B&O TAX EXEMPTIONS: BUSINESS ACTIVITIES

82.04.062 PRECIOUS METALS AND BULLION

Description: B&O tax does not apply to the value of precious metals and monetized bullion sold by dealers. However, dealers of such metals and bullion are subject to B&O tax under the service classification upon any commissions they receive for buying and selling precious metals and bullion on behalf of customers.

Purpose: The law was enacted to provide relief from sales tax for dealers that were in competition with precious metals dealers in other states where such transactions are not subject to sales tax. The purpose of the B&O exemption is unknown.

Category/Year Enacted: Economic development; 1985.

Primary Beneficiaries: Coin and bullion dealers.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 225 100 150 150
Local taxes - - - - - - - -
If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.110 ALUMINUM MASTER ALLOYS

Description: Firms that produce aluminum master alloys and combine them with aluminum from customers are not classified as manufacturers, but instead are considered as processors for hire. This reduces the tax base to the value of the total product for the customer which would be required if the "20 percent" rule in WAC 458-20-136(13) were imposed.

Purpose: This tax treatment recognizes that the 20 percent threshold for determining the level of cost to be classified as processing for hire is an arbitrary level which may adversely impact some high value activities.

Category/Year Enacted: Economic development; 1997.

Primary Beneficiaries: One firm which produces aluminum master alloys.

Conflict With Other Programs: This conflicts with similarly situated firms in other industries.

Tax Savings ($000): Due to confidentiality requirements, the impact of this exemption cannot be publicly stated because it is believed to affect fewer than three taxpayers.

82.04.120 SEAFOOD PROCESSING

Description: Provides an exemption from taxation from B&O tax for cutting, grading, or ice glazing seafood when some processing has already occurred out of state.

Purpose: To encourage additional processing in Washington of seafood by cutting, grading or ice glazing where significant processing has already occurred out of state.

Category/Year Enacted: Economic development; 1975.

Primary Beneficiaries: Approximately 18 commercial fish processors.

Conflict with Another State Program: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 40 45 49 54
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.120 SEED CONDITIONING

Description: Excludes conditioning of seed from the definition of manufacturing. The term "seed" may be applied to a wide variety of plant products and includes products intended for home use as well as agricultural applications. A significant number of Washington businesses are involved in the production, packaging and sale of seed.

Purpose: To provide exemption for activities relating to preparation of seeds.

Category/Year Enacted: Agriculture; 1987.

Primary Beneficiaries: Firms that prepare and distribute seed for both wholesale and retail sale.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 127 131 135 139
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.120 HAY CUBING

Description: This language removes cubing of hay or alfalfa from the definition of "to manufacture". As a result, farmers that cube hay or alfalfa for sale at wholesale qualify for the agricultural B&O tax exemption, regardless of where this activity is performed. Persons other than growers who cube hay or alfalfa for others continue to be taxed under the service classification if done on the growers land and the wholesaling classification when the activity is performed away from the grower's land.

Purpose: To clarify the tax treatment of cubing hay and alfalfa.

Category/Year Enacted: Agriculture; 1997.

Primary Beneficiaries: The agricultural industry.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 220 226 232 239
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.2403 FISH CLEANING

Description: Provides an exemption for the cleaning of fresh-water fish, which is defined as the removal of the head, fins or viscera from the fish without further processing. Washington State tax Decision 12 WTD 237 implies that cleaning of fresh-water fish is considered a manufacturing activity for B&O tax purposes.

Purpose: To support the Washington fishing industry.

Category/Year Enacted: Economic development; 1994.

Primary Beneficiaries: The fishing industry; a very small number of companies benefit from the exemption.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 8 8 8 8
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.255 SHARED REAL ESTATE COMMISSIONS

Description: This statute allows real estate brokerage offices to pay tax only on their share of commissions when multiple brokerage offices participate in a transaction. Individual associate brokers and salespersons are not subject to B&O tax where the brokerage office has paid B&O tax on the gross commission. Charges to associate brokers to recover expenses or for use of facilities are not included within this exemption and are taxable income to the broker.

Purpose: To eliminate pyramiding of B&O tax on shared commissions.

Category/Year Enacted: Economic development; 1970.

Primary Beneficiaries: Real estate brokers and agents.

Conflict With Other Programs: Other business activities are subject to B&O tax pyramiding.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 4,518 4,675 4,886 5,107
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes; although some salesmen would likely be reclassified as employees to avoid the tax.

82.04.280 RENTAL OF REAL ESTATE

Description: In 1959 the Legislature amended this statute to subject the rental of real estate to B&O tax at a rate of 0.25 percent (Chapter 5, Laws of 1959, 1st Ex. Session). The following year the State Supreme Court ruled the tax to be unconstitutional in the Apartment Owners Association of Seattle (1960) decision.

Purpose: The court decision cited double taxation as the reason for disallowing the tax, because the real estate which generated the rental income has already been subject to ad valorem property tax.

Category/Year Enacted: Not intended in the tax base (according to Court interpretation); 1960.

Primary Beneficiaries: Landlords of residential and commercial property which is rented or leased and their tenants.

Conflict With Other Programs: None evident.

Tax Savings ($000):* FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 36,010 37,630 38,980 40,380
Local taxes - - - - - - - -

*Assumes B&O rate of 0.275 percent (i.e., original 1959 tax rate of 0.25 percent plus same 10 percent level of surtax, subsequently adopted for the general B&O rate classification).

If the exemption were repealed, would the estimated revenue be realized?
Not unless the Court reversed its opinion.

82.04.310 PUBLIC UTILITIES

Description: Business activity that is subject to tax under the state public utility tax is exempt from B&O tax. The public utility tax is imposed on the gross receipts derived from utility operations such as supply of energy and transportation services.

Purpose: This exemption guarantees that utilities pay only one business tax and that the utility tax is in lieu of B&O tax. Utilities are taxable under the B&O tax for income derived from non-utility activities, e.g., retail sales of tangible personal property.

Category/Year Enacted: Not intended in the tax base; 1935.

Primary Beneficiaries: Privately owned and municipal utilities and their customers.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 36,439 37,109 38,747 40,458
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized?
Taxation under both the public utility and B&O tax is unlikely.

82.04.315 INTERNATIONAL BANKING FACILITIES

Description: Exempts from B&O tax income derived from international banking facilities located in Washington State.

Purpose: Intent is to encourage international trade transactions through Washington financial institutions and keep employment associated with that trade in the state.

Category/Year Enacted: Economic development; 1982.

Primary Beneficiaries: Commercial banks, the principal office of which is located in Washington, that provide international banking services.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 200 220 240 260
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.317 WHOLESALE AUTO AUCTIONS

Description: Exemption is provided for manufacturers, or their financial subsidiaries, from wholesaling B&O tax on vehicles sold at wholesale auto auctions. Financial subsidiaries of manufacturers must be at least 50 percent owned by the manufacturer to qualify for this exemption.

Purpose: To encourage out-of-state auto manufacturers to wholesale their rental return and lease return vehicles at wholesale auctions in Washington.

Category/Year Enacted: Economic development; 1997.

Primary Beneficiaries: Auto manufacturers and firms that conduct wholesale auto auctions.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 430 430 430 430
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes; however, if manufacturers had to pay the wholesaling B&O tax, they may reduce the volume of lease/rental return vehicles brought to auctions in this state. However, when auditors originally applied the tax to such sales, only one firm moved its vehicles to auctions in other states.

82.04.320 INSURANCE PREMIUMS

Description: Income which is subject to a state tax based on gross premiums (insurance premiums tax) is exempt from B&O tax.

Purpose: To avoid subjecting insurance premium income to more than one state business tax.

Category/Year Enacted: Not intended in the tax base; 1935.

Primary Beneficiaries: Insurance companies and policy holders.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 176,990 181,414 185,950 190,599
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? It is unlikely that premium income would be subject to B&O tax, as well as insurance premiums tax.

82.04.322 HEALTH MAINTENANCE ORGANIZATIONS

Description: Most income of health maintenance organizations, health care service contractors and certified health plans is subject to tax on the basis of their premium or "prepayment" income; such income is exempt from B&O tax.

Purpose: To avoid subjecting such income to two state taxes.

Category/Year Enacted: Not intended in the tax base; 1993.

Primary Beneficiaries: HMOs, HCSCs and CHPs and their customers.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 84,605 86,720 88,888 91,110
Local taxes - - - - - - - -
If the exemption were repealed, would the estimated revenue be realized? It is unlikely that such income would be subject to B&O tax, as well as insurance premiums tax.

82.04.330 AGRICULTURAL PRODUCTION

82.04.410 POULTRY FOR PRODUCTION

Description: Income from growing or producing any agricultural or horticultural crop, animals, birds, fish, poultry, eggs, fur, etc., is exempt from B&O tax if the products are sold at wholesale. In 1985 the requirement that animal products must be sold was removed (including birds, insects, and the milk, eggs, wool, fur, meat, honey, etc. therefrom). Thus certain contract growers, primarily in the chicken industry, who do not own the animals but raise them for others were also allowed the exemption. Also exempt are sales of poultry products and hatching eggs that are used in the production of poultry.

Purpose: The purpose of this exemption is presumably to aid an industry that was severely depressed in 1935. The exemption recognized low profit margins that prevailed in this industry, high transportation costs, and the fact that as a group farmers had little ability to affect the prices received for their products and therefore were unable to pass the cost of the tax on to their customers.

Category/Year: Agriculture; 1935.

Primary Beneficiaries: Approximately 35,000 producers of agricultural products; however, only an estimated 15,000 producers would have actual tax liability above the B&O credit amount.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 26,060 26,650 27,250 27,860
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.330 CHRISTMAS TREE PRODUCTION

82.04.100

Description: Income associated with extraction and wholesaling of plantation Christmas trees is exempt from B&O tax. Only Christmas trees that are grown by agricultural methods qualify for the exemption.

Purpose: To recognize that production of Christmas trees is similar to other agricultural production, thereby warranting an exemption similar to farmers.

Category/Year Enacted: Agriculture; 1987.

Primary Beneficiaries: Approximately 420 growers of Christmas trees.

Conflict With Other Programs: None evident.

TaxSavings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 283 304 327 352
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.331 CONDITIONING OF SEED

Description: A B&O tax exemption is provided for persons making wholesale sales to farmers of seed that is conditioned for use in planting. The exemption is also provided to persons who condition seed that is owned by other persons. The exemption does not apply to seed that is packaged for retail sale. The term "seed" does not include flower seeds or vegetable seeds as defined by RCW 15.49.011 and does not include seeds or portions of plants used to grow ornamental flowers.

Purpose: Economic development.

Category/Year Enacted: Agriculture; 1998.

Primary Beneficiaries: The seed conditioning industry.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 493 504 514 524
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.332 WHOLESALING OF GRAIN

Description: Exemption is provided to wholesalers of various grains including wheat, oats, barley, dry peas, dry beans, lentils and triticale. Persons selling these grains at wholesale, but not products manufactured from these grains, are exempt from the B&O wholesaling rate.

Purpose: Previously this activity was subject to a very low B&O tax rate. As part of a major consolidation of B&O tax rates in 1998, this category was made entirely exempt from tax.

Category/Year Enacted: Agriculture; 1998.

Primary Beneficiaries: Approximately 690 firms previously reported under this classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 7,519 7,782 8,055 8,336
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.333 SMALL TIMBER HARVESTERS

Description: Gross income from timber sales less than $100,000 per year is exempt from B&O extracting tax, if the extractor qualifies as a small timber harvester under RCW 84.33.073 (i.e. harvests less than 2 million board feet per year).

Purpose: To relieve the one-time or infrequent timber harvester from registration and B&O tax liability.

Category/Year Enacted: Economic development; 1990.

Primary Beneficiaries: Approximately 2,640 individuals and small businesses.

Conflict With Other Programs: Other temporary businesses are required to register and pay B&O tax for small levels of activity.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 258 271 284 299
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes, but significant enforcement efforts would be necessary; otherwise noncompliance would be high.

82.04.335 AGRICULTURAL FAIRS

Description: Nonprofit organizations that conduct agricultural fairs are exempt from the B&O tax. The exemption applies only during the time the fair is actually open to the public. The exemption applies principally to gate and parking receipts; it does not extend to amounts paid for admissions to specific exhibits or entertainment conducted within the fair by concessionaires.

Purpose: The stated purpose in the law is that "...it is in the public interest to hold agricultural fairs...". The exemption helps to encourage such fairs.

Category/Year Enacted: Agriculture; 1965.

Primary Beneficiaries: The 37 county fairs and 39 nonprofit fair associations in the state.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 134 136 137 138
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.337 EXPORTED PROCESSED HOPS

Description: Exemption is provided for hops that are processed into extract, pellets or powder and then shipped out of state.

Purpose: To provide preferential treatment to a specific type of agricultural processor.

Category/Year Enacted: Agriculture; 1987.

Primary Beneficiaries: Hop growers and approximately 8 processors.

Conflict With Other Programs: Most other types of agricultural processors have been granted a lower tax rate rather than a total exemption.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 981 991 1,001 1,010
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.340 BOXING & WRESTLING MATCHES

Description: Persons that conduct boxing or wrestling matches which are licensed by the State Boxing Commission are exempt from B&O tax on the income derived from such matches.

Purpose: To eliminate double taxation, since the income is subject to the 5.0 percent boxing and wrestling tax (RCW 67.08.105).

Category/Year Enacted: Not intended in the tax base; 1935.

Primary Beneficiaries: Persons licensed with the Boxing Commission.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 3 3 3 3
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes; although it is unlikely, since the income is already subject to a higher gross receipts tax.

82.04.350 HORSE RACING

Description: Persons who conduct horse racing events which are licensed by the State Horse Racing Commission are exempt from B&O tax.

Purpose: To eliminate double taxation, since the income derived from the parimutuel machines is taxable under the parimutuel tax (RCW 67.16.105).

Category/Year Enacted: Not intended in the tax base; 1935.

Primary Beneficiaries: Horse racing tracks.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 2,440 2,612 2,612 2,612
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes; although it is unlikely since parimutuel receipts are already subject to the parimutuel tax.

82.04.360 INCOME RECEIVED BY EMPLOYEES

Description: Income derived by employees from the performance of services in the capacity of an employee or servant is exempt from B&O tax.

Purpose: The purpose is presumably to avoid imposition of, in essence, a personal income tax on wages. The B&O tax applies to the privilege of engaging in business. However, employees generally do not exercise full and independent responsibility on behalf of the firm, and therefore they are not considered to be engaging in business.

Category/Year Enacted: Not intended in the tax base; 1935.

Primary Beneficiaries: Employees.

Conflict With Other Programs: None evident.

Tax Savings ($000):* FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 509,889 532,235 553,527 575,665
Local taxes - - - - - - - -

*Assumes tax rate of 0.484 percent.

If the exemption were repealed, would the estimated revenue be realized? No; B&O tax on wages would likely be considered as an income tax which could not be levied without constitutional amendment.

82.04.360 LIFE INSURANCE "STATUTORY" EMPLOYEES

Description: Persons who meet the definition of "statutory employee" are not considered as independent contractors for purposes of B&O tax liability.

Purpose: To simplify the determination of tax liability on life insurance agents, "statutory" employees as defined in the Internal Revenue Code were exempted from B&O tax. Such employees are independent contractors for federal income tax purposes but received W-2s and have FICA taxes withheld. These individuals must sell life insurance on a full-time basis and work primarily for one company to be classified as a statutory employee.

Category/Year Enacted: Other; 1991.

Primary Beneficiaries: About 2,700 sellers of life insurance.

Conflict With Other Programs: Other types of statutory employees are subject to tax if they meet the tests of being an independent contractor.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 521 541 570 600
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes, but voluntary compliance would be low due to confusion over tax status. Additionally, many of these firms would be exempt from tax as a result of the small business credit.

82.04.390 REAL ESTATE SALES

Description: Income from the sale of real property, exclusive of commissions, fees and interest relating to the transaction, is exempt from B&O tax. (Real estate sales are subject to the real estate excise tax.)

Purpose: The purpose is presumably to avoid multiple taxation, and it reflects a concern for the constitutionality of subjecting such income to the B&O tax (tax on the capital gain realized on property might be considered as a form of income tax).

Category/Year Enacted: Not intended in the tax base; 1945.

Primary Beneficiaries: Sellers (and buyers) of real estate, as well as real estate brokers and agents.

Conflict With Other Programs: None evident.

Tax Savings ($000):* FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 126,812 136,826 147,436 158,869
Local taxes - - - - - - - -

*Assumes 0.471% retail rate.

If the exemption were repealed, would the estimated revenue be realized? Unlikely; except for developers, persons who sell their own real estate would probably not be considered as "engaging in business" and subject to B&O tax on such income.

82.04.392 TRUST ACCOUNTS

Description: Exemption from B&O tax is provided for amounts received from trust accounts, as long as the account is operated in accordance with RCW 19.146.050 and any rules adopted by the Department of Financial Institutions.

Purpose: To clarify the tax treatment of amounts paid from trust accounts, such as for property appraisers and inspectors.

Category/Year Enacted: Economic development, 1997.

Primary Beneficiaries: Mortgage lenders such as banks and savings & loan establishments.

Conflict With Other Programs: None evident.

Tax Savings ($000):* FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 818 851 885 921
Local taxes - - - - - - - -

*Estimates are based on one-half of amounts paid out from such accounts; the impact could be significantly greater or much less, depending upon how the statutory language is interpreted.

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.394 PROPERTY MANAGEMENT

Description: B&O tax exemption is allowed for payments received by property management companies for the payment of wages to on-site personnel. For the payments to be exempt, a person's compensation must be the obligation of the property owner and not the management company and the compensation must be pursuant to a written agreement.

Purpose: The property management company is acting as a pass-through for payment of wages by the owner of the property to on-site personnel. Even though such persons may be supervised by the management company, the wages are considered as the obligation of the owner.

Category/Year Enacted: Not intended in the tax base; 1998.

Primary Beneficiaries: Property management companies.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 695 716 737 759
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.405 FEDERALLY CHARTERED CREDIT UNIONS

Description: Credit unions organized under federal law are exempt from B&O tax.

Purpose: The Federal Credit Union Act prohibits state taxation of federally chartered credit unions. Accordingly, the exemption was established when the B&O tax was extended to financial institutions.

Category/Year Enacted: Government; 1970.

Primary Beneficiaries: Approximately 79 credit unions with federal charters.

Conflict With Other Programs: Other financial institutions are subject to B&O tax.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 2,625 2,550 2,475 2,400
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? No; federally chartered credit unions could not be taxed without enabling legislation by Congress.

82.04.405 STATE CHARTERED CREDIT UNIONS

Description: Provides an exemption from B&O tax for state chartered credit unions.

Purpose: This exemption was granted when B&O tax was extended to financial institutions. Federally chartered credit unions are exempted from state taxation under the Federal Credit Union Act. If state chartered credit unions were taxed, they would be treated inequitably with respect to the federally chartered credit unions.

Category/Year Enacted: Economic development; 1970.

Primary Beneficiaries: Approximately 101 state chartered credit unions and their members.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 12,975 13,950 15,000 16,125
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? No; state chartered credit unions would likely apply for and receive federal charters and therefore could not be taxed.

82.04.421 MEMBERSHIPS TO PURCHASE AT DISCOUNT

Description: This statute exempts from B&O tax memberships in a qualifying discount program where the seller delivers the membership materials to a point outside the state.

Purpose: To assist firms that sell discount purchase memberships to residents of other states.

Category/Year Enacted: Economic development; 1997.

Primary Beneficiaries: A single firm.

Conflict With Other Programs: None evident.

Tax Savings ($000): Due to confidentiality requirements, the impact of this exemption cannot be publicly stated because it is believed to affect fewer than three taxpayers.

82.04.423 DIRECT SELLERS

Description: The gross income of out-of-state firms which make direct sales of consumer products to Washington customers (at wholesale or retail) through non-employee manufacturers' representatives is exempt from B&O tax, as long as (1) no stock of goods is stored in the state and (2) the firm owns no real property in Washington. Commissions received by the representatives are subject to tax.

Purpose: The purpose is to stimulate trade and encourage out-of-state manufacturers to use Washington-based agents.

Category/Year Enacted: Economic development; 1983.

Primary Beneficiaries: Out-of-state manufacturers (apparel, jewelry, etc.) that conduct business in Washington through independent sales representatives.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 5,164 5,262 5,361 5,463
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes, assuming that the Courts would find that selling via manufacturers' representatives establishes sufficient nexus for taxation. However, enforcement might be difficult.

82.04.425 ACCOMMODATION SALES

Description: Sales (at cost) for resale between businesses selling the same type of property, where the sale is made so the buyer can fill an existing order, are exempt from the business and occupation tax. Also, if a parent corporation has paid business and occupation tax on sales to its wholly owned subsidiary of transportation equipment for use in interstate/foreign commerce, the sales of these goods by the subsidiary are exempt from B&O tax.

Purpose: The purpose is presumably to avoid double taxation and not to impose the tax under conditions where no market transaction takes place.

Category/Year Enacted: Not intended in the tax base; 1955.

Primary Beneficiaries: Merchant traders making accommodation sales, and corporations with wholly owned subsidiaries who both are manufacturing and selling transportation equipment.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 719 727 735 744
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.04.4332 FOREIGN BRANCH CAMPUSES

Description: Allows deduction of tuition fees for in-state branch campuses of foreign universities which grant degrees. The foreign university must be in compliance with RCW 28B.90 and must be an exempt organization under the Internal Revenue Code.

Purpose: To encourage investment in Washington by foreign universities.

Category/Year Enacted: Nonprofit - other; 1993.

Primary Beneficiaries: Five branches of foreign universities have been approved by the Higher Education Coordinating Board and are eligible for the exemption.

Conflict With Other Programs: None evident.

Tax Savings ($000): It is believed that the eligible foreign universities are not receiving income which would qualify under this exemption. Some schools maintain they are only operating recruiting offices in this state.

82.32.045(4) $28,000 MINIMUM FOR FILING

Description: This statute eliminates the requirement to file excise tax returns for businesses that would otherwise be subject to B&O tax and whose gross revenue is less than $28,000 annually. This exemption does not apply to firms with liability for sales tax collected from customers. The previous filing threshold of $1,000 monthly ($12,000 annually) was replaced by the small business credit in 1994. The threshold was increased from $24,000 to $28,000 in 1999 to alleviate the filing responsibility of taxpayers whose tax liability would be reduced to zero after the application of the small business tax credit. B&O tax at the highest tax rate of 1.5 percent on an annual income of $28,000 is equal to the maximum small business credit allowed.

Purpose: To eliminate the need for filing for firms with no tax liability after the small business credit is taken and to allow more efficient tax administration by the Department of Revenue.

Category/Year Enacted: Economic development; 1996. Threshold increased in 1999.

Primary Beneficiaries: Small firms with no tax liability who no longer have to file. Also, small firms filing quarterly with significant seasonal variation in taxable income (e.g., quarterly tax due greater than the small business threshold of $105 and annual income less than $24,000).

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 464 464 464 464
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.32.420 WAIVER OF DELINQUENCY PENALTIES, Y2K

Description: Excise tax penalties and interest are forgiven for firms with fewer than 50 employees, if the reason for the delinquency was a result of computer problems associated with the "Y2K" date change on January 1, 2000. The exemption applies only to tax liability through December 31, 2003, and the exemption will expire at the end of 2006.

Purpose: To assist firms that encounter computer problems that impact filing of their state excise tax returns, including data received from third parties.

Category/Year Enacted: Economic development; 1999.

Primary Beneficiaries: Small businesses.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 42 101 26 26
Local taxes - - - - - - - -

If the exemption were repealed, would the estimated revenue be realized? Yes.