Washington: Exemptions Eliminated, New Nexus Standards Enacted, PLUS MORE!
Washington has enacted numerous changes affecting its Business and Occupation (B&O) tax laws, sales tax laws, etc. via the passing and signing of SB 6143. In regards to the B&O tax changes, here are a few highlights:
- Sec. 101 imposes a single-sales apportionment factor for royalty and service income.
- Sec. 102 states any person with substantial nexus in any tax year is deemed to have substantial nexus with the state for the following tax year.
- Sec. 103 creates an economic nexus standard. Service providers and companies receiving intangible income will want to review this standard closely.
- Sec. 104 creates a "factor presence" nexus standard. Meaning, a nonresident individual or business is deemed to have "substantial nexus" if it has more than $50,000 of property in the state, more than $50,000 of payroll in the state, and more than $250,000 of receipts from the state, OR at least 25% of the person's total property, total payroll or total receipts is in the state.
- Sec. 201 discusses how the Washington DOR will disregard or disallow certain types of tax avoidance transactions or arrangements based on economic substance. You may want to look this section over if you have been involved in any Washington tax planning over the years.
- Sec. 401 eliminates the direct seller representative exemption for out-of-state sellers. The bill also retroactively limits the exemption to consumer products for periods prior to May 1, 2010. Due to the Dot Foods case, Washington felt it was necessary to reinforce the intent of the legislature in enacting this exemption was to provide a narrow exemption for out-of-state businesses engaged in direct sales of consumer products, typically accomplished through in-home parties or door-to-door selling.
- Sec. 701 clarifies that amounts received by an individual from a corporation as compensation for serving as a member of the corporation's board of directors are subject to B&O tax under the services classification. One of the major business and occupation tax exemptions is provided in RCW 82.04.360 for income earned as an employee or servant as distinguished from income earned as an independent contractor. The legislature's intent in providing this exemption was to exempt employee wages from the business and occupation tax, but not to exempt income earned as an independent contractor. The legislature finds that corporate directors are not employees or servants of the corporation whose board they serve on, and therefore, are not entitled to a business and occupation tax exemption under RCW 82.04.360.
The bill also creates other changes related to sales tax, real estate excise tax, the first mortgage B&O tax deduction, B&O tax preferences for certain agricultural products, etc., etc., etc. For all of the details, go to the Bill.EFFECTIVE DATE
Most provisions are effective May 1, 2010 or June 1, 2010.Please contact me at firstname.lastname@example.org for assistance in determining how these changes impact your company.
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at email@example.com.
Because state and local taxes are deceptively simple and endlessly complicated.