B&O TAX: DIFFERENTIAL RATES

82.04.250(1) RETAILERS

Description: Until 1983 retailers paid the same B&O tax rate as general manufacturing and wholesaling. In that year the rate was increased by 10 percent to 0.484 percent for manufacturing/wholesaling but by only 7 percent to 0.471 percent for retailing.

Purpose: Part of the rationale for the lower retailing rate was the recognition that during 1981-1983 the state sales tax rate was increased from 4.5 to 6.5 percent and this large increase may have adversely impacted retailing business.

Category/Year Enacted: Economic development; 1983.

Primary Beneficiaries: Approximately 161,000 retailers report under this classification.

Conflict With Other Programs: None evident.

Tax Savings ($000):* FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 13,171 13,632 14,109 14,603
Local taxes - - - - - - - -

*Compared with the 0.484 percent rate.

If the lower rate were repealed, would the estimated revenue be realized?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

82.04.260(1,a) MANUFACTURERS OF FLOUR, SOYBEAN & SUNFLOWER OIL

Description: A preferential B&O tax rate is provided for processing (manufacturing) of wheat into flour, soybeans, sunflowers and pearl barley. These processors are taxed at a rate of 0.138 percent rather than at the normal manufacturing rate of 0.484 percent.

Purpose: The purpose is evidently to provide tax relief to firms with low profit margins that are unable to pass the total cost of a gross receipts tax on to final consumers because of a highly competitive market structure.

Category/Year Enacted: Agriculture; 1949 (soybeans & sunflowers added in 1979; pearl barley in 1987).

Primary Beneficiaries: Approximately 102 taxpayers report under this rate classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 675 711 750 790
Local taxes - - - - - - - -

If the lower rate were repealed, would the estimated revenue be realized?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

82.04.260(1,b) MANUFACTURERS OF SEAFOOD

Description: This statute provides a special B&O tax rate of 0.138 percent for revenues received from manufacturing seafood products which remain in a raw, raw frozen, or raw salted state when completed. The current general rate for manufacturers is 0.484 percent.

Purpose: The purpose is presumably to recognize low profit margins of seafood manufacturers relative to other manufacturers.

Category/Year Enacted: Economic development; 1959.

Primary Beneficiaries: Approximately 46 firms report under this classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 374 394 415 438
Local taxes - - - - - - - -

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

82.04.260(1,c) PROCESSORS OF FRUIT & VEGETABLES

Description: A preferential B&O tax rate is provided for processors of fresh fruit and vegetables who are taxed at a rate of 0.138 percent rather than at the normal manufacturing rate of 0.484 percent. The rate was reduced from 0.33 percent in 1998 as part of a B&O tax rate consolidation for tax simplification purposes.

Purpose: The purpose is evidently to provide tax relief to firms with low profit margins that are not able to pass the total cost of a gross receipts tax on to final consumers because of a highly competitive market structure.

Category/Year Enacted: Agriculture; 1965 and 1998.

Primary Beneficiaries: Approximately 279 taxpayers report under this rate classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 7,759 8,178 8,619 9,085
Local taxes - - - - - - - -

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

82.04.260(2) PROCESSORS OF DRIED PEAS

Description: A preferential B&O tax rate is provided to processors of dried peas who are taxed at a rate of 0.138 percent rather than the normal manufacturing rate of 0.484 percent. The rate was reduced from 0.275 percent in 1998 as part of a B&O tax rate consolidation for tax simplification purposes.

Purpose: The purpose is apparently to provide tax relief to firms with low profit margins that are not able to pass the total cost of a gross receipts tax on to customers because of a highly competitive market structure.

Category/Year Enacted: Agriculture; 1967 and 1998.

Primary Beneficiaries: Approximately 12 taxpayers report under this rate classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 26 28 29 31
Local taxes - - - - - - - -

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

82.04.260(4) PROCESSORS OF MEAT

Description: This statute provides a reduced B&O tax rate of 0.138 percent for firms in the meat processing industry that sell their products at wholesale. The current regular wholesaling rate is 0.484 percent.

Purpose: The purpose is to reduce the tax burden for an industry with low profit margins and to improve their competitive position relative to other states.

Category/Year Enacted: Agriculture; reduced from 0.44 percent to 0.33 percent in 1967; reduced from 0.363 percent to 0.275 percent in 1986; further reduced to 0.138 percent in 1987; a temporary surtax increased the rate to 0.146 percent in 1993 but it was then reduced to 0.144 percent on January 1, 1995.

Primary Beneficiaries: Approximately 229 taxpayers report under this rate classification. By far the largest group are packers and processors of beef, followed by wholesale grocers, poultry processors, and firms that produce specialty meats.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 11,101 11,701 12,332 12,998
Local taxes - - - - - - - -

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

82.04.260(5,6) NUCLEAR FUEL ASSEMBLIES

Description: Firms that enrich uranium such that it becomes nuclear fuel are subject to a 0.275 percent B&O tax rate rather than the 0.4894 percent rate currently paid by other manufacturers.

Purpose: To encourage the location of such firms in Washington.

Category/Year Enacted: Economic development; 1971.

Primary Beneficiaries: No one has reported under this classification in recent years.

Conflict With Other Programs: None evident.

Tax Savings ($000): None.

82.04.260(7) TRAVEL AGENTS

Description: This statute provides a reduced B&O tax rate of 0.275 percent for commissions earned by travel brokers and agents for providing ticket and travel assistance to consumers. Otherwise, commissions earned by travel agents would be taxable under the general service rate at 1.5 percent.

Purpose: The lower rate recognizes that some of the income is derived from travel which takes place outside of the state.

Category/Year Enacted: Economic development; 1975.

Primary Beneficiaries: Approximately 879 firms report under this rate classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 5,213 5,432 5,660 5,898
Local taxes - - - - - - - -

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

82.04.260(8) CHARTER & FREIGHT BROKERS

Description: This statute reduces the B&O tax rate for international activities of charter and freight brokers from the general service rate of 1.5 percent to a special rate of 0.275 percent. The rate was reduced from 0.363 percent in 1998 as part of a B&O tax rate consolidation for tax simplification purposes.

Purpose: The purpose is to encourage international trade and retain this type of business in the state.

Category/Year Enacted: Economic development; 1979 and 1998.

Primary Beneficiaries: Approximately 438 brokers and agents report under this classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 9,548 9,949 10,367 10,803
Local taxes - - - - - - - -
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If the lower rate were repealed, would the estimated revenue be realized? Potentially, although this is a rather mobile industry and an increase in tax rate of this magnitude could drive some of the firms out of state and result in reduced trade through Washington ports.

82.04.260(9) STEVEDORING

Description: This statute applies the B&O tax at a rate of 0.275 percent to revenue derived from stevedoring and similar cargo handling activities. Previously, such activities were taxable under the public utility tax at the 1.926 percent rate and then at the B&O tax rate of 0.363 percent until 1998.

Purpose: To encourage international trade through Washington ports.

Category/Year Enacted: Economic development; 1979 and 1998.

Primary Beneficiaries: Approximately 66 firms report under this classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 8,104 8,450 8,811 9,188
Local taxes - - - - - - - -

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

82.04.260(11) INSURANCE AGENTS

Description: The commission income of insurance agents and brokers is subject to B&O tax at a rate of 0.484 percent rather than the current general service rate of 1.5 percent. The rate was reduced from 0.55 percent in 1998 as part of a B&O tax rate consolidation for tax simplification purposes.

Purpose: The primary reason for excluding insurance agents from the 50 percent rate increase when the permanent service rate was increased from 1.0 percent to 1.5 percent in 1983 was the perception by the Legislature that the added tax could not be passed on to insurance customers (i.e., for policies previously issued) and thus would have to be absorbed by the agents in the form of lower income. The 1995 rate reduction from 1.1 to 0.55 percent apparently reflected further concern with the commission structure of the industry.

Category/Year Enacted: Economic development; 1983 (further reduced in 1995 and 1998).

Primary Beneficiaries: Approximately 4,116 insurance agents and brokers.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 10,771 11,224 11,695 12,186
Local taxes - - - - - - - -

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

82.04.272 WAREHOUSING/RESELLING PRESCRIPTION DRUGS

Description: This statute reduces the B&O tax rate for prescription drug resellers registered with the Federal Drug Enforcement Administration and licensed by the State Board of Pharmacies. Starting July 1, 2001, these distributors will be taxed at a rate of 0.138 percent, instead of the normal 0.484 percent wholesaling rate or the 0.471 percent retailing rate.

Purpose: To provide relief to prescription drug resellers because of low profit margins.

Category/Year Enacted: Economic development; 1998.

Primary Beneficiaries: Firms that purchase pharmaceutical drugs from a manufacturer or a wholesaler and resell them to a retailer or health care provider (physicians, hospitals, clinics, etc.)

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 4,597 5,095
Local taxes - - - - - - - -

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

82.04.290(1) INTERNATIONAL INVESTMENT MANAGEMENT SERVICES

Description: International investment management services are subject to B&O tax at a rate of 0.275 percent. Otherwise, this activity would be taxed at the financial services rate of 1.5 percent.

Purpose: To avoid business relocation outside the state.

Category/Year Enacted: Economic development; 1995.

Primary Beneficiaries: One international investment management firm.

Conflict With Other Programs: None evident.

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

82.04.2905 CHILD CARE

Description: This statute reduces the applicable B&O tax rate to 0.484 percent for revenues received from providing child care. Prior to July 1, 1998 taxable child care was reported under the service classification and taxed at 1.5 percent. (Child care provided by churches and the care of children aged eight and younger are exempt from B&O tax.)

Purpose: The purpose is presumably to recognize the importance of this service to families and businesses and to reduce the tax burden for an industry with low profit margins. Also, it reduces the tax differential of caring for children of different ages.

Category/Year Enacted: Individuals (assuming the lower tax is passed on to families); 1998.

Primary Beneficiaries: Nearly 700 child care firms report under this classification.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 382 405 429 455
Local taxes - - - - - - - -

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