B&O TAX DEDUCTIONS

82.04.280(6) RADIO & TV BROADCASTING

Description: B&O tax deduction is allowed for radio and television broadcasters for: (1) income received from network, national, and regional advertising, and (2) that portion of revenue represented by their out-of-state audience.

Purpose: Reflects a perception that broadcasts which cross the state's boundaries and advertising income derived from outside the state represent interstate commerce.

Category/Year Enacted: Commerce; 1935.

Primary Beneficiaries: Radio and television broadcasters with network, national, or regional advertising income, and those broadcasting to other states. About 58 firms utilize this deduction.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 617 645 676 708
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized?

Not if the tax would be considered as interfering with interstate commerce.

82.04.4271 YOUTH ORGANIZATIONS

Description: Membership fees, dues and fees paid for the use of camping and recreational facilities owned by nonprofit youth organizations are deductible for B&O tax purposes.

Purpose: The purpose of the deduction is to support the programs and social benefits provided by these organizations. Ordinary dues would be deductible under RCW 82.04.4282, but only if the payment of such fees do not confer any particular service or rights to use facilities. Therefore, this deduction is necessary to cover the typical charges of YMCAs, church camps, etc.

Category/Year Enacted: Nonprofit - charitable or religious; 1981.

Primary Beneficiaries: Approximately 200 nonprofit youth organizations.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 117 120 124 127
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized?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

82.04.4281 INVESTMENT INCOME OF NONFINANCIAL FIRMS

Description: Exempts from B&O tax interest, dividends and capital gain income earned by persons who are not engaged in banking, loan, security or other financial business.

Purpose: The exemption evidently results from a perception by the Legislature that such a tax on individuals would in essence be a form of income tax and that only persons engaged in a financial business should be subject to B&O tax on investment income.

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

Primary Beneficiaries: Nonfinancial corporations (30 percent of the total), individuals and noncorporate business (50 percent), and pension trusts (20 percent).

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 354,849 364,963 383,896 403,775
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? Possibly; interest earned on some investments by nonfinancial businesses is exempt under the Sellen decision of the State Supreme Court. Taxation of investment income of individuals might constitute an income tax which may not be permissible without an amendment to the state Constitution.

82.04.4281 SUBSIDIARY DIVIDENDS

Description: Deduction is allowed for dividends paid by a subsidiary financial corporation to its parent corporation.

Purpose: This deduction recognizes that income derived from subsidiaries has already been subject to B&O tax. When financial firms became subject to B&O tax in 1970 there was the possibility of tax on income received by parent corporations from their subsidiaries because the dividends represent the proceeds from investments. This deduction prevents the B&O tax from applying to such payments.

Category/Year Enacted: Not intended in the tax base; 1970.

Primary Beneficiaries: Holding companies of financial institutions.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 738 771 776 777
Local taxes - - - - - - - -

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

82.04.4282 MEMBERSHIP FEES & DUES

Description: Membership dues and fees received by private clubs are exempt from B&O tax if they are not in exchange for any significant amount of goods or services.

Purpose: To recognize that donations and contributions by private clubs are for membership purposes and not the purchase of services or goods.

Category/Year Enacted: Nonprofit - other; 1935.

Primary Beneficiaries: Private clubs (health, sport, social, etc.) and their members.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 823 823 823 823
Local taxes - - - - - - - -

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

82.04.4282 CONTRIBUTIONS & DONATIONS

Description: B&O tax deduction is provided for contributions, donations and endowment funds. There is no restriction on the type of organization that receives such donations, i.e., they need not be nonprofit.

Purpose: This deduction assumes that donations are not considered as income derived from engaging in business.

Category/Year Enacted: Nonprofit - other; 1935.

Primary Beneficiaries: Public and private colleges and other nonprofit organizations, such as hospitals and religious, fraternal and charitable organizations.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 3,176 3,271 3,370 3,471
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? It is unlikely that donations would be considered as taxable income for B&O tax purposes.

82.04.4282 TUITION FEES

Description: A B&O deduction is provided for tuition fees, including charges made by privately operated kindergartens.

Purpose: Although the deduction is not restricted to nonprofit organizations, the intent is to assure that private schools and colleges are not taxable on tuitions received from students. Other than kindergartens, the deduction has been restricted to educational institutions which are accredited by the state or are degree granting.

Category/Year Enacted: Nonprofit - other; 1935 (private kindergartens added in 1985).

Primary Beneficiaries: Private schools, colleges and kindergartens.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 12,420 13,041 13,693 14,377
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? Yes. However, the estimate does not include colleges and universities that are operated directly by the state.

82.04.4282 TRADE SHOWS

Description: A B&O tax deduction is provided for charges made by nonprofit trade or professional organizations in conjunction with trade shows, conventions and educational seminars, as long as the event is not open to the general public. The deduction covers admission fees and charges for occupying space, e.g., for purposes of demonstrating products.

Purpose: To encourage trade shows, conventions and educational seminars for the professional development of members of sponsoring organizations.

Category/Year Enacted: Nonprofit - other; 1989.

Primary Beneficiaries: Sponsors of trade shows.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 14 15 16 16
Local taxes - - - - - - - -

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

82.04.4283 CASH DISCOUNTS

Description: Provides a B&O tax deduction for cash discounts taken by purchasers, as long as the discount taken was included in the amount of gross revenue that is reported for B&O tax purposes.

Purpose: The purpose is to create equity with cash basis taxpayers and to recognize that the amount of cash discount does not represent income to the seller.

Category/Year Enacted: Economic development; 1935.

Primary Beneficiaries: Businesses that offer cash discounts to purchasers.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 11,792 11,957 12,136 12,318
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized?

Partially; the amount of potential revenue would depend upon competitive conditions in various industries and for specific firms. The discount might be reduced in some industries, prices would likely be increased in others and some sellers would eliminate the discount and reduce the selling price by a corresponding amount.

82.04.4284 CREDIT LOSSES

Description: Provides a B&O tax deduction for firms that maintain their books on an accrual basis equal to the amount of loss resulting from nonpayment of accounts. This provides equity in tax treatment with taxpayers maintaining their books on a cash basis in that the tax is paid only on revenue actually collected.

Purpose: The purpose is to provide equity for accrual basis taxpayers and to recognize that no income is actually received by the seller on unpaid transactions.

Category/Year Enacted: Economic development; 1935.

Primary Beneficiaries: Any business that uses the accrual method of accounting.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 4,762 4,828 4,901 4,974
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized?

Unlikely; taxpayers could maintain their books on a cash basis.

82.04.4285 MOTOR VEHICLE FUEL TAXES

Description: A B&O tax deduction is provided for the amount of state and federal tax (currently federal tax is 18.3 cents for motor vehicle fuel and 24.3 cents for diesel; state tax is 23 cents) on motor vehicle fuel. The revenue impact estimates assume that the deduction applies at both the wholesale and retail levels.

Purpose: The purpose is to eliminate the possibility of double taxation.

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

Primary Beneficiaries: Retail fuel dealers and purchasers of fuel.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 13,468 13,772 13,967 14,160
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized?

It is unlikely that B&O tax would apply to the amount of federal and state gas taxes.

82.04.4286 CONSTITUTIONAL EXEMPTIONS (Interstate Commerce)

Description: This general statute provides B&O tax deductions from gross income for a variety of activities which the state or federal constitutions prohibit states from taxing. These include: 1) sales of tangible personal property when delivery is made out of state by wholesalers, 2) sales by out-of-state firms that do not carry on any local activity significantly associated with the seller's ability to establish or maintain a market in this state, and 3) compensation for activities which in themselves constitute interstate or foreign commerce. Because exports of state produced or manufactured goods are subject to manufacturing or extracting, constitutional exemptions are essentially limited to sellers. Similarly, most imports are subject to the B&O tax. The interstate deduction applies to out-of-state manufacturers that sell in-state without carrying on any local activities and mail order houses. It should be noted that some business activities may enjoy multiple exemptions. Agricultural production, for example, is exempt from B&O tax. Exporting of Washington agricultural products could also be exempt under this provision.

Purpose: To avoid a perceived violation of state and federal constitutions concerning taxation of interstate/foreign commerce and to encourage sales of Washington products in other states.

Category/Year Enacted: Commerce; 1935.

Primary Beneficiaries: Firms involved in interstate and foreign commerce, certain out-of-state manufacturers and mining firms that sell their products in the state.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 59,060 62,013 65,114 68,369
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? No.

82.04.4287 PROCESSING HORTICULTURAL PRODUCTS

Description: Income received from washing, sorting, and packing fresh, perishable horticultural products when performed for the producer is deductible from the measure of B&O tax.

Purpose: To support agriculture. This deduction is an extension of the B&O tax exemption for producers of these products.

Category/Year Enacted: Agriculture; 1935.

Primary Beneficiaries: Processors of horticultural products.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 673 673 673 673
Local taxes - - - - - - - -

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

82.04.4289 NURSING HOMES AND OTHER FACILITIES

Description: A B&O tax deduction is allowed for nonprofit nursing homes, nonprofit kidney dialysis facilities, nonprofit hospice agencies, and homes for unwed mothers operated by nonprofit religious or charitable organizations. The deduction covers compensation received from patient care or the sale of prescription drugs to patients.

Purpose: To provide financial assistance in the care of the elderly, dialysis patients, terminally ill patients and unwed mothers.

Category/Year Enacted: Nonprofit - health or social welfare; 1945. Nonprofit hospitals removed in 1993 when they became subject to B&O tax for health care funding. Hospice facilities added in 1998.

Primary Beneficiaries: The nonprofit organizations which operate these facilities and their patients.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 2,160 2,244 2,333 2,425
Local taxes - - - - - - - -

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

82.04.4291 INTERGOVERNMENTAL CHARGES

Description: Local government jurisdictions may deduct from any state B&O tax liability income received from other political subdivisions which would otherwise be taxable under the service classification.

Purpose: This allows local governments to perform services for other jurisdictions (computer operations, accounting, etc.) without incurring business tax liability.

Category/Year Enacted: Government; 1970.

Primary Beneficiaries: Cities and counties.

Conflict With Other Programs: None evident.

Tax Savings ($000): Included under exemption for local government business income (RCW 82.04.419).

82.04.4292 INTEREST ON REAL ESTATE LOANS

Description: Provides B&O tax deduction under the service classification for interest earned on first mortgage loans and securities secured by first mortgages of residential property for financial businesses.

Purpose: The apparent purpose is to restrain the cost of purchasing a home and to stimulate residential construction.

Category/Year Enacted: Economic development; 1970.

Primary Beneficiaries: Financial institutions, the real estate industry and home buyers.

Conflict With Other Programs: None evident.

Tax Savings ($000)*: FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 32,167 33,761 35,336 37,039
Local taxes - - - - - - - -

*The estimate assumes that only actual holders of the loan are entitled to the deduction; financial institutions that originally made the loan and then resold it may not take the deduction.

If the deduction were repealed, would the estimated revenue be realized? Yes; mortgage rates are market determined and the national rates presume a certain tax component.

82.04.4293 INTEREST ON GOVERNMENT OBLIGATIONS

Description: A deduction from B&O tax is provided for income from obligations of Washington State or its political subdivisions that are held by financial institutions.

Purpose: This deduction correlates state tax policy with the federal treatment of state and municipal bonds. It also facilitates public financing of state and local construction projects which are financed by bonds.

Category/Year Enacted: Government; 1970.

Primary Beneficiaries: Financial institutions that hold public bonds.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 2,760 2,926 3,101 3,287
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? Yes; but if financial institutions were taxable on state and local bond interest, presumably these jurisdictions would have to pay a higher rate of interest, thereby increasing the cost of public construction projects.

82.04.4294 INTEREST ON AGRICULTURAL LOANS

Description: A B&O tax deduction is allowed on income derived as interest on certain agricultural and aquatic loans. To qualify for this deduction the lending institution must be owned exclusively by its borrowers or members and be solely engaged in making loans and providing financial services to farmers, ranchers and their cooperatives.

Purpose: The purpose is evidently to support the agricultural sector by reducing the cost of loans issued by cooperatives.

Category/Year Enacted: Agriculture; 1965.

Primary Beneficiaries: Two entities involved in making agricultural loans to farmers or cooperatives.

Conflict With Other Programs: None evident.

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

82.04.4295 MANUFACTURING COMPLETED IN WASHINGTON

Description: For products manufactured outside the state that are brought into Washington for minor final assembly (less than two percent of the sales value) and then sold outside Washington, the value initially created outside the state is allowed as a deduction from B&O tax.

Purpose: The purpose is to stimulate trade and the importing of products through Washington ports.

Category/Year Enacted: Economic development; 1977.

Primary Beneficiaries: Out-of-state manufacturers of motor vehicles (e.g., pickup trucks whose beds are attached in Washington).

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 1,155 1,209 1,266 1,325
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? Possibly, but importers would likely shift to other ports or complete their assembly process after shipping the items from Washington.

82.04.4296 REIMBURSED EXPENSES OF FUNERAL HOMES

Description: Amounts received by a funeral home as reimbursement for advances it has made to providers of goods and services are deductible from B&O tax.

Purpose: Reimbursable expenses of funeral homes (e.g., for floral service) are not considered as representing income derived by the funeral home operator.

Category/Year Enacted: Economic development; 1979.

Primary Beneficiaries: Owners of funeral homes.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 13 13 13 13
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? Yes; such income was taxable until 1979.

82.04.4297 GRANTS TO NONPROFIT ORGANIZATIONS

Description: A B&O tax deduction is provided for grants given by federal, state or local governments to nonprofit organizations or local government jurisdictions for the support of health or social welfare programs. Examples of programs covered by the deduction include health care, family and drug counseling, services for the sick, elderly and handicapped, day care, vocational training and employment services, legal services for the indigent, and services for low income homeowners or renters. Also, under the new tax on nonprofit and public hospitals, the deduction is assumed to cover medicare/medicaid receipts.

Purpose: To support the social services provided by such programs.

Category/Year Enacted: Nonprofit - health or social welfare; 1979.

Primary Beneficiaries: Nonprofit social service organizations and their clients.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 42,370 43,640 44,950 46,299
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? Yes; but presumably governments would have to increase the amount of their grants to accomplish the same level of social service funding, if all jurisdictions had to pay state B&O tax on their grant receipts.

82.04.4298 CONDOMINIUM MAINTENANCE FEES

Description: Funds received by cooperative housing associations, condominium associations and residential property associations which are used for the repair, maintenance, management, and improvement of the apartments, homes and commonly held property of the associations is deductible from B&O tax.

Purpose: The purpose is apparently equity, as the funds set aside by ordinary homeowners for similar purposes are not taxed. Also, such associations are exempt from federal tax.

Category/Year Enacted: Economic development; 1979.

Primary Beneficiaries: Members of condominium and residential associations.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 1,627 1,679 1,729 1,781
Local taxes - - - - - - - -

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

82.04.432 MUNICIPAL SEWER CHARGES

Description: Municipal sewer utilities are allowed to deduct from income subject to B&O tax any payments to other cities or other governmental agencies for interception, treatment or disposal of sewerage.

Purpose: Collection of sewerage is taxable under the state public utility tax; interception, treatment and disposal of sewerage is subject to the B&O tax. This deduction eliminates pyramiding of tax when multiple utilities are involved in the provision of sewerage services. In fact, because of the deduction provided by RCW 82.04.4291, this income is not taxed at all.

Category/Year Enacted: Government; 1967.

Primary Beneficiaries: Municipalities.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 2,040 2,094 2,151 2,211
Local taxes - - - - - - - -

If the deduction were repealed, would the estimated revenue be realized? Yes, although the additional cost would be passed on to municipal sewer customers.

82.04.4322 ARTS ORGANIZATIONS - GOVERNMENT GRANTS

82.04.4324 ARTS ORGANIZATIONS - MANUFACTURED ITEMS

82.04.4326 ARTS ORGANIZATIONS - TUITION

82.04.4327 ARTS ORGANIZATIONS - BUSINESS INCOME

Description: These four statutes provide B&O tax deductions for nonprofit artistic organizations for governmental grants, tuition received for classes, items manufactured for their own use, and all business income (e.g., charges for admission). The groups covered by the deduction include performing arts organizations--music, theater, dance--art exhibitions, arts educational courses, and historical collections.

Purpose: To support the programs of artistic organizations through reduced tax liability.

Category/Year Enacted: Nonprofit - arts or cultural; 1981 (deduction for business income of such organizations added in 1985).

Primary Beneficiaries: Nonprofit arts organizations.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 1,314 1,353 1,394 1,436
Local taxes - - - - - - - -

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

82.04.4329 HEALTH INSURANCE POOL ASSESSMENTS

Description: A deduction against B&O tax is allowed for assessments required by the Washington State Health Insurance Pool pursuant to Chapter 48.41 RCW. The pool makes assessments against commercial insurers, health care contractors, HMOs and eligible self-insurers to fund a program of health insurance for persons who were previously unable to obtain health insurance coverage. With the shift of HMOs, etc. from B&O to insurance premiums "prepayment" tax on January 1, 1994, it is presumed that the amount of deduction under the B&O tax will effectively terminate on that date.

Purpose: To reduce the cost of assessments made by the Pool for commercial insurers, health care contractors, HMOs and self-insurers. These insurers now pay insurance premiums tax and a similar deduction is allowed under that tax for health insurance pool assessments.

Category/Year Enacted: Economic development; 1987.

Primary Beneficiaries: Health care contractors, HMOs and firms that self-insure.

Conflict With Other Programs: None evident.

Fiscal Impact ($000): This deduction is no longer utilized, as health insurers were shifted from the B&O tax to the insurance premiums "prepayment" tax at the start of 1994.

82.04.433 FUEL FOR COMMERCIAL VESSELS

Description: A B&O tax deduction is allowed for income derived from sales of fuel which is consumed outside of territorial waters of the U.S. in vessels engaging in foreign commerce.

Purpose: To foster foreign trade and encourage ocean-going vessels to purchase their fuel in Washington.

Category/Year Enacted: Economic development; 1985.

Primary Beneficiaries: Fuel dealers and commercial vessels engaged in foreign commerce.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 1,318 1,365   1,422 1,480
Local taxes - - - - - - - -

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

82.04.4331 HEALTH INSURANCE CLAIMS

Description: Until July 1, 1990, insurance companies could deduct from B&O tax liability any amounts paid for medical or dental coverage associated with providing state employee insurance.

Purpose: This deduction was intended to allow commercial insurance firms the same type of deduction that is available to health care contractors and HMOs. Thus, commercial insurers would have the same ability to bid for state employee insurance and not be penalized via their potential tax liability.

Category/Year Enacted: Not intended in the tax base; 1988.

Primary Beneficiaries: None. The state has decided to self-insure and no commercial insurer was selected to provide the uniform health plan for state employees.

Conflict With Other Programs: None evident.

Tax Savings ($000): None.