Purpose: To implement the business and occupation tax exemption provided by RCW 82.04.333 for small timber harvesters. This rule revision incorporates chapter 325, Laws of 1995, which removed the restriction that a small harvester could not fell, cut, or take more than five hundred thousand board feet of timber in any calendar quarter; and increased the maximum amount of timber that a small harvester could fell, cut, or take in a calendar year from one million board feet to two million board feet.

Citation of Existing Rules Affected by this Order: Amending WAC 458-20-259 Small timber harvesters--Business and occupation tax exemption.

Statutory Authority for Adoption: RCW 82.32.300.

Adopted under notice filed as WSR 98-12-004 on May 21, 1998.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, amended 0, repealed 0; Federal Rules or Standards: New 0, amended 0, repealed 0; or Recently Enacted State Statutes: New 0, amended 0, repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, amended 0, repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, amended 1, repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, amended 0, repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, amended 0, repealed 0; Pilot Rule Making: New 0, amended 0, repealed 0; or Other Alternative Rule Making: New 0, amended 1, repealed 0.

Effective Date of Rule: Thirty-one days after filing.

August 4, 1998

Russell W. Brubaker

Assistant Director

AMENDATORY SECTION (Amending WSR 90-17-007, filed 8/3/90, effective 9/3/90)

WAC 458-20-259  Small timber harvesters--Business and occupation tax exemption. (1) ((Exemption.)) Introduction. Harvesters of timber are generally subject to business and occupation (B&O) tax in the extracting classification. ((After June 6, 1990, chapter 141, Laws of 1990)) RCW 82.04.333 provides a limited exemption from B&O tax for small harvesters of timber (as defined in RCW 84.33.073) whose value of product harvested, gross proceeds of log sales, or gross income of the timber harvesting business is less than $100,000 per year.

(2) Registration - return.

(a) A person whose only business activity is as small harvester of timber and whose gross income in a calendar year from the harvesting of timber is less than $100,000, is not required to register with the department for B&O tax purposes.

(b) A small harvester of timber is required to register with the department for B&O tax purposes in the month when the gross proceeds received during a calendar year from the timber harvested exceed((s)) the exempt amount.

(c) When the gross proceeds received during a calendar year from timber harvested by a small harvester exceed((s)) the exempt amount, a return shall be filed and shall include all proceeds received during the calendar year to the time when the filing of a return is required. See((:)) WAC 458-20-228 and WAC 458-20-22801 for penalties, interest and return filing periods.

(d) A harvester of timber must register with the forest tax division of the department for payment of timber excise tax.

(3) Definition - small harvester - RCW 84.33.073(1).

(a) "Small harvester" means every person who from his own land or from the land of another under a right or license granted by lease or contract, either directly or by contracting with others for the necessary labor or mechanical services, fells, cuts, or takes timber for sale or for commercial or industrial use:

(i) Prior to July 1, 1995, in an amount not exceeding five hundred thousand board feet in a calendar quarter and not exceeding one million board feet in a calendar year((: Provided,that)); and

(ii) After June 30, 1995, as provided by chapter 325, Laws of 1995, in an amount not exceeding two million board feet in a calendar year.

(b) Whenever the United States or any instrumentality thereof, the state, including its departments and institutions and political subdivisions, or any municipal corporation therein, so fells cuts, or takes timber for sale or for commercial or industrial use, not exceeding these amounts, the small harvester is the first person other than the United States or any instrumentality thereof, the state, including its departments and institutions and political subdivisions, or any municipal corporation therein, who acquires title to or a possessory interest in such timber.

(c) "Small harvester" does not include persons performing under contract the necessary labor or mechanical service for a harvester, and it does not include harvesters of Christmas trees.

(4) Examples((:)). The following examples identify a number of facts and then state a conclusion. These examples should be used only as a general guide. The tax results of other situations must be determined after a review of all facts and circumstances.

(a) A person not otherwise registered with the department for B&O tax purposes and who is a small harvester under RCW 84.33.073, harvests timber during the calendar year and receives $60,000.

(i) No B&O tax is due and the person need not register with the department for B&O tax purposes.

(ii) However, the person must register with the department's forest tax division for payment of the timber excise tax.

(b) A person not otherwise registered with the department for B&O tax purposes and who is a small harvester under RCW 84.33.073, harvests timber during the calendar year. The small harvester has contracted with a logging company to provide the labor and mechanical services of the harvesting. The small harvester is to receive 60% and the logging company 40% of the log sale proceeds. The log purchaser pays $150,000 for the logs paying $90,000 to the person and $60,000 to the logging company.

(i) For the small harvester, B&O tax is due on the entire $150,000 paid for the logs. The small harvester is taxed upon the gross sales price of the logs without deduction for the amount paid to the logging company. See: RCW 82.04.070 and WAC 458-20-135. The small harvester must register with the department for B&O tax purposes in the month when, for the calendar year, the proceeds from all timber harvested exceeds $100,000.

(ii) The logging company is taxed on the $60,000 it received under the appropriate business tax classification(s). The logging company is not a small harvester as defined in RCW 84.33.073 and the exemption of this section is not applicable to the logging company.

(iii) The small harvester must register with the department's forest tax division for payment of the timber excise tax.

(c) A person is primarily engaged in another business which is currently registered with the department for B&O tax purposes and has monthly receipts of $250,000. The person is a small harvester under RCW 84.33.073 and receives $10,000 from the sale of the timber harvested.

(i) B&O tax remains due on $250,000 from the other business activities. The $10,000 received from the sale of logs is exempt and is not reported on the person's combined excise tax return. The exemption applies to the activity of harvesting timber and receipts from the sale of logs are not combined with the receipts from other business activities to make the sale of logs taxable.

(ii) The person must register with the department's forest tax division for the payment of timber excise tax.

(d) A person is primarily engaged in another business which is currently registered with the department for B&O tax purposes and has monthly receipts of $40,000. The person is a small timber harvester under RCW 84.33.073 and receives $50,000 from the sale of the timber harvested.

(i) B&O tax remains due on $40,000 from the other business activities. The $50,000 received from the sale of logs is exempt and is not reported on the persons combined excise tax return. The exemption applies to the activity of harvesting timber only and receipts from the sale of logs are not combined with the receipts of other business activities to make the other activity exempt.

(ii) The person must register with the department's forest tax division for the payment of timber excise tax.

(e) A person not currently registered with the department for B&O tax purposes and who is a small harvester under RCW 84.33.073, harvests timber in June and again in August receiving $50,000 in June and $75,000 in August from the sale of the logs harvested.

(i) B&O tax is due on the entire $125,000 received from the sale of logs. The small harvester must register with the department in August when the receipts from the timber harvesting business exceed the $100,000 exemption amount. A tax return is to be filed in the appropriate period as provided in WAC 458-20-22801.

(ii) The person must register with the department's forest tax division for the payment of timber excise tax.

[Statutory Authority: RCW 82.32.300. 90-17-007, § 458-20-259, filed 8/3/90, effective 9/3/90.]