
Monthly reporting basis. . .
$
2,000 per month Quarterly reporting basis. . .
$
6,000 per quarter Annual reporting basis. . .
$
24,000 per annum