WAC 203

Taxability of Investment Income--Repealed effective June 30, 2002.

"Sale at retail," retail sale."

"Gross proceeds of sales."

"Gross income of the business."

"Value proceeding or accruing."

"Consumer."

Corporations, Massachusetts trust.Effective 7/1/70

SERVICES OF A CORPORATE OFFICER TO HIS CORPORATION Revised 2/2/09 See ETA 3134.2009

SALE WITHOUT TRANSFER OF POSSESSION Revised 2/2/09 See ETA 3146.2009

NONPROFIT SALES BETWEEN PARENT AND SUBSIDIARY CORPORATION Revised 2/2/09 See ETA 3134.2009

AMOUNTS RECEIVED BY ONE CORPORATION FOR TWO AFFILIATED CORPORATIONS TO COVER THE COSTS OF RESEARCH Revised 2/2/09 See ETA 3134.2009

CORPORATION HOLDING A CONTRACT FOR THE SALE OF CASTINGS SUPPLIED BY AN AFFILIATE Revised 2/2/09 See ETA 3134.2009

Transactions between related entities

Sale without transfer of possession

ETA 3194.2015 Impact of Getty Images Decision explains that the Washington State Court of Appeals, Division 1, decision in Getty Images (Seattle), Inc. v. City of Seattle, 163 Wn. App. 590, 260 P.3d 926 (2011)does not represent a major departure from established law in the context of affiliate transactions. Getty Images addresses the taxability of amounts received by a parent company from affiliates to pay costs for providing administrative and management services to those affiliates.

BUSINESS AND OCCUPATION TAX: MEANING OF "PERSON" ENGAGING IN TAXABLE BUSINESS Revised 2/2/09 See ETA 3134.2009

MANAGEMENT CHARGES FROM PARENT TO SUBSIDIARY Cancelled Effective 03/28/08. This document explains that charges to a subsidiary for management fees are taxable. This subject is more fully addressed in ETA 86.04.201/203.

INCOME FROM A SEPARATE CORPORATION ORGANIZED TO CONDUCT PART OF A PARENT CORPORATION'S BUSINESS Revised 2/2/09 See ETA 3134.2009

ADMINISTRATIVE AND PERSONNEL CHARGES BETWEEN AFFILIATED CORPORATIONS Cancelled Effective 03/28/08. This document explains that the payment made by an affiliate to a taxpayer for the services of the taxpayer’s employees is subject to service and other activities business and occupation tax. ETA 86.04.201/203 fully explains the same subject.

Department Authority to Disregard Tax Avoidance Transactions

MISC CORPORATIONS - LEGALENTITY SHAREHOLDERS - STANDING - STAY OF COLLECTION. Only the taxpayer who has been issued an assessment has standing to seek a stay of collection; shareholders are not the same person as the corporation.

MISCELLANEOUS - BUSINESS AND OCCUPATION TAX -INCOME SHIFTING - AGREEMENT. There is no provision in the Revenue Act whereby multiple taxpayers can agree to shift income from one to another. A taxpayer will be taxed on its own "gross income of the business" as earned by its own activities. No income shifting between taxpayers - by agreement or otherwise - will be permitted or recognized for tax purposes.

RENTS -- RETAIL SALES. The total amount charged to an affiliate for the rental of forklifts is taxable rent. This amount includes charges for repairs, depreciation, and property taxes.

B&O TAX -- GROSS INCOME. Gross income will not be imputed solely based on adjustments under section 482 of the Internal Revenue Code for federal tax purposes when there is no consideration proceeding or accruing to the taxpayer.

CONTRIBUTIONS TO CAPITAL VERSUS SALES.Where a parent corporation procures the services of third parties for the benefit of a subsidiary and treats the costs of those services as loans to the subsidiary, calculating interest thereon, the parent may not treat the cost of the services as contributions to capital, exempt from taxation under Rule 106.The transactions are sales from the parent to the subsidiary and subject to state excise taxes.

RETAIL SALES TAX – B&O TAX – SPECULATIVE BUILDER – TITLE – SECURITY.A speculative builder means a person who constructs buildings for sale on land owned by the builder.To determine ownership of the land, record title is only one factor to consider.Legal title to secure financing may be considered a mortgage.Det. No 97-189, 17 WTD 148 (1997) and Det. No. 94-154, 15 WTD 46 (1994).

B&O TAX – EXEMPTION – CREDIT COUNSELING SERVICES – BANKRUPTCY TRUSTEE.A bankruptcy trustee’s duties include advising and assisting debtors in performing under debt repayment plans.Accordingly, the trustee provides some services similar to the services provided by nonprofit consumer credit counselors.However, a bankruptcy trustee’s duties and activities are far broader than the services provided by such counselors.Because most of the trustee’s duties exceed the scope of the exemption, the trustee is not entitled to claim the exemption from B&O tax.

RETAIL SALES TAX -- RETAILING B&O TAX – JOINT VENTURE – SPECULATIVE BUILDING.Taxpayers and their co-venturers formed joint ventures because they acquired and contributed land, money, skill, knowledge, and experience to their home-building enterprises while sharing profits and losses without receiving absolute payments for services they respectively rendered.Consequently, retail sales tax and retailing B&O tax were not due on the full contract prices of houses the taxpayers and their co-venturers sold because they were speculative builders.

MVET – LIABILITY FOR – TRANSFER OF MOTOR HOME BY WASHINGTON RESIDENTS TO OREGON CORPORATION.Washington resident taxpayers were not properly assessed MVET as the registered owners of a motor home registered in Oregon for the period of time after they contributed it to an Oregon corporation, despite the fact that the taxpayers failed to promptly transfer title to the motor home to the corporation.

MVET -- SHAM CORPORATION – PIERCING THE CORPORATE VEIL – DOCTRINE OF DISREGARD.If the form and substance of the corporate entity reveals the entity is a sham, the government may invoke the doctrine of disregard to serve the purpose of the tax statutes.Where Washington resident taxpayers formed an Oregon corporation, their choice of corporate form will be respected unless:1) they intentionally used the corporation to violate or evade a duty and 2) disregard of the corporate entity is necessary to prevent unjustified loss to the injured party.The corporate form will not be disregarded where:

5) the taxpayers did not attempt to conceal or misrepresent the identity of the responsible ownership, management and financial interest owned by the Corporation; and 6) the corporation did not participate in the diversion of assets to the detriment of creditors.Where the taxpayers, who were corporate officers, used the motor home in Washington only for corporate business, the taxpayers were acting on behalf of the Corporation when they traveled into Washington using a corporate asset.In these circumstances, the taxpayers are not liable for MVET.

B&O TAX – INTERCOMPANY TRANSACTIONS –ACCOUNTING RECORDS – IMPEACHMENT OF.Where a professional limited liability company and its corporate members initially account for payments from the PLLC to members as fees for accounting services, the PLLC and members may not amend their records for past periods to retroactively change the payments into non-taxable distributions of profits, absent clear, cogent and convincing evidence that the accounting entries were incorrect.

RETAIL SALES TAX – RETAILING B&O TAX – PASS-THROUGH PAYMENTS – LOANED EMPLOYEES.When a general partner acts as the general contractor on a partnership construction project, the construction laborers under the general partner’s payroll are not considered employees loaned to the partnership, and the payments it receives are not considered advances or reimbursements.

SALE/USE TAX -- HELICOPTER -- LESSOR'S LIABILITY AT ACQUISITION -- INTERVENING USE -- CLOSELY HELD CORPORATION. Tangible personal property acquired exclusively for rental is not subject to retail sales tax. A tax.A helicopter leased by a sole proprietor to his closely- held corporation was found to be so acquirednotwithstanding a gap in the term of a written lease agreement.

THIS DETERMINATION HAS BEEN OVERRULED OR MODIFIED IN WHOLE OR PART BY DET.NO. 93-269ER, 14 WTD 153 (1995).

CORPORATIONS -- INTERCOMPANY TRANSACTIONS --CONSOLIDATED FEDERAL RETURNS. The state business and occupation (B&O) tax makes no provision for consolidating returns of affiliated corporations or eliminating intercompany transactions from taxation.

JOINT VENTURE – TAX LIABILITY OF EACH PARTY TO JOINT VENTURE.Members of a joint venture engaged in speculative construction are jointly and separately liable for payment of retail sales tax on obligations of the joint venture, and the fact that one member managed the project and ordered materials and subcontract work in that member’s name does not relieve the other members of liability for unpaid sales tax on the materials and subcontracts when the managing member incurred the third-party expenses in the capacity of a partner.

PARTNERSHIP – ABILITY OF A GENERAL PARTNER TO BIND THE PARTNERSHIP.The action of a general partner who enters into an agreement within the scope of the partnership’s business is the action of the partnership itself, binding the partnership, even if the general partner executes the agreement in his own name.

RCW 23B.14.220:CORPORATION -- ADMINISTRATIVE DISSOLUTION -- REINSTATEMENT.A corporation that was administratively dissolved and subsequently reinstated by the secretary of state was a valid corporate entity for all periods after incorporation.The reinstatement related back to the time of dissolution.

CORPORATION -- ADMINISTRATIVE DISSOLUTION -- OFFICERS LIABLE AS PARTNERS.Corporate officers were not liable as partners for corporate debt where a valid corporate entity existed at the time the tax liabilities were incurred.

USE TAX-- EXEMPTION NOT TRANSFERABLE -- PRIVATE MOTOR VEHICLE.The use tax exemption provided a husband and wife in RCW 82.12.0251 for their privately owned motor vehicle is not transferable to their closely-held corporation when the couple contributed the automobile to their corporation as a capital asset.

USE TAX -- CORPORATE DISREGARD – ALTER EGO DOCTRINE – USE TAX.Where a corporate shell with no function beyond holding title to assets that are for the exclusive personal convenience and benefit of its only shareholders, has operated as the mere alter ego of the shareholders, and regarding it as separate from its shareholders would aid in the consummation of a wrong on the State, the Department may look beyond the legal fiction of distinct corporate existence and disregard the corporate entity.

USE TAX -- CORPORATE DISREGARD – ALTER EGO DOCTRINE.Where a corporate entity is a mere shell with no purpose besides avoiding taxation, its only activity is holding title to assets that are for the exclusive personal convenience and benefit of its only shareholders, it has operated as the mere alter ego of the shareholders, and regarding it as separate from its shareholders would aid in the consummation of a wrong on the State, the Department may look beyond the legal fiction of distinct corporate existence and disregard the corporate entity.

RETAILING B&O TAX -- RETAIL SALES TAX -- JOINT VENTURER VS. PRIME CONTRACTOR.Where the preponderance of evidence showed that the parties did not intend to form a joint venture, the parties did not have equal control over the construction project, and the parties did not share project profits and losses, a joint venture was not created.

RCW 23B.02.030: FILING ARTICLES OF INCORPORATION PROOF OF CORPORATE EXISTENCE – SEPARATE ENTITY -- ALTER EGO. The corporate form is to be respected as a separate entity unless there is a showing that the corporate form was used to violate or evade a duty.

B&O TAX - WHOLESALE SALES -- AFFILIATED COMPANIES -- SEPARATE "PERSONS." The sale of property by a subsidiary to its parent corporation constitutes a sale within the meaning of the Revenue Act,as each separately organized corporation is a separate taxable '"person."

THIS DETERMINATION HAS BEEN OVERRULED OR MODIFIED IN WHOLE OR PART BY DET.NO. 93-269ER, 14 WTD 153 (1995).

B&O TAX -- GROSS INCOME -- EARNINGS OF SUBSIDIARIES AND AFFILIATES -- EQUITY METHOD OF ACCOUNTING -- INCOME RECORDED SOLELY TO PREPARE CONSOLIDATED FINANCIAL STATEMENT.Therecording of the net income of subsidiaries and affiliates as income on the taxpayer's books does not result in taxation when: the taxpayer uses the equity method of accounting; the income is recorded solely for the purpose of preparing consolidated financial statements, and; no income is actually received by the taxpayer.

B&O TAX -- GROSS INCOME -- SERVICES TO SUBSIDIARIES -- INCREASE IN INVESTMENT IN SUBSIDIARIES ACCOUNT. A taxpayer who provides services to subsidiaries and who, rather than receiving payment for those services, increases the amounts recorded as investments in the subsidiaries is taxable in the amount of the increases. Increases in investment accounts are increases in the assets of the taxpayer and result from services rendered. Thus, they are "other emoluments" received from engaging in business.

B&O TAX -- AFFILIATES -- CONSOLIDATED RETURNS --CLAIMED JOINT VENTURE -- TRANSFER BETWEEN VENTURERS. When a joint venturer/member transfers a capital asset to a joint venture in exchange for an interest in that joint venture, the transfer will be deemed nontaxable. The law, however, makes no provision for filing of consolidated returns by affiliated corporations or for the elimination of intercompany transactions from the measure of tax.

B&O TAX -- DEDUCTION -- INTEREST -- LOANS TO AFFILIATES -- FINANCIAL BUSINESS. Interest earned from loans to subsidiaries is not deductible under RCW 82.04.4281 where the loans are a regular and normal part of the taxpayer's business activities; activity which is in competition with a financial business constitutes a financial business.

SERVICE B&O TAX -- AFFILIATED CORPORATIONS -- MANAGEMENT FEES.Amounts received by one corporation from an affiliated corporation for management fees are subject to the Service B&O tax.

B&O TAX -- ADVANCE AND REIMBURSEMENTS --ATTORNEY OVERHEAD COSTS. Payments by individually incorporated lawyers to a jointly owned professional service corporation for overhead expenses are not excludable as advances or reimbursements from the business and occupation tax.

STATE TAXATION -- SEPARATE CORPORATIONS --CHOICE OF ENTITY -- EFFECT OF CHOICE. Each corporation is separately liable for applicable state taxes. Choice of entity by the parent resulting in a "captive" corporation status does not change the result that the 'hospital and the taxpayer are separately-taxable corporations.

RETAIL SALES TAX -- SEPARATELY INCORPORATED ENTITIES -- AFFILIATES -- EXEMPTION STATUS. Because the taxpayer and its affiliate are separately organized corporations, with separate Federal Identification Numbers, and separate books and records, each must be treated as an independent entity. Therefore in order to be entitled to an exemption, each corporation must satisfy the criteria onits own merits and an exemption applicable to one corporation under Rule 238 is not necessarily applicable to its affiliate.

B&O TAX -- RETAIL SALES TAX -- CORPORATE REORGANIZATION -- DISREGARD OF INTERCOMPANY LEASE -- SUBSTANCE OVER FORM. The doctrine of substance over form is not generally available to a taxpayer to eliminate the tax consequences of the taxpayer's chosen form of the transaction.

B&O TAX -- RETAIL SALES TAX -- SEPARATE PERSONS -- COMMONLY-OWNED BUSINESS ENTITIES. The Washington Revenue Act makes no provision for the disregard of transactions between a sole proprietorship and corporation, even though they may share common ownership by a corporation, even though they may share common ownership by a single individual.

CORPORATIONS -- DOING BUSINESS AS TWO SEPARATE CORPORATIONS -- REQUIREMENTS --SEPARATE BOOKS AND RECORDS. Because the taxpayer maintained one set of books and records, filed one federal income tax return, had one federal identification number, and supplied no evidence to substantiate its assertion that it was operating as two separate corporations, the taxpayer was found to be one corporation.

PENALTY -- DELINQUENT TAXES -- UNREGISTERED TAXPAYER -- TAX CREDITS OF AFFILIATED CORPORATIONS -- REDUCTION OF PENALTY. Where unregistered taxpayer is assessed penalty for delinquent taxes and its affiliated corporations have tax credits at the same time, the tax credits cannot offset the taxpayer's tax liability so as to reduce the penalty.Each corporation, though in an affiliated group, has separate tax liability. The law makes no provision for filing of consolidated tax returns or consolidated tax liability.

DEDUCTIONS -- JOINT VENTURES -- CRITERIA --RELATED ENTITIES. Where taxpayer's alleged joint ventures do not meet the criteria to establish that it had joint venture agreements with related entities, deductions taken for payments to those entities will not be recognized as nontaxable.