Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule explains how Washington's business and
occupation (B&O) tax, retail sales tax, and use tax applies to banks,
savings and loan associations, and other financial institutions. Readers may
want to refer to other rules for additional information, including the
following:
(a) WAC
458-20-19404 Financial
institutions-Income apportionment - For periods beginning January 1,
2016.
(b) WAC
458-20-19404A Financial
institutions-Income apportionment - For the period June 1, 2010, through
December 31, 2015.
(c) WAC
458-20-19402 Single factor
receipts apportionment-Generally.
(d) WAC
458-20-19401 Minimum nexus
thresholds for apportionable activities and selling activities.
(e) WAC
458-20-106 Casual or isolated
sales-Business reorganizations.
(f)
WAC 458-20-102 Reseller
permits.
(g) WAC
458-20-178 Use tax and the use of
tangible personal property.
(h) WAC
458-20-199 Accounting
methods.
(2)
Definitions. The following definitions apply to this rule:
(a)
"Affiliated," for purposes
of (e) of this subsection and subsection (3)(c) of this rule, means a person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with another person.
(b)
"Consolidated financial institution
group" means all financial institutions that are affiliated with each
other, as that term is defined in
RCW
82.04.29004.
(c)
"Consolidated financial
statement" means a consolidated financial institution group's
consolidated reports of condition and income filed with the Federal Financial
Institutions Examination Council, or successor agency.
(d)
"Control" means the
possession, directly or indirectly, of more than 50 percent of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting shares, by contract, or
otherwise.
(e)
"Financial
institution" has, for purposes of subsection (3)(c) of this rule, the
same meaning as "financial institution" in
RCW
82.04.29004:
(i) Any business entity chartered under
Titles 30A, 30B, 31, 32, and 33 RCW, or registered under the Federal Bank
Holding Company Act of 1956, as amended, or registered as a savings and loan
holding company under the Federal National Housing Act, as amended;
(ii) A national bank organized and existing
as a national bank association pursuant to the provisions of the National Bank
Act, 12 U.S.C. Sec.
21 et seq.;
(iii) A savings association or federal
savings bank as defined in the Federal Deposit Insurance Act,
12 U.S.C. Sec.
1813(b)(1);
(iv) Any bank or thrift institution
incorporated or organized under the laws of any state;
(v) Any corporation organized under the
provisions of 12 U.S.C. Sec.
611 through
631;
(vi) Any agency or branch of a foreign
depository as defined in 12
U.S.C. Sec. 3101 that is not exempt under
RCW
82.04.315;
(vii) A production credit association
organized under the Federal Farm Credit Act of 1933, all of whose stock held by
the Federal Production Credit Corporation has been retired;
(viii) Any business entity that receives
gross income taxable under
RCW
82.04.290, the voting interests in which are
more than 50 percent owned, directly or indirectly, by any person or business
entity described in (e)(i) through (vii) of this subsection other than a
company taxable under chapter 48.14 RCW;
(ix)
(A) A
business entity that receives more than 50 percent of its total gross income
for federal income tax purposes from finance leases. For purposes of this
subsection, a "finance lease" means a lease that meets two requirements:
(I) It is the type of lease permitted to be
made by national banks (see 12 U.S.C. Sec. 24(7) and
(10), Comptroller of the Currency
regulations, Part 23, leasing (added by
56 C.F.R. Sec.
28314, June 20, 1991, effective July 22,
1991), and Regulation Y of the Federal Reserve System 12 C.F.R. Part 225.25, as
amended; and
(II) It is the
economic equivalent of an extension of credit, i.e., the lease is treated by
the lessor as a loan for federal income tax purposes. In no event does a lease
qualify as an extension of credit where the lessor takes depreciation on such
property for federal income tax purposes.
(B) For the definition in (e)(ix) of this
subsection to apply, the average of the gross income in the current tax year
and immediately preceding two tax years must satisfy the more than 50 percent
requirement.
(x) Any
other person, other than an insurance general agent taxable under
RCW
82.04.280 (1)(e), an
insurance business exempt from the business and occupation tax under
RCW
82.04.320, a real estate broker taxable under
RCW
82.04.255, a securities dealer or
international investment management company taxable under
RCW
82.04.290(2), that receives
more than 50 percent of its gross receipts from activities that a person
described in (e)(ii) through (vii) and (ix) of this subsection is authorized to
transact.
(f)
"Gross income" has the same meaning as "gross income of the
business" in
RCW
82.04.080 and generally includes gross
proceeds of sales, compensation for services, gains realized from trading in
stocks, bonds, or other evidences of indebtedness, interest, discount, rents,
royalties, fees, commissions, dividends, and other emoluments however
designated, all without any deduction for expenses or losses.
(g)
"Specified financial
institution" means a financial institution that is a member of a
consolidated financial institution group that reported on its consolidated
financial statement for the previous calendar year annual net income of at
least $1,000,000,000, not including net income attributable to noncontrolling
interests, as the terms "net income" and "noncontrolling interest" are used in
the consolidated financial statement. See
RCW
82.04.29004.
(3)
B&O tax - Service and other
activities.
(a)
Gross
income. Generally, all gross income earned or received by a financial
institution is subject to B&O tax under the service and other activities
classification. By way of example, the following types of income are taxable
under the service and other activities classification when earned or received
by a financial institution: Interest; commissions; dividends; fees and carrying
charges; charges for bookkeeping or data processing; safety deposit box
rentals.
(b)
Deductions and
exemptions. The law allows certain deductions and exemptions from gross
income to arrive at the taxable amount (the amount upon which the B&O tax
is computed). Deductions that may apply to financial institutions include the
following:
(i) Dividends received by a parent
from its subsidiary corporations. See
RCW
82.04.4281.
(ii) Interest received on investments or
loans primarily secured by first mortgages or trust deeds on nontransient
residential properties. See
RCW
82.04.4292.
(iii) Interest received on obligations of the
state of Washington, its political subdivisions, and municipal corporations
organized pursuant to the laws thereof. See
RCW
82.04.4293. A deduction may also be taken for
interest received on direct obligations of the federal government, but not for
interest attributable to loans or other financial obligations on which the
federal government is merely a guarantor or insurer.
(iv) Gross proceeds from sales or rentals of
real estate.
(v) Amounts received
by a cooperative finance organization where the amounts are derived from loans
to rural electric cooperatives or other nonprofit or governmental providers of
utility services organized under the laws of this state. For this purpose,
"cooperative finance organization" means a nonprofit organization with the
primary purpose of providing, securing, or otherwise arranging financing for
rural electric cooperatives; and "rural electric cooperative" means a
nonprofit, customer-owned organization that provides utility services to rural
areas. This deduction takes effect July 1, 2023, and expires January 1, 2034.
See RCW
82.04.4276.
(c)
Additional tax. Beginning
January 1, 2020, in addition to other taxes imposed under chapter 82.04 RCW, an
additional tax is imposed on specified financial institutions. The additional
tax is equal to the gross income of the business taxable under the service and
other B&O tax classification, multiplied by a rate of 1.2 percent. See
RCW
82.04.29004.
(i) The department may require a person
believed to be a specified financial institution to disclose whether it is a
member of a consolidated financial institution group and, if so, to identify
all other members of its consolidated financial institution group.
(ii) The legislature has mandated that a
person failing to comply with the department's authority to require disclosure
as described in (c)(i) of this subsection is deemed to have intended to evade
tax payable to the state and is subject to the penalty in
RCW
82.32.090(7) on any tax due
under RCW
82.04.29004. For additional information, see
RCW
82.04.29004(4).
(4)
B&O tax - Retailing
activities.
(a)
In
general. Sales of tangible personal property and certain services are
defined as "retail sales" and are subject to B&O tax under the retailing
classification. Such sales are also subject to the retail sales tax, which the
seller must collect and remit to the department. Transactions taxable as sales
at retail are not subject to B&O tax under the service and other activities
classification.
(b)
Examples. Following are examples of transactions subject to the
retailing classification of the B&O tax and to the retail sales tax:
(i) Sales of meals or confections;
(ii) Sales of repossessed
merchandise;
(iii) Sales of
promotional material;
(iv) Leases
of tangible personal property;
(v)
Sales of check registers;
(vi)
Sales of coin banks;
(vii) Sales of
personalized checks;
(viii) Escrow
fees; and
(ix) Casual sales
(occasional sales of depreciated assets such as used furniture and office
equipment, subject to retail sales tax but deductible from the business and
occupation tax, see WAC
458-20-106).
(c)
Sales for resale. When a
financial institution buys tangible personal property for resale to its
customers without intervening use, the sales tax is not applicable. In this
case the financial institution should give the vendor a reseller permit to
document the wholesale nature of any sale as provided in WAC
458-20-102 (Reseller
permits).
(5)
Use
tax. The use tax complements the retail sales tax by imposing a tax of
like amount on the use of tangible personal property purchased or acquired
without payment of the retail sales tax. Thus, when office equipment or
supplies are purchased or leased from an unregistered out-of-state vendor who
does not collect the Washington state retail sales tax, the use tax must be
paid directly to the department. Space for the reporting of this tax will be
found on the excise tax return. For more information, see WAC
458-20-178.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
chapters
82.04,
82.08,
82.12 and
82.32 RCW. 10-06-069, §
458-20-146, filed 2/25/10, effective 3/28/10. Statutory Authority:
RCW
82.32.300. 83-07-032 (Order ET 83-15), §
458-20-146, filed 3/15/83; Order ET 70-3, § 458-20-146 (Rule 146), filed
5/29/70, effective 7/1/70.