Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-20 - Excise tax rules › Section 458-20-19402 - Single factor receipts apportionment-Generally

Current through Register Vol. 24-14, July 15, 2024
PART 1.
INTRODUCTION.
(101)
General.
RCW
			 82.04.462 establishes the method for
			 determining the portion of a person's apportionable income that is derived from
			 business activities performed within Washington and subject to business and
			 occupation (B&O) tax for periods after May 31, 2010. The express purpose of
			 the apportionment framework set out in
			 RCW
			 82.04.462 is to require businesses that "
			 earn significant income from Washington residents from providing services" to
			 "pay their fair share of the cost of services that this state renders and the
			 infrastructure it provides." Section 101, chapter 23, 1st special session,
			 2010.
(102)
Guide to this
			 rule.
(a) This rule is divided into
			 six parts, as follows:
1.
			 Introduction.
2. Overview of single
			 factor receipts apportionment.
3.
			 How to attribute receipts.
4.
			 Receipts factor.
5. How to
			 determine Washington taxable income.
6. Reporting
			 instructions.
(b)
(i) Examples included in this rule identify a
			 number of facts and then state a conclusion; they should be used only as a
			 general guide. The tax results of all situations must be determined after a
			 review of all the relevant facts and circumstances.
(ii) The examples in this rule assume all
			 gross income received by the taxpayer is from engaging in apportionable
			 activities.
(iii) When an example
			 uses a particular reasonable method of proportionally attributing the benefit
			 of a service, this does not preclude the existence of other reasonable methods
			 of proportionally attributing the benefit of a service depending on the
			 specific facts and circumstances of a taxpayer's
			 situation.
(103)
Scope of rule.
This rule
			 applies to the apportionment of income from engaging in apportionable
			 activities, except:
(a) To the apportionment
			 of income received by financial institutions and taxable under
			 RCW
			 82.04.290; and
(b) To the attribution of royalty income from
			 granting the right to use intangible property.
(104)
Separate accounting and cost
			 apportionment.
Separate accounting and cost apportionment methods are
			 not authorized for periods after May 31, 2010.
(105)
Other rules.
Taxpayers may
			 also find helpful information in the following rules:
(a) WAC
			 458-20-19401
Substantial
			 nexus.
This rule explains the standards for substantial nexus in
			 Washington beginning June 1, 2010.
(b) WAC
			 458-20-19403
Royalty
			 receipts attribution.
This rule describes the attribution of royalty
			 income for the purposes of single factor receipts apportionment for periods
			 after May 31, 2010.
(c) WAC
			 458-20-19404A and
			 458-20-19404
Single factor
			 receipts apportionment-Financial institutions.
These rules describe the
			 application of single factor receipts apportionment to certain income of
			 financial institutions, for tax liability incurred between June 1, 2010, and
			 December 31, 2015, and on or after January 1, 2016,
			 respectively.
(106)
Definitions.
The following definitions apply to this rule:
(a)
"Apportionable activities"
has the same meaning as used in WAC
			 458-20-19401 Minimum nexus
			 thresholds for apportionable activities.
(b)
"Apportionable income"
means
			 apportionable receipts less the deductions allowable under chapter 82.04
			 RCW.
(c)
"Apportionable
			 receipts"
means gross income of the business from engaging in
			 apportionable activities, including income received from apportionable
			 activities attributed to locations outside this state. "Apportionable receipts"
			 does not include amounts that are exempt under chapter 82.04 RCW.
(d)
"Business activities tax"
means a tax measured by the amount of, or economic results of, business
			 activity conducted in a state. The term includes taxes measured in whole or in
			 part on net income or gross income or receipts. The term also includes personal
			 income taxes or corporate income taxes if the gross income from apportionable
			 activities is included in the gross income subject to the personal income tax
			 or corporate income tax, as the case may be. The term "business activities tax"
			 does not include retail sales tax, use tax, or similar transaction taxes,
			 imposed on the sale or acquisition of goods or services, whether or not labeled
			 as a gross receipts tax or a tax imposed on the privilege of doing
			 business.
(e)
"Customer"
means a person or entity to whom the taxpayer makes a
			 sale, grants the right to use intangible property, or renders services or from
			 whom the taxpayer otherwise directly or indirectly receives gross income of the
			 business.
(i) If the taxpayer engages in
			 apportionable activities for the benefit of a third party, the term "customer"
			 means the third-party beneficiary.
Example 1.
Assume a parent purchases apportionable
				tax preparation services for their child. The child is the customer for the
				purpose of determining where the benefit is received.
(ii) The department will consider the terms
			 of the contract and all other books and records as a whole to determine whether
			 a "third-party beneficiary" relationship exists. A third-party beneficiary
			 exists if the contracting parties intend that the taxpayer will assume a direct
			 obligation to the intended beneficiary at the time they enter into a contract.
			 This element of "intent" is met if performance under the contract would
			 necessarily and directly benefit the third party.
(iii) Where the taxpayer does not render
			 services under a contract or otherwise does not provide the department with a
			 contract, the department will proceed, in such manner as it may deem best, to
			 obtain facts and information to identify the customer.
(f)
"Reasonable method of
			 proportionally attributing"
means a method of determining where the
			 benefit of an activity is received and where the receipts are attributed that
			 is uniform, consistent, fair, and does not distort the taxpayer's
			 market.
(g)
"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 or political subdivision of a foreign country.
(h)
(i)
"Taxable in another state"
means either:
(A) The taxpayer is subject to a business
			 activities tax by another state on the taxpayer's income received from engaging
			 in apportionable activity; or
(B)
			 The taxpayer is not subject to a business activities tax by another state on
			 the taxpayer's income received from engaging in apportionable activity, but the
			 taxpayer meets the substantial nexus thresholds described in WAC 458-20-19401
			 for that state.
(ii) The
			 determination of whether a taxpayer is taxable in a foreign country or
			 political subdivision of a foreign country is made at the country or political
			 subdivision level.
Example 2.
Assume Taxpayer A is subject to a
				business activity tax in State X of Mexico (e.g., Taxpayer pays tax to State
				X), but nowhere else in Mexico. Also, assume that Taxpayer A is not subject to
				any national business activity tax in Mexico and does not meet the substantial
				nexus thresholds described in WAC
				458-20-19401 for Mexico as a
				whole. In this case, Taxpayer is "taxable in another state," namely the Mexican
				state of State X, but not taxable in any other portion or any other state of
				Mexico.
Example 3.
Assume Taxpayer B is not subject to any
				business activity taxes in Mexico, but satisfies the substantial nexus
				thresholds described in WAC
				458-20-19401 for Mexico as a
				whole. Taxpayer B is "taxable in another state," namely the foreign country of
				Mexico.