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.

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.

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

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.

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.

*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.

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

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.

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.

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.

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.

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.

Conflict With Other Programs: None evident.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

If the exemption were repealed, would the estimated revenue be realized?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

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.

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

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.

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.

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.

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.

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.

*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.

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.

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.

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.

*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.

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.

*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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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