WAC 105

"Engaging in business."

Exemptions--Employees--Independent contractors--Booth renters.

Exemptions--Amounts received by property management company for on-site personnel.

Employees distinguished from persons engaging in business. Effective 4/4/92

Employees distinguished from persons engaging in and operating a business explains the conditions that serve to indicate whether persons are engaging in business or are employees.

PERSONS SERVING AS EMPLOYEE AND ENGAGING IN BUSINESS Revised 2/2/09. See ETA 3134.2009

Transactions between related entities

CONDITIONS UNDER WHICH A CONTRACTOR-OWNER RELATIONSHIP EXISTS Cancelled effective 02/28/07 This document addresses the situation where a contractor and an owner enter into an agreement to transfer employees from the contractor to the owner during the period of construction, and when the construction was completed transfer the employees back to the contractor. The ETA explains that it is the Department's position to examine the conduct of the parties and the agreement between them to determine whether an employer-employee relationship exists.

CONTRACTOR DISTINGUISHED FROM AN EMPLOYEE Cancelled effective 02/28/07 This document addresses whether a contract logger is an employee or a contractor working on a cost plus contract. The ETA cites outdated language from a previous version of WAC 458-20-105 (Employees distinguished from persons engaging in business) as the basis for finding that the contract logger was an independent contractor. The information in the current WAC 458-20-105 provides more complete guidance for determining whether a person is an independent contractor or employee.

Personal Chefs

Paymaster Deduction

Personal Chefs

INSURANCE AGENT -- INDEPENDENT CONTRACTOR STATUS. An insurance agent is not considered an employee under the Revenue Act if not construed to be an employee under the State Employment Security Act or the Federal Social Security Act.

INSURANCE AGENT - INDEPENDENT CONTRACTOR STATUS. An insurance agent is not considered an employee under the Revenue Act if not construed to be an employee under the State Employment Security Act or the Federal Social Security Act. No exemption exists for "servicing fee" income received for renewals of policies written in previous years if the agent is an independent contractor.

SERVICE B&O TAX -- EMPLOYEES PROVIDED FOR OTHERS. Salaries and related administrative costs attributable to employees provided to affiliated companies and allocated between such companies are properly included within the Service B&O tax measure.

ENGAGING IN BUSINESS. A taxable business is an activity or enterprise for gain, benefit, or advantage. A person engaging in business is generally one who is (1) recognized by the public as engaging in business, (2) one who receives the gross income and incurs the liabilities of the business, and/or (3) one who acts as an employer.

TAXICAB LEASES -- DRIVERS AS INDEPENDENT CONTRACTORS. Taxicab drivers were not employees or agents of taxpayer/owner where the owner did not control or have the right to control the drivers. The drivers, not the taxpayer, determined whether, when and where they worked during their shifts. A driver's income was the difference between the fares and the fixed lease payments made to the owner at the end of each shift, which is not a typical employer-employee relationship. Other factors in Rule 105 support finding the drivers were not employees or agents of the taxpayer.

EMPLOYEE EXEMPTION. A full time life insurance agent who is classified as a "statutory employee" for Social Security and Federal fringe benefits purposes is not an employee for the B&O tax exemption.

INSURANCE AGENT -- INDEPENDENT CONTRACTOR STATUS -- COMMISSION INCOME. Commission income earned by an insurance agent is taxable under the insurance agents and brokers classification unless the agent is a bona fide employee of the insurance company.

B&O Tax -- INDEPENDENT CONTRACTOR OR EMPLOYEE -- TAXABLE OR EXEMPT -- CRITERIA. Where the taxpayer meets the rule's elements of a person engaging in business and the principal does not have the right to control the details and means of the work to be accomplished by the performing party, such party is an independent contractor. The retention of the right to inspect and supervise to insure the proper completion of a contract does not vitiate the independent contractor relationship. ACCORD: Epperly v. Seattle, 65 Wn.2d 777, 785 (1965), Seattle Aerie No. 1 v. Commissioner Etc., 23 Wn.

EMPLOYEE V. INDEPENDENT CONTRACTOR -- CRITERIA -- WEIGHING OF. Although control is the most important consideration in determining whether a person is an employee, other factors enumerated in the rule must also be weighed.

B&O TAX -- EMPLOYEE STATUS OF FULL-TIME LIFE INSURANCE AGENTS. Based on the facts, the taxpayer was not an employee of the insurance company for B&O tax purposes. The statutory regulation of insurance agents in the state of Washington does not prevent them from being independent contractors for tax purposes. Curtis T. Mohr vs Department of Revenue.

B&O TAX -- EMPLOYEE EXEMPTION. The B&O tax does not apply to persons in respect to their employment in the capacity of an employee. The employment status of an employee shall be determined by an examination of whether the employer had actual control or right to control plus a determination as to whether the employee was actually in business. Accord: Hollingbery v. Dunn, 68 Wn 2d 75 (1966).

Kenney, Member--RCW 82.04 levies a business and occupation (B&O) tax on all persons for the privilege of doing business in Washington State. An exemption for employees is created by RCW 82.04.360(1): "This chapter shall not apply to any person in respect to his or her employment in the capacity of an employee or servant as distinguished from that of an independent contractor."

Kenney, Member--RCW 82.04 levies a business and occupation (B&O) tax on all persons for the privilege of doing business in Washington State. An exemption for employees is created by RCW 82.04.360(1): "This chapter shall not apply to any person in respect to his or her employment in the capacity of an employee or servant as distinguished from that of an independent contractor."

Kenney, Member--RCW 82.04 levies a business and occupation (B&O) tax on all persons for the privilege of doing business in Washington State. An exemption for employees is created by RCW 82.04.360(1): "This chapter shall not apply to any person in respect to his or her employment in the capacity of an employee or servant as distinguished from that of an independent contractor."

MEDICAL CLINICS -- PHYSICIANS -- INDEPENDENT CONTRACTORS. Physicians were independent contractors when contracting with a hospital to provide services at either hospital-owned clinics or physician-owned clinics which were subsidized by the hospital because the physicians exercised full control over making medical judgments, set their own fees and hours, obtained their own patients, and received gross payments without deductions for employment taxes.

Kenney, Member--RCW 82.04 levies a business and occupation (B&O) tax on all persons for the privilege of doing business in Washington State. An exemption for employees is created by RCW 82.04.360(1): "This chapter shall not apply to any person in respect to his or her employment in the capacity of an employee or servant as distinguished from that of an independent contractor."

SERVICE B&O TAX -- JOINT VENTURE -- EXISTENCE OF -- FACTORS. The essential ingredients of a joint venture are (1) a contract, express or implied; (2) a common purpose; (3) a community of interest; and (4) an equal right to a voice accompanied by an equal right to control. In addition courts have also generally required a sharing of profits and losses.

EMPLOYEES AND INDEPENDENT CONTRACTORS DISTINGUISHED - CRITERIA. The Department of Revenue does not find a person to be either an employee or an independent contractor on the existence of any one criterion in Rule 105. Instead, the Department of Revenue considers all the criteria and the facts in each case.

B&O TAX - PROPERTY MANAGEMENT COMPANY - EMPLOYEE COMPENSATION - RETROACTIVE. Whether or not RCW 82.04.394 is retroactive is irrelevant if the property management company did not utilize a property trust account under RCW 18.85.310 or specify in its written property management agreement that the company was liable only as agent of the property owner.

COMMON PAYMASTER - MERE CONDUIT. Under Det. No. 88-9, 4 WTD 433 (1987), a common paymaster must act as a conduit only, and not provide other services.

B&O TAX - PERVASIVE CONTROL - EMPLOYEES. An employer who furnishes employees tools, may not exclude the receipts for the employees under the authority of RPM 90-1.

INSURANCE AGENT -- INDEPENDENT CONTRACTOR STATUS. An insurance agent is not considered an employee under the Revenue Act if not construed to be an employee under the State Employment Security Act or the Federal Social Security Act.

INSURANCE AGENT -- INDEPENDENT CONTRACTOR STATUS. An insurance agent is not considered an employee under the Revenue Act if not construed to be an employee under the State Employment Security Act or the Federal Social Security Act.

INSURANCE AGENT -- INDEPENDENT CONTRACTOR STATUS. An insurance agent is not considered an employee under the Revenue Act if not construed to be an employee under the State Employment Security Act or the Federal Social Security Act.

CONSTRUCTION CONTRACT -- JOINT VENTURE -- FACTS INDICATING. The following facts indicated the taxpayer and another party constructed a house as a joint venture rather than as "prime" and "sub" contractors or as an employer and a employee: 1) both parties had met with the architect and owner to discuss the plans; 2) both of the parties' names were on the contract itself; 3) draws from the bank had both of the parties' names on them; and 4) the parties split the profit.

B&O TAX - RHO - AGENCY -- THIRD-PARTY PAYEE'S AGREEMENT ABSOLVING TAXPAYER OF LIABILITY. The third Rule 111 element set out in Rho requires that the taxpayer have received and paid the funds as agent of its client. The agency relationship is created as a result of conduct between the taxpayer and its client. The taxpayer cannot make itself the agent of its client in procuring a service from a third party merely by getting the third party to agree to absolve the taxpayer of liability for paying the third party if the taxpayer is not paid by its client.

B&O TAX -- RHO -- TAXPAYER'S INABILITY TO PERSONALLY RENDER THE SERVICE -- CONTRACTOR-SUBCONTRACTOR. Merely showing that the taxpayer lacked the technical skills to personally perform the services for which it received payment does not establish the second Rho element (the payments involve services the taxpayer did not or could not render), when the taxpayer contracted to provide the services, and the contract clearly contemplated that it would provide them by hiring or subcontracting personnel with the necessary expertise.

ADVANCES AND REIMBURSEMENTS - ELEMENTS. When a taxpayer receives funds from its customer to pay a third party for services the taxpayer did not or could not provide and the taxpayer is liable to the third party solely as agent for its customer, the amounts received are not considered part of the taxpayer's gross income. If any of the elements are missing, the taxpayer must include the amounts received in its measure of tax.

RHO. The decision in Rho holds that where an employer-employee relationship exists and there is an issue as to who is the employer, the Department must consider the actual intent of the parties and not just the contract, to determine the identity of the employer. The Rho decision did not find that an agency relationship exists whenever there is a three-party relationship.

ADVANCES AND REIMBURSEMENTS - ELEMENTS - SUPERVISION AND CONTROL. In a non-employment placement situation, determining whether the taxpayer acted as an agent in paying third parties generally cannot be resolved by an analysis of supervision and control factors set out in Rho and ETA 90-001.

ADVANCES AND REIMBURSEMENTS - ELEMENTS. All three Rule 111 conditions set out in Christensen and Rho must be met for a receipt to qualify for pass-through treatment.

ADVANCES AND REIMBURSEMENTS - BURDEN. The taxpayer must claim, as well as carry the burden of showing qualification for pass-through treatment under Rule 111.

ETA 90-001: B&O TAX -- EMPLOYER-EMPLOYEE -- BUSINESSES PROVIDING TEMPORARY WORKERS. A business that recruits and provides day laborers and other temporary workers to other businesses and non-business customers, and which has pervasive control over the workers under the criteria set out in ETA 90-001, will be treated as the employer for state excise tax purposes, and may not exclude receipts representing worker wages and employment taxes from the measure of its B&O tax.

ETA 90-001: B&O TAX; RETAIL SALES TAX -- BUSINESSES PROVIDING TEMPORARY WORKERS -- CLASSIFICATION OF REVENUES. A business that recruits and provides temporary workers to other businesses and non-business customers, and is considered the employer of the workers for excise tax purposes, shall classify gross receipts consistent with the procedures set out in ETA 90-001, and shall collect and report retail sales tax when appropriate.

B&O TAX--EMPLOYEE EXEMPTION - INDEPENDENT CONTRACTORS. The B&O tax does not apply to income earned by an employee or servant as distinguished from that of an independent contractor. Whether a person is acting as an employee or as an independent contractor is determined by an examination of various factors, with the employer's right to control the employee being the most important factor.

RETAILING B&O TAX - RETAIL SALES TAX - INDEPENDENT CONTRACTOR VS. EMPLOYEE OR SERVANT - CATERER A person claiming to be a "personal chef" or "domestic servant" was found to be an independent contractor engaged in a catering business where the person was hired to plan and organize social events in private homes, and was responsible for food and beverage arrangements, hiring additional wait staff, renting equipment, and ordering flowers.

B&O TAX - GENERAL INSURANCE AGENT - ENGAGING IN BUSINESS - NOT AN EMPLOYEE. In light of the criteria in Rule 105, the facts overwhelmingly support the finding and Rule 164's presumption that the taxpayer is engaged in business and subject to the B&O tax on his gross income, and is not an employee of the insurance company.

B&O TAX -- EMPLOYEES --VIS-A-VIS INDEPENDENT Contractors -- SERVICES -- JOCKEYS. Free lance jockeys who ride horses on a contracted basis and who are not considered employees for purposes of the State Employment Security Act or Federal Social Security Act are not employees for purposes of B&O tax exemption under RCW 82.04.360.

INSURANCE AGENT -- INDEPENDENT CONTRACTOR STATUS. An insurance agent is not considered an employee under the Revenue Act if not construed to be an employee under the State Employment Security Act or the Federal Local Security Act. Accord: 1 WTD 291 (1986).

RETAIL SALES TAX AND RETAILING B&O -- ENGAGING IN BUSINESS -- EQUIPMENT LEASE -- PARTNERSHIP/LESSOR. Where three individual professionals established a lease between themselves as individuals and their three professional corporations, the three were engaging in business and liable for Retailing B&O. Retail Sales tax was due on the lease payments.

EMPLOYER/EMPLOYEE -- DETERMINATION. A joint operating account used by three professional corporations to pay for shared employees is not a separate entity for B&O purposes merely because the corporations obtained a federal I.D. number for payroll and reporting to state and federal agencies. The key question in determining who is the actual employer is who controls or has the right to control the activities of the employees. 1 WTD 103 (1986).

JOINT VENTURE -- B&O TAX -- ENGAGING IN BUSINESS -- JOINT OPERATING -- ACCOUNT -- DISTINGUISHED. The essential elements of a joint venture include (1) a contract, (2) a common purpose, (3) a community interest, (4) an equal right of control, and (5) a sharing of profits and losses. The use of a joint operating account by three professional corporations for centralized accounting was not found to be a joint venture where there was no sharing of profits and losses.

B&O TAX -- ENGAGING IN BUSINESS -- JOINT OPERATING ACCOUNT. A taxable business is an activity or enterprise for gain, benefit, or advantage. A person engaging in business is generally one who is (1) recognized by the public as engaging in business, (2) one who receives the gross income and incurs the liabilities of the business, and/or (3) one who acts as an employer. Use of a joint account by three professional corporations for accounting purposes only does not give rise to separate business tax.

EMPLOYEE -- INDEPENDENT CONTRACTOR. Claim of employee status with respect to son performing labor and services on speculative building project rejected. No evidence of employee status, such as payroll records or tax withholding.

SERVICE B&O TAX -- EMPLOYEE -- PRIMARY CONTRACTOR -- SUBCONTRACTOR -- PHYSICIAN -- PATIENT. Where a taxpayer, operator of a hospital and health center, bills the patient for physician's professional services rendered, the amounts received and transmitted to the physicians are not subject to Service B&O tax liability by the taxpayer unless the physicians were employees or subcontractors of the taxpayer. In this case, the physicians were held not to be employees nor subcontractors of the taxpayer.

ENGAGING IN BUSINESS -- EMPLOYEE --DISTINCTION. A person who is in business of preparing food for others as a caterer is engaging in business and not acting as an employee when she prepares food on a regular basis for a specific couple. The fact that the work is paid at a fixed rate and that taxpayer works for the couple on a regular basis does not alter the result. This determination has been overruled or modified in whole or part by Det. No.04-0132, 24 WTD 254 (2005).