Current through Register Vol. 24-06, March 15, 2024
(2) Apportionment and
allocation.
(a) Except as otherwise
specifically provided, a financial institution taxable under
RCW
82.04.290 and taxable in another state shall
allocate and apportion its apportionable income as provided in this section.
All gross income that is not includable in apportionable income shall be
allocated pursuant to the provisions of
chapter
82.04 RCW. A financial
institution organized under the laws of a foreign country, the Commonwealth of
Puerto Rico, or a territory or possession of the United States, except such
institutions that are exempt under
RCW
82.04.315, whose effectively connected income
(as defined under the Federal Internal Revenue Code) is taxable both in this
state and another state, other than the state in which it is organized, shall
allocate and apportion its gross income as provided in this section.
(b) The apportionment percentage is
determined by adding the taxpayer's receipts factor (as described in subsection
(4) of this section), property factor (as described in subsection (5) of this
section), and payroll factor (as described in subsection (6) of this section)
together and dividing the sum by three. If one of the factors is missing, the
two remaining factors are added together and the sum is divided by two. If two
of the factors are missing, the remaining factor is the apportionment
percentage. A factor is missing if both its numerator and denominator are zero,
but it is not missing merely because its numerator is zero.
(c) Each factor shall be computed according
to the method of accounting (cash or accrual basis) used by the taxpayer for
Washington state tax purposes for the taxable period. Persons should refer to
WAC 458-20-197 (When tax liability
arises) and WAC
458-20-199 (Accounting methods)
for further guidance on the requirements of each accounting method. Generally,
financial institutions are required to file returns on a monthly basis. To
enable financial institutions to more easily comply with the provisions of this
section, financial institutions will file returns using factors calculated
based on the most recent calendar year for which information is available. A
reconciliation shall be filed for each year within thirty days of the time that
the taxpayer files its federal income tax returns for that year, but not later
than October 30th of the following year. For example, for returns filed for
taxable activities occurring during calendar [year] 1998, a taxpayer would use
factors calculated based on its 1996 information. A reconciliation would be
filed for 1998 using factors based on 1998 information as soon as the
information was available to the taxpayer, but not later than thirty days after
the time federal income tax returns were due for 1998, or October 30, 1999. In
the case of consolidations, mergers, or divestitures, a taxpayer shall make the
appropriate adjustments to the factors to reflect its changed
operations.
(d) If the allocation
and apportionment provisions of this section do not fairly represent the extent
of its business activity in this state, the taxpayer may petition for, or the
department may require, in respect to all or any part of the taxpayer's
business activity:
(i) Separate
accounting;
(ii) A calculation of
tax liability utilizing the cost of doing business method outlined in
RCW
82.04.460(1);
(iii) The exclusion of any one or more of the
factors;
(iv) The inclusion of one
or more additional factors which will fairly represent the taxpayer's business
activity in this state; or
(v) The
employment of any other method to effectuate an equitable allocation and
apportionment of the taxpayer's receipts.
(3)
Definitions. The following
definitions apply throughout this section:
(a)
"Apportionable income" means the gross income of the business
taxable under
RCW
82.04.290, including income received from
activities outside this state if the income would be taxable under
RCW
82.04.290 if received from activities in this
state, less the exemptions and deductions allowable under
chapter
82.04 RCW.
(b)
"Billing address" means the
location indicated in the books and records of the taxpayer on the first day of
the taxable period (or on such later date in the taxable period when the
customer relationship began) as the address where any notice, statement and/or
bill relating to a customer's account is mailed.
(c)
"Borrower or credit card holder
located in this state" means:
(i) A
borrower, other than a credit card holder, that is engaged in a trade or
business which maintains its commercial domicile in this state; or
(ii) A borrower that is not engaged in a
trade or business or a credit card holder, whose billing address is in this
state.
(d)
"Commercial domicile" means:
(i)
The headquarters of the trade or business, that is, the place from which the
trade or business is principally managed and directed; or
(ii) If a taxpayer is organized under the
laws of a foreign country, or of the Commonwealth of Puerto Rico, or any
territory or possession of the United States, such taxpayer's commercial
domicile is deemed for the purposes of this section to be the state of the
United States or the District of Columbia from which such taxpayer's trade or
business in the United States is principally managed and directed. It is
presumed, subject to rebuttal by a preponderance of the evidence, that the
location from which the taxpayer's trade or business is principally managed and
directed is the state of the United States or the District of Columbia to which
the greatest number of employees are regularly connected or out of which they
are working, irrespective of where the services of such employees are
performed, as of the last day of the taxable period.
(e)
"Compensation" means wages,
salaries, commissions and any other form of remuneration paid to employees for
personal services that are included in such employee's gross income under the
Federal Internal Revenue Code. In the case of employees not subject to the
Federal Internal Revenue Code, e.g., those employed in foreign countries, the
determination of whether such payments would constitute gross income to such
employees under the Federal Internal Revenue Code shall be made as though such
employees were subject to the Federal Internal Revenue Code.
(f)
"Credit card" means credit,
travel or entertainment card.
(g)
"Credit card issuer's reimbursement fee" means the fee a taxpayer
receives from a merchant's bank because one of the persons to whom the taxpayer
has issued a credit card has charged merchandise or services to the credit
card.
(h)
"Department"
means the department of revenue.
(i)
"Employee" means, with
respect to a particular taxpayer, any individual who, under the usual
common-law rules applicable in determining the employer-employee relationship,
has the status of an employee of that taxpayer.
(j)
"Financial institution"
means:
(i) Any corporation or other business
entity chartered under Titles 30,
31,
32,
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. §§ 21 et
seq.;
(iii) A savings association
or federal savings bank as defined in the Federal Deposit Insurance Act, 12
U.S.C. § 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. §§ 611 to 631;
(vi) Any agency or branch of a foreign
depository as defined in 12 U.S.C. § 3101 that is not exempt under
RCW
82.04.315;
(vii) Any credit union, other than a state or
federal credit union exempt under state or federal law;
(viii) 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;
(ix) Any corporation or other business entity
who receives gross income taxable under
RCW
82.04.290, and whose voting interests are
more than fifty percent owned, directly or indirectly, by any person or
business entity described in (j)(i) through (viii) of this subsection other
than an insurance company liable for the insurance premiums tax under
RCW
48.14.020 or any other company taxable under
chapter 48.14 RCW;
(x) A
corporation or other business entity that derives more than fifty 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 which meets two
requirements:
(A) It is the type of lease
permitted to be made by national banks (see
12 U.S.C.
24(7),
12 U.S.C.
24(10), Comptroller of the
Currency-Regulations, Part 23-Leasing (added by 56 Fed. Reg. 28314, June 20,
1991, effective July 22, 1991), and Regulation Y of the Federal Reserve System
12 C.F.R.
225.25, as amended); and
(B) 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.
For this classification to apply, the average of the gross
income in the current tax year and immediately preceding two tax years must
satisfy the more than fifty percent requirement;
(xi) Any other person or business entity,
other than an insurance general agent taxable under
RCW
82.04.280(5), 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 derives
more than fifty percent of its gross receipts from activities that a person
described in (j)(ii) through (viii) and (x) of this subsection is authorized to
transact. For purposes of this subparagraph, the computation of apportionable
income shall not include income from nonrecurring, extraordinary
items;
(xii) The department is
authorized to exclude any person from the application of (j)(xi) of this
subsection upon such person proving, by clear and convincing evidence, that the
activity producing the receipts of such person is not in substantial
competition with those persons described in (j)(ii) through (viii) and (x) of
this subsection.
(k)
"Gross income of the business," "gross income," or "income" has
the same meaning as in
RCW
82.04.080 and means the value proceeding or
accruing by reason of the transaction of the business engaged in and includes
gross proceeds of sales, compensation for the rendition of 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 on account of the cost
of tangible property sold, the cost of materials used, labor costs, interest,
discount, delivery costs, taxes, or any other expense whatsoever paid or
accrued and without any deduction on account of losses.
(l)
"Gross rents" means the
actual sum of money or other consideration payable for the use or possession of
real property. "Gross rents" includes, but is not limited to:
(i) Any amount payable for the use or
possession of real property whether designated as a fixed sum of money or as a
percentage of receipts, profits or otherwise;
(ii) Any amount payable as additional rent or
in lieu of rent, such as interest, taxes, insurance, repairs or any other
amount required to be paid by the terms of a lease or other arrangement;
and
(iii) A proportionate part of
the cost of any improvement to real property made by or on behalf of the
taxpayer which reverts to the owner or grantor upon termination of a lease or
other arrangement. The amount to be included in gross rents is the amount of
amortization or depreciation allowed in computing the taxable income base for
the taxable period. However, where a building is erected on leased land by or
on behalf of the taxpayer, the value of the land is determined by multiplying
the gross rent by eight and the value of the building is determined in the same
manner as if owned by the taxpayer.
(iv) The following are not included in the
term "gross rents":
(A) Reasonable amounts
payable as separate charges for water and electric service furnished by the
lessor;
(B) Reasonable amounts
payable as service charges for janitorial services furnished by the
lessor;
(C) Reasonable amounts
payable for storage, provided such amounts are payable for space not designated
and not under the control of the taxpayer; and
(D) That portion of any rental payment which
is applicable to the space subleased from the taxpayer and not used by
it.
(m)
"Loan" means any extension of credit resulting from direct
negotiations between the taxpayer and its customer, and/or the purchase, in
whole or in part, of such extension of credit from another. "Loan" includes
participations, syndications, and leases treated as loans for federal income
tax purposes. "Loan" does not include: Properties treated as loans under
Section 595 of the Federal Internal Revenue Code; futures or forward contracts;
options; notional principal contracts such as swaps; credit card receivables,
including purchased credit card relationships; noninterest bearing balances due
from depository institutions; cash items in the process of collection; federal
funds sold; securities purchased under agreements to resell; assets held in a
trading account; securities; interests in a REMIC, or other mortgage-backed or
asset-backed security; and other similar items.
(n)
"Loan secured by real
property" means that fifty percent or more of the aggregate value of the
collateral used to secure a loan or other obligation was real property, when
valued at fair market value as of the time the original loan or obligation was
incurred.
(o)
"Merchant
discount" means the fee (or negotiated discount) charged to a merchant
by the taxpayer for the privilege of participating in a program whereby a
credit card is accepted in payment for merchandise or services sold to the card
holder.
(p)
"Participation" means an extension of credit in which an undivided
ownership interest is held on a pro rata basis in a single
loan or pool of loans and related collateral. In a loan participation, the
credit originator initially makes the loan and then subsequently resells all or
a portion of it to other lenders. The participation may or may not be known to
the borrower.
(q)
"Person" has the meaning given in
RCW
82.04.030.
(r)
"Principal base of
operations" with respect to transportation property means the place of
more or less permanent nature from which said property is regularly directed or
controlled. With respect to an employee, the "principal base of operations"
means the place of more or less permanent nature from which the employee
regularly:
(i) Starts his or her work and to
which he or she customarily returns in order to receive instructions from his
or her employer; or
(ii)
Communicates with his or her customers or other persons; or
(iii) Performs any other functions necessary
to the exercise of his or her trade or profession at some other point or
points.
(s)
"Real
property owned" and
"tangible personal property owned" mean
real and tangible personal property, respectively:
(i) On which the taxpayer may claim
depreciation for federal income tax purposes; or
(ii) Property to which the taxpayer holds
legal title and on which no other person may claim depreciation for federal
income tax purposes (or could claim depreciation if subject to federal income
tax).
Real and tangible personal property do not include coin,
currency, or property acquired in lieu of or pursuant to a foreclosure.
(t)
"Regular
place of business" means an office at which the taxpayer carries on its
business in a regular and systematic manner and which is continuously
maintained, occupied and used by employees of the taxpayer.
(u)
"State" means a state of the
United States, the District of Columbia, the Commonwealth of Puerto Rico, any
territory or possession of the United States or any foreign country.
(v)
"Syndication" means an
extension of credit in which two or more persons fund and each person is at
risk only up to a specified percentage of the total extension of credit or up
to a specified dollar amount.
(w)
"Taxable in another state" means either:
(i) That a taxpayer is subject in another
state to a gross receipts or franchise tax for the privilege of doing business,
a franchise tax measured by net income, a corporate stock tax (including a bank
shares tax), a single business tax, or an earned surplus tax, or any other tax
which is imposed upon or measured by gross or net income; or
(ii) That another state has jurisdiction to
subject the taxpayer to any of such taxes regardless of whether, in fact, the
state does or does not.
(x)
"Taxable period" means the
calendar year during which tax liability is incurred.
(y)
"Transportation property"
means vehicles and vessels capable of moving under their own power, such as
aircraft, trains, water vessels and motor vehicles, as well as any equipment or
containers attached to such property, such as rolling stock, barges, trailers
or the like.
(4)
Receipts factor.
(a)
General. Except as provided in subsection (7) of this section, the
receipts factor is a fraction, the numerator of which is the gross income of
the taxpayer in this state during the taxable period and the denominator of
which is the gross income of the taxpayer inside and outside this state during
the taxable period. The method of calculating receipts for purposes of the
denominator is the same as the method used in determining receipts for purposes
of the numerator.
(b)
Receipts from the lease of real property. The numerator of the
receipts factor includes income from the lease or rental of real property owned
by the taxpayer if the property is located within this state or income from the
sublease of real property if the property is located within this
state.
(c)
Receipts from the
lease of tangible personal property.
(i) Except as described in (c)(ii) of this
subsection, the numerator of the receipts factor includes income from the lease
or rental of tangible personal property owned by the taxpayer if the property
is located within this state when it is first placed in service by the
lessee.
(ii) Income from the lease
or rental of transportation property owned by the taxpayer is included in the
numerator of the receipts factor to the extent that the property is used in
this state. The extent an aircraft is used in this state and the amount of
income that is to be included in the numerator of this state's receipts factor
is determined by multiplying all the income from the lease or rental of the
aircraft by a fraction, the numerator of which is the number of landings of the
aircraft in this state and the denominator of which is the total number of
landings of the aircraft. If the extent of the use of any transportation
property within this state cannot be determined, then the property will be
deemed to be used wholly in the state in which the property has its principal
base of operations. A motor vehicle will be deemed to be used wholly in the
state in which it is registered.
(d)
Interest from loans secured by real
property.
(i) The numerator of the
receipts factor includes interest and fees or penalties in the nature of
interest from loans secured by real property if the property is located within
this state. If the property is located both within this state and one or more
other states, the income described in this subparagraph is included in the
numerator of the receipts factor if more than fifty percent of the fair market
value of the real property is located within this state. If more than fifty
percent of the fair market value of the real property is not located within any
one state, then the income described in this subparagraph shall be included in
the numerator of the receipts factor if the borrower is located in this
state.
(ii) The determination of
whether the real property securing a loan is located within this state shall be
made as of the time the original agreement was made and any and all subsequent
substitutions of collateral shall be disregarded.
(e)
Interest from loans not secured by
real property. The numerator of the receipts factor includes interest
and fees or penalties in the nature of interest from loans not secured by real
property if the borrower is located in this state.
(f)
Net gains from the sale of
loans. The numerator of the receipts factor includes net gains from the
sale of loans. Net gains from the sale of loans includes income recorded under
the coupon stripping rules of Section 1286 of the Federal Internal Revenue
Code.
(i) The amount of net gains (but not
less than zero) from the sale of loans secured by real property included in the
numerator is determined by multiplying such net gains by a fraction the
numerator of which is the amount included in the numerator of the receipts
factor pursuant to subsection (4)(d) and the denominator of which is the total
amount of interest and fees or penalties in the nature of interest from loans
secured by real property.
(ii) The
amount of net gains (but not less than zero) from the sale of loans not secured
by real property included in the numerator is determined by multiplying such
net gains by a fraction the numerator of which is the amount included in the
numerator of the receipts factor pursuant to (e) of this subsection and the
denominator of which is the total amount of interest and fees or penalties in
the nature of interest from loans not secured by real property.
(g)
Receipts from credit
card receivables. The numerator of the receipts factor includes interest
and fees or penalties in the nature of interest from credit card receivables
and income from fees charged to card holders, such as annual fees, if the
billing address of the card holder is in this state.
(h)
Net gains from the sale of credit
card receivables. The numerator of the receipts factor includes net
gains (but not less than zero) from the sale of credit card receivables
multiplied by a fraction, the numerator of which is the amount included in the
numerator of the receipts factor pursuant to (g) of this subsection and the
denominator of which is the taxpayer's total amount of interest and fees or
penalties in the nature of interest from credit card receivables and fees
charged to card holders.
(i)
Credit card issuer's reimbursement fees. The numerator of the
receipts factor includes all credit card issuer's reimbursement fees multiplied
by a fraction, the numerator of which is the amount included in the numerator
of the receipts factor pursuant to (g) of this subsection and the denominator
of which is the taxpayer's total amount of interest and fees or penalties in
the nature of interest from credit card receivables and fees charged to card
holders.
(j)
Receipts from
merchant discount. The numerator of the receipts factor includes
receipts from merchant discount if the commercial domicile of the merchant is
in this state. Such receipts shall be computed net of any cardholder charge
backs, but shall not be reduced by any interchange transaction fees or by any
issuer's reimbursement fees paid to another for charges made by its card
holders.
(k)
Loan servicing
fees.(i)
(A) The numerator of the receipts factor
includes loan servicing fees derived from loans secured by real property
multiplied by a fraction the numerator of which is the amount included in the
numerator of the receipts factor under (d) of this subsection and the
denominator of which is the total amount of interest and fees or penalties in
the nature of interest from loans secured by real property.
(B) The numerator of the receipts factor
includes loan servicing fees derived from loans not secured by real property
multiplied by a fraction the numerator of which is the amount included in the
numerator of the receipts factor under (e) of this subsection and the
denominator of which is the total amount of interest and fees or penalties in
the nature of interest from loans not secured by real property.
(ii) If the taxpayer receives loan
servicing fees for servicing either the secured or the unsecured loans of
another, the numerator of the receipts factor includes such fees if the
borrower is located in this state.
(l)
Receipts from services. The
numerator of the receipts factor includes receipts from services not otherwise
apportioned under this subsection if the service is performed in this state. If
the service is performed both inside and outside this state, the numerator of
the receipts factor includes receipts from services not otherwise apportioned
under this section, if a greater proportion of the activity producing the
receipts is performed in this state based on cost of performance.
(m)
Receipts from investment assets and
activities and trading assets and activities.
(i) Interest, dividends, net gains (but not
less than zero) and other income from investment assets and activities and from
trading assets and activities are included in the receipts factor. Investment
assets and activities and trading assets and activities include but are not
limited to: Investment securities; trading account assets; federal funds;
securities purchased and sold under agreements to resell or repurchase;
options; futures contracts; forward contracts; notional principal contracts
such as swaps; equities; and foreign currency transactions. With respect to the
investment and trading assets and activities described in (m)(i)(A) and (B) of
this subsection, the receipts factor includes the following:
(A) The receipts factor includes the amount
by which interest from federal funds sold and securities purchased under resale
agreements exceeds interest expense on federal funds purchased and securities
sold under repurchase agreements.
(B) The receipts factor includes the amount
by which interest, dividends, gains and other receipts from trading assets and
activities, including but not limited to assets and activities in the matched
book, in the arbitrage book, and foreign currency transactions, exceed amounts
paid in lieu of interest, amounts paid in lieu of dividends, and losses from
such assets and activities.
(ii) The numerator of the receipts factor
includes interest, dividends, net gains (but not less than zero) and other
receipts from investment assets and activities and from trading assets and
activities described in (m)(i) of this subsection that are attributable to this
state.
(A) The amount of interest, dividends,
net gains (but not less than zero) and other income from investment assets and
activities in the investment account to be attributed to this state and
included in the numerator is determined by multiplying all such income from
such assets and activities by a fraction, the numerator of which is the average
value of such assets which are properly assigned to a regular place of business
of the taxpayer within this state and the denominator of which is the average
value of all such assets.
(B) The
amount of interest from federal funds sold and purchased and from securities
purchased under resale agreements and securities sold under repurchase
agreements attributable to this state and included in the numerator is
determined by multiplying the amount described in (m)(i)(A) of this subsection
from such funds and such securities by a fraction, the numerator of which is
the average value of federal funds sold and securities purchased under
agreements to resell which are properly assigned to a regular place of business
of the taxpayer within this state and the denominator of which is the average
value of all such funds and such securities.
(C) The amount of interest, dividends, gains
and other income from trading assets and activities, including but not limited
to assets and activities in the matched book, in the arbitrage book and foreign
currency transactions, (but excluding amounts described in (m)(ii)(A) or (B) of
this subsection), attributable to this state and included in the numerator is
determined by multiplying the amount described in (m)(i)(B) of this subsection
by a fraction, the numerator of which is the average value of such trading
assets which are properly assigned to a regular place of business of the
taxpayer within this state and the denominator of which is the average value of
all such assets.
(D) For purposes
of this paragraph, average value shall be determined using the rules for
determining the average value of tangible personal property set forth in
subsection (5) of this section.
(iii) In lieu of using the method set forth
in (m)(ii) of this subsection, the taxpayer may elect, or the department may
require in order to fairly represent the business activity of the taxpayer in
this state, the use of the method set forth in this paragraph.
(A) The amount of interest, dividends, net
gains (but not less than zero) and other income from investment assets and
activities in the investment account to be attributed to this state and
included in the numerator is determined by multiplying all such income from
such assets and activities by a fraction, the numerator of which is the gross
receipts from such assets and activities which are properly assigned to a
regular place of business of the taxpayer within this state and the denominator
of which is the gross income from all such assets and activities.
(B) The amount of interest from federal funds
sold and purchased and from securities purchased under resale agreements and
securities sold under repurchase agreements attributable to this state and
included in the numerator is determined by multiplying the amount described in
(m)(i)(A) of this subsection from such funds and such securities by a fraction,
the numerator of which is the gross income from such funds and such securities
which are properly assigned to a regular place of business of the taxpayer
within this state and the denominator of which is the gross income from all
such funds and such securities.
(C)
The amount of interest, dividends, gains and other receipts from trading assets
and activities, including but not limited to assets and activities in the
matched book, in the arbitrage book and foreign currency transactions, (but
excluding amounts described in (m)(ii)(a)[A] or (B) of this subsection),
attributable to this state and included in the numerator is determined by
multiplying the amount described in (m)(i)(B) of this subsection by a fraction,
the numerator of which is the gross income from such trading assets and
activities which are properly assigned to a regular place of business of the
taxpayer within this state and the denominator of which is the gross income
from all such assets and activities.
(iv) If the taxpayer elects or is required by
the department to use the method set forth in (m)(iii) of this subsection, it
shall use this method on all subsequent returns unless the taxpayer receives
prior permission from the department to use, or the department requires a
different method.
(v) The taxpayer
has the burden of proving that an investment asset or activity or trading asset
or activity was properly assigned to a regular place of business outside of
this state by demonstrating that the day-to-day decisions regarding the asset
or activity occurred at a regular place of business outside this state. If the
day-to-day decisions regarding an investment asset or activity or trading asset
or activity occur at more than one regular place of business and one such
regular place of business is in this state and one such regular place of
business is outside this state, such asset or activity is considered to be
located at the regular place of business of the taxpayer where the investment
or trading policies or guidelines with respect to the asset or activity are
established. Such policies and guidelines are presumed, subject to rebuttal by
preponderance of the evidence, to be established at the commercial domicile of
the taxpayer.
(n)
Attribution of certain receipts to commercial domicile. All
receipts which would be assigned under this section to a state in which the
taxpayer is not taxable are included in the numerator of the receipts factor,
if the taxpayer's commercial domicile is in this state.
(5) Property factor.
(a)
General. Except as provided
in subsection (7) of this section, the property factor is a fraction, the
numerator of which is the average value of real property and tangible personal
property rented to the taxpayer that is located or used within this state
during the taxable period, the average value of the real and tangible personal
property owned by the taxpayer that is located or used within this state during
the taxable period, and the average value of the taxpayer's loans and credit
card receivables that are located within this state during the taxable period,
and the denominator of which is the average value of all such property located
or used inside and outside this state during the taxable period.
(b)
Value of property owned by the
taxpayer.(i) The value of real
property and tangible personal property owned by the taxpayer is the original
cost or other basis of such property for federal income tax purposes without
regard to depletion, depreciation or amortization.
(ii) Loans are valued at their outstanding
principal balance, without regard to any reserve for bad debts. If a loan is
charged-off in whole or in part for federal income tax purposes, the portion of
the loan charged off is not outstanding. A specifically allocated reserve
established under regulatory or financial accounting guidelines which is
treated as charged-off for federal income tax purposes shall be treated as
charged-off for purposes of this section.
(iii) Credit card receivables are valued at
their out-standing principal balance, without regard to any reserve for bad
debts. If a credit card receivable is charged-off in whole or in part for
federal income tax purposes, the portion of the receivable charged-off is not
outstanding.
(c)
Average value of property owned by the taxpayer. The average value
of property owned by the taxpayer is computed on an annual basis by adding the
value of the property on the first day of the taxable period and the value on
the last day of the taxable period and dividing the sum by two. If averaging on
this basis does not properly reflect average value, the department may require
averaging on a more frequent basis. The taxpayer may elect to average on a more
frequent basis. When averaging on a more frequent basis is required by the
department or is elected by the taxpayer, the same method of valuation must be
used consistently by the taxpayer with respect to property inside and outside
this state and on all subsequent returns unless the taxpayer receives prior
permission from the department or the department requires a different method of
determining average value.
(d)
Average value of real property and tangible personal property rented to
the taxpayer.(i) The average value of
real property and tangible personal property that the taxpayer has rented from
another and which is not treated as property owned by the taxpayer for federal
income tax purposes, shall be determined annually by multiplying the gross
rents payable during the taxable year by eight.
(ii) Where the use of the general method
described in this subsection results in inaccurate valuations of rented
property, any other method which properly reflects the value may be adopted by
the department or by the taxpayer when approved in writing by the department.
Once approved, such other method of valuation must be used on all subsequent
returns unless the taxpayer receives prior approval from the department or the
department requires a different method of valuation.
(e)
Location of real property and
tangible personal property owned by or rented to the taxpayer.
(i) Except as described in (e)(ii) of this
subsection, real property and tangible personal property owned by or rented to
the taxpayer is considered to be located within this state if it is physically
located, situated or used within this state.
(ii) Transportation property is included in
the numerator of the property factor to the extent that the property is used in
this state. The extent an aircraft will be deemed to be used in this state and
the amount of value that is to be included in the numerator of this state's
property factor is determined by multiplying the average value of the aircraft
by a fraction, the numerator of which is the number of landings of the aircraft
in this state and the denominator of which is the total number of landings of
the aircraft everywhere during the tax reporting period. If the extent of the
use of any transportation property within this state cannot be determined, then
the property is deemed to be used wholly in the state in which the property has
its principal base of operations. A motor vehicle is deemed to be used wholly
in the state in which it is registered. Thus, a motor vehicle will not be
considered as used in Washington if there is no requirement for the vehicle to
be licensed or registered in Washington.
(f)
Location of loans.
(i)
(A) A
loan is located within this state if it is properly assigned to a regular place
of business of the taxpayer within this state.
(B) A loan is properly assigned to the
regular place of business with which it has a majority of substantive contacts.
A loan assigned by the taxpayer to a regular place of business outside the
state shall be presumed to have been properly assigned if:
(I) The taxpayer has assigned, in the regular
course of its business, such loan on its records to a regular place of business
consistent with federal or state regulatory requirements;
(II) Such assignment on its records is based
upon substantive contacts of the loan to such regular place of business;
and
(III) The taxpayer uses said
records reflecting assignment of loans for the filing of all state and local
tax returns for which an assignment of loans to a regular place of business is
required.
(ii) The presumption of proper assignment of
a loan provided in (f)(i)(A) of this subsection may be rebutted by a
preponderance of the evidence, showing that the majority of substantive
contacts regarding such loan did not occur at the regular place of business to
which it was assigned on the taxpayer's records. When such presumption has been
rebutted, the loan is located within this state if: The taxpayer had a regular
place of business within this state at the time the loan was made; and the
taxpayer fails to show, by a preponderance of the evidence, that the majority
of substantive contacts regarding such loan did not occur within this state.
(A) If a loan is assigned by the taxpayer to
a place outside this state which is not a regular place of business, it is
presumed, subject to rebuttal on a preponderance of evidence, that the majority
of substantive contacts regarding the loan occurred within this state if, at
the time the loan was made the taxpayer's commercial domicile, as defined in
subsection (3)(d) of this section, was within this state.
(B) To determine the state in which the
majority of substantive contacts relating to a loan have occurred, the facts
and circumstances regarding the loan at issue shall be reviewed on a
case-by-case basis and consideration shall be given to such activities as the
solicitation, investigation, negotiation, approval and administration of the
loan. The terms "solicitation," "investigation," "negotiation," "approval" and
"administration" are defined as follows:
(I)
Solicitation. Solicitation is either active or passive. Active
solicitation occurs when an employee of the taxpayer initiates the contact with
the customer. Such activity is located at the regular place of business which
the taxpayer's employee is regularly connected with or working out of,
regardless of where the services of such employee were actually performed.
Passive solicitation occurs when the customer initiates the contact with the
taxpayer. If the customer's initial contact was not at a regular place of
business of the taxpayer, the regular place of business, if any, where the
passive solicitation occurred is determined by the facts in each
case.
(II)
Investigation. Investigation is the procedure whereby
employees of the taxpayer determine the credit worthiness of the customer as
well as the degree of risk involved in making a particular agreement. Such
activity is located at the regular place of business which the taxpayer's
employees are regularly connected with or working out of, regardless of where
the services of such employees were actually performed.
(III)
Negotiation.
Negotiation is the procedure whereby employees of the taxpayer and its customer
determine the terms of the agreement (e.g., the amount, duration, interest
rate, frequency of repayment, currency denomination and security required).
Such activity is located at the regular place of business which the taxpayer's
employees are regularly connected with or working out of, regardless of where
the services of such employees were actually performed.
(IV)
Approval. Approval is
the procedure whereby employees or the board of directors of the taxpayer make
the final determination whether to enter into the agreement. Such activity is
located at the regular place of business which the taxpayer's employees are
regularly connected with or working out of, regardless of where the services of
such employees were actually performed. If the board of directors makes the
final determination, such activity is located at the commercial domicile of the
taxpayer.
(V)
Administration. Administration is the process of managing the
account. This process includes bookkeeping, collecting the payments,
corresponding with the customer, reporting to management regarding the status
of the agreement and proceeding against the borrower or the security interest
if the borrower is in default. Such activity is located at the regular place of
business which oversees this activity.
(g)
Location of credit card
receivables. For purposes of determining the location of credit card
receivables, credit card receivables are treated as loans and are subject to
the provisions of (f) of this subsection.
(h)
Period for which properly assigned
loan remains assigned. A loan that has been properly assigned to a state
shall remain assigned to that state for the length of the original term of the
loan, absent any change in material fact. If the original term of the loan is
modified (extended or reduced), the loan may be properly assigned to another
state if the loan has a majority of substantive contact to a regular place of
business there.
(6)
Payroll factor.
(a)
General. Except as provided in subsection (7) of this section, the
payroll factor is a fraction, the numerator of which is the total amount paid
in this state during the taxable period by the taxpayer for compensation of
employees and the denominator of which is the total compensation paid both
inside and outside this state during the taxable period. The payroll factor
shall include all compensation paid to employees.
(b)
Compensation relating to
independent contractors. Payments made to any independent contractor or
any other person not properly classifiable as an employee is excluded from both
the numerator and denominator of the factor.
(c)
When compensation paid in this
state. Compensation is paid in this state if any one of the following
tests, applied consecutively, is met:
(i) The
employee's services are performed entirely within this state.
(ii) The employee's services are performed
both inside and outside the state, but the service performed without the state
is incidental to the employee's service within the state. The term "incidental"
means any service which is temporary or transitory in nature, or which is
rendered in connection with an isolated transaction.
(iii) If the employee's services are
performed both inside and outside this state, the employee's compensation will
be attributed to this state:
(A) If the
employee's principal base of operations is inside this state; or
(B) If there is no principal base of
operations in any state in which some part of the services are performed, but
the place from which the services are directed or controlled is in this state;
or
(C) If the principal base of
operations and the place from which the services are directed or controlled are
not in any state in which some part of the service is performed but the
employee's residence is in this state.
(7)
Alternative factor
calculation.
(a)
General.
A taxpayer may elect to use the alternative factors calculation as provided in
this subsection. The alternative factors calculation requires the use of all
three factors provided below. A taxpayer making such an election must keep
books and records sufficient to explain the calculations. Such an election,
once made, must continue for a full calendar year.
(b)
Receipts factor. The
alternative receipts factor may be calculated by excluding from both the
numerator and the denominator of the receipts factor as calculated in
subsection (4) of this section gross income attributable to items that would
not be subject to tax under the provisions of
RCW
82.04.290, whether from activities inside or
outside of the state. For example, a taxpayer making the election to use the
alternative factors calculation must exclude all receipts from the rental of
tangible personal property in Washington from the numerator and all receipts
from the rental of tangible personal property, wherever located, in the
denominator.
(c)
Property
factor. The alternative property factor may be calculated by excluding
from both the numerator and the denominator of the property factor as
calculated in subsection (5) of this section property, the income from which
would be considered wholesale or retail sales under
chapter
82.04 RCW, whether from
activities inside or outside the state. For example, a taxpayer making the
election to use the alternative factors calculation must exclude all tangible
personal property rented to customers in Washington from the numerator and all
tangible personal property rented to customers, wherever located, in the
denominator.
(d)
Payroll
factor. The alternative payroll factor may be calculated by excluding
from both the numerator and the denominator of the payroll factor as calculated
in subsection (6) of this section that amount paid to employees in connection
with earning gross income which would not be subject to tax under
RCW
82.04.290, whether earned from activities
inside or outside of the state. For example, a taxpayer making the election to
use the alternative factors calculation must exclude all compensation paid to
employees in connection with activities that are not taxable under
RCW
82.04.290 from the numerator and all
compensation paid to employees wherever located that would not be taxable under
RCW
82.04.290 if it had been earned in
Washington.
Statutory Authority:
RCW
82.32.300 and
82.01.060(2).
10-22-089, § 458-20-14601, filed 11/1/10, effective 12/2/10. Statutory
Authority:
RCW
82.04.460(2) and
82.32.300. 97-11-033, §
458-20-14601, filed 5/15/97, effective
7/1/97.