PROPOSED RULES
Original Notice.
Preproposal statement of inquiry was filed as WSR 04-05-102.
Title of Rule: WAC 458-20-104 Small business tax relief
based on ((volume)) income of business.
Purpose: This rule explains Washington's gross receipts tax relief for small business, which is composed of a business and occupation (B&O) tax credit system and a minimum volume of business threshold for the public utility tax.
Statutory Authority for Adoption: RCW 82.32.300 and 82.01.060(2).
Statute Being Implemented: RCW 82.04.4451 and 82.16.040.
Summary: The department if proposing revision to this rule to change the hierarchy of applied credits. The current rule explains that the B&O tax credit provided by RCW 82.04.4451 (commonly referred to as the "small business B&O tax credit") is to be computed after claiming any other B&O tax credits available under chapter 82.04 RCW. The current rule explains that B&O tax credits provided in other chapters are to be taken after the credit provided in RCW 82.04.4451 is computed. The proposed rule provides that all B&O tax credits, regardless of where they are provided in Title 82 RCW, are to be applied prior to determining eligibility for and the amount of available tax credit under RCW 82.04.4451.
Name of Agency Personnel Responsible for Drafting: Gayle Carlson, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6126; Implementation: Alan R. Lynn, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6125; and Enforcement: Russell Brubaker, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6131.
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: The rule explains the public utility tax (PUT) exemption provided by RCW 82.16.040 and B&O tax credit provided by RCW 82.04.4451. The PUT exemption is an all-or-nothing exemption where no tax is due until the assigned income threshold is reached, at which point the taxpayer does not qualify for the exemption and the entire public utility tax liability is due. The B&O tax credit is based on tax liability. If the amount of B&O tax otherwise due exceeds the maximum credit amount of $35 per month, a reduced credit is allowed using a provided step-ranged chart. The chart eliminates the need to hand-calculate the credit.
The current rule explains that the B&O tax credit provided by RCW 82.04.4451 is to be computed after claiming any other B&O tax credits available under chapter 82.04 RCW. Other B&O tax credits provided in Title 82 RCW are to be taken after any credit available under RCW 82.04.4451 is taken. The proposed rule provides that all B&O tax credits, regardless of where they are provided in Title 82 RCW, are to be applied prior to determining eligibility for and the amount of available tax credit under RCW 82.04.4451. Under the proposed rule, the change in the hierarchy of computing tax credits could benefit some taxpayers. This change will also simplify the process for taxpayers and department staff when determining the order in which to apply B&O tax credits.
Proposal Changes the Following Existing Rules: This proposal amends WAC 458-20-104 as described above.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The rule does not impose any new performance requirement or administrative burden on any small business.
RCW 34.05.328 does not apply to this rule adoption. This rule is not a significant legislative rule as defined in RCW 34.05.328(5).
Hearing Location: Capital Plaza Building, 4th Floor, L&P Large Conference Room, 1025 Union Avenue S.E., Olympia, WA, on June 22, 2004, at 9:30 a.m.
Assistance for Persons with Disabilities: Contact Sandy Davis no later than ten days before the hearing date, TTY 1-800-451-7985 or (360) 725-7499.
Submit Written Comments to: Gayle Carlson, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, fax (360) 664-0693, e-mail GayleC@dor.wa.gov, by June 22, 2004.
Date of Intended Adoption: June 29, 2004.
May 11, 2004
Alan R. Lynn
Rules Coordinator
Legislation and Policy Division
OTS-7169.1
AMENDATORY SECTION(Amending WSR 98-16-019, filed 7/27/98,
effective 8/27/98)
WAC 458-20-104
Small business tax relief based on
((volume)) income of business.
(1) Introduction. This rule
explains the business and occupation (B&O) tax credit for
small businesses ((B&O tax credit ()) provided by RCW 82.04.4451((), and)). This credit is commonly referred to as
the small business B&O tax credit or small business credit
(SBC). The amount of small business B&O tax credit available
on a tax return can increase or decrease, depending on the
reporting frequency of the account and the net B&O tax
liability for that return. This rule also explains the public
utility tax income exemption ((()) provided by 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 of revenue (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.
This rule provides examples that identify a number of facts and then state a conclusion regarding the applicability of the income exemption for the public utility tax or small business B&O tax credit. 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.
(2) The public utility tax income exemption. Persons subject to public utility tax (PUT) 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. The public utility tax exemption amounts are:
| for taxpayers reporting monthly . . . . . . . . . . . . | $2,000 per month |
| for taxpayers reporting quarterly . . . . . . . . . . . . | $6,000 per quarter |
| for taxpayers reporting annually . . . . . . . . . . . . | $24,000 per annum |
(b) How does the exemption apply if a business does not operate for the entire tax reporting period? The public utility tax maximum exemptions apply to the entire tax reporting period, even though the business may not have operated during the entire period.
(c) Do taxable amounts for B&O tax or other taxes affect this exemption? The public utility tax exemption is not affected by taxable amounts reported in the B&O section or any of the other tax sections of the tax return.
(d) Example. Taxpayer registers with the department and is assigned a quarterly tax reporting frequency. Taxpayer begins business activities on February 1st. During the two months of the first quarter that the taxpayer is in business, taxpayer's public utility gross income is seven thousand dollars. After deductions provided by chapter 82.16 RCW (Public utility tax) are computed, the total taxable amount is five thousand dollars. In this case, the taxpayer does not owe any public utility tax because the taxable amount of five thousand dollars is less than the six thousand dollar exemption threshold for quarterly taxpayers. The fact that the taxpayer was in business during only two months out of the three months in the quarter has no effect on the threshold amount. However, if there were no deductions available to the taxpayer, the taxable amount would have been seven thousand dollars. The public utility tax would then have been due on the full taxable amount of seven thousand dollars.
(3) The small business B&O tax credit. Persons subject
to the B&O tax may be eligible to claim a small business B&O
tax credit against the amount of B&O tax otherwise due. The
small business B&O tax credit operates completely independent
of the ((volume)) public utility tax exemption ((which applies
to the public utility tax)) described above in subsection (2)
of this rule. 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)) must use the
tax credit table to determine the appropriate amount of their
small business B&O tax credit. A tax credit table for each of
the monthly, quarterly, and annual reporting frequencies is
provided in subsection (7) of 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)). The
statute provides that taxpayers who use the tables will not
owe any more tax than if they used the statutory credit
formula to determine the amount of the credit.
(a) How is the credit applied if a business does not operate during the entire tax reporting period? The small business B&O 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)) Can a
husband and wife both take the credit? Spouses operating
distinct and separate businesses are each eligible for the
small business B&O tax credit. For both to qualify, each must
have a separate tax reporting number and file their own
business tax returns.
(c) How do I determine the amount of the credit?
Taxpayers ((who are)) eligible for the small business B&O tax
credit ((should)) must follow the steps outlined in subsection
(((4))) (5) of this ((section)) rule to ((find)) determine the
amount of credit available ((to them)). Taxpayers who have
other B&O tax credits to apply on a tax return, in addition to
the small business B&O tax credit, may ((need to refer to))
use the multiple ((business and occupation)) B&O tax credit
worksheet in subsection (((3))) (4) of this ((section)) rule
before determining the amount of small business B&O tax credit
available ((to them)). Subsection (((5))) (7) of this
((section)) rule contains the tax credit tables ((for
taxpayers with assigned reporting frequencies of either)) that
correspond with the monthly, quarterly, ((or)) and annual
reporting frequencies.
(d) Can I carryover the small business B&O tax credit to future tax reporting periods? Use of the small business B&O tax credit may not result in a B&O tax liability of less than zero, and thus there will be no unused credit.
(e) Do I have to report and pay retail sales tax even if I do not owe any B&O tax? Persons making retail sales must collect and pay all applicable retail sales taxes even if B&O tax is not due. There is no comparable retail sales tax exemption.
(((3))) (4) Multiple business and occupation tax credit
worksheet. The small business B&O 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,)) Examples
of other B&O tax credits to be taken before computing the
small business B&O tax credit include the multiple activities
tax credit, high technology credit ((and ride share)), commute
trip reduction 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)) describes the process ((they should)) taxpayers must
follow to ((ensure that)) apply credits ((are applied)) in the
((necessary)) appropriate order. Refer to subsection (6) of
this rule for an example illustrating the use of the multiple
B&O tax credit worksheet.
(((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))) (5) Using the tax credit table to determine your small business B&O tax credit. The following steps explain how to use the small business B&O tax credit table:
(a) Step one. Determine the total B&O tax amount due
from the ((combined)) excise tax return. This amount will
normally be the total of the tax amounts due calculated for
each classification in the B&O tax section of the ((combined))
excise tax return. However, if additional B&O tax credits
will be taken on the return, refer to subsection (((3))) (4)
of this ((section)) rule and the multiple B&O tax credit
worksheet before going to step (((b))) two.
(b) Step two. Find the small business B&O tax credit
table that matches the assigned reporting frequency (i.e., the
monthly table shown in subsection (((5)(a))) (7)(b) of this
((section)) rule, the quarterly table in subsection (((5)(b)))
(7)(c) of this ((section)) rule, or the annual table in
subsection (((5)(c))) (7)(d) of this ((section)) rule).
(c) Step three. 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) Step four. Read across to the "Your Small Business
Credit is" column. The figure shown is the amount of the
small business B&O 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))) (6) Example. ABC reports quarterly. This quarter, ABC reports one hundred ninety dollars under the wholesaling classification and seventy dollars under the manufacturing classification for a total B&O tax liability of two hundred sixty dollars. ABC completes Schedule C, and determines it is entitled to a multiple activities tax credit (MATC) of seventy dollars. Using the multiple B&O tax credit worksheet, ABC enters two hundred sixty dollars on line one, enters seventy dollars on line two, and enters one hundred ninety dollars on line three (line two subtracted from line one). Line three, one hundred ninety dollars is the total B&O tax. ABC will use this amount to determine whether it is eligible for a small business B&O tax credit.
(7) Tax credit tables. Corresponding tax credit tables
for the monthly, quarterly, and annual reporting frequencies
appear below. Taxpayers must use the tax credit table that
corresponds to their assigned reporting frequency to determine
the correct amount of small business B&O tax 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:)) Example illustrating the use of the small
business B&O tax credit tables. The facts are the same as in
the previous example in subsection (6) of this rule. After
completing the multiple B&O tax credit worksheet, ABC has one
hundred ninety dollars of B&O tax liability left for potential
application of the small business B&O tax credit. ABC refers
to the quarterly small business B&O tax credit table, which is
located below in subsection (7)(c) of this rule, 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. Before calculating the total amount due for the
tax return, ABC enters its small business B&O tax credit of
twenty-five dollars in the "Credits" section.
(b) Monthly filers. Persons assigned a monthly reporting frequency must use the following table to determine if they are eligible for a small business B&O tax credit.
| 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 |
(((b) Small business credit table for QUARTERLY reporting
frequency:)) (c) Quarterly filers. Persons assigned a
quarterly reporting frequency must use the following table to
determine if they are eligible for a small business B&O tax
credit.
| 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 |
(((c) Small business credit table for ANNUAL reporting
frequency:)) (d) Annual filers. Persons assigned an annual
reporting frequency must use the following table to determine
if they are eligible for a small business B&O tax credit.
| 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 |
(((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:
| (( |
||
(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. 98-16-019, § 458-20-104, filed 7/27/98, effective 8/27/98; 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.]