ORD 2012-20 RELATING TO BUSINESS OCCUPATION TAXORDINANCE NO. 2012 -20
AN ORDINANCE of the City of Bainbridge Island, Washington, relating
to business and occupation tax, repealing Chapter 5.05 of the Bainbridge
Island Municipal_ Code_ and adopting a substitute Chapter 5.05 in its place.
WHEREAS, RCW 35.21.710 authorizes cities to levy and collect a tax not to exceed two -
tenths of one percent (.2 %) on the gross income of persons doing business within the city; and
WHEREAS, in accordance with State law requirements, the City adopted the model
business and occupation tax ordinance on October 27, 2004 pursuant to Ordinance No. 2004 -16;
and
WHEREAS, the model ordinance was amended in 2008, but the City did not adopt the
changes; and
WHEREAS, during the summer of 2012, a workgroup of cities, in consultation with the
business community, again revised the model ordinance to include changes to RCW 35.102 and
to reflect other changes made to state law since 2008; and
WHEREAS, all cities with local business and occupation taxes have to adopt the mandatory
portions of the changes to the model ordinance by the end of the year, to take effect by
January 1, 2013; and
WHEREAS, the City wishes to revise its Code to adopt the amended model ordinance;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF BAINBRIDGE
ISLAND, WASHINGTON, DOES ORDAIN AS FOLLOWS:
Section 1. Chapter 5.05 of the Bainbridge Island Municipal Code is hereby repealed in its
entirety, and the following substitute Chapter 5.05 is adopted in its place to read as follows:
Chapter 5.05
BUSINESS AND OCCUPATION TAX
5.05.010 Purpose. This section implements Washington Constitution Article XI,
Section 12 and RCW 35A.82.020 and 35A.11.020, which give municipalities the
authority to license for revenue. In the absence of a legal or constitutional prohibition,
municipalities have the power to define taxation categories as they see fit in order to
respond to the unique concerns and responsibilities of local government. It is intended
that this chapter be as uniform as possible among the various municipalities and
consistent with the mandatory requirements of Chapter 35.102 RCW for municipalities.
Uniformity with provisions of state tax laws should not be presumed, and references in
this section to statutory or administrative rule changes do not mean state tax statutes or
rules promulgated by the Department of Revenue.
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5.05.020 Exercise of revenue license power. The provisions of this chapter shall be
deemed an exercise of the power of the city to license for revenue. The provisions of this
chapter are subject to periodic statutory or administrative rule changes or judicial
interpretations of the ordinances or rules. The responsibility rests with the licensee or
taxpayer to reconfirm tax computation procedures and remain in compliance with the city
code.
5.05.028 Administrative Provisions. The administrative provisions contained in chapter
5.06 shall be fully applicable to the provisions of this chapter except as expressly stated
to the contrary herein.
5.05.030 Definitions. In construing the provisions of this chapter, the tollowing
definitions shall be applied. Words in the singular number shall include the plural, and
the plural shall include the singular.
A. Definitions, A -I.
"Advance," "reimbursement."
1. "Advance" means money or credits received by a taxpayer from a customer or
client with which the taxpayer is to pay costs or fees on behalf of the customer or
client.
2. "Reimbursement" means money or credits received from a customer or client to
repay the taxpayer for money or credits expended by the taxpayer in payment of
costs or fees of the customer or client.
"Agricultural product ,•• ..farmer."
1. "Agricultural product" means any product of plant cultivation or animal
husbandry including, but not limited to: A product of horticulture, grain
cultivation, vermiculture, viticulture, or aquaculture as defined in RCW
15.85.020; plantation Christmas trees; turf, or any animal including but not
limited to an animal that is a private sector cultured aquatic product as defined in
RCW 15.85.020, or a bird, or insect, or the substances obtained from such an
animal. "Agricultural product" does not include animals intended to be pets.
2. "Farmer" means any person engaged in the business of growing or producing,
upon the person's own lands or upon the lands in which the person has a present
right of possession, any agricultural product whatsoever for sale. "Farmer" does
not include a person using such products as ingredients in a manufacturing
process, or a person growing or producing such products for the person's own
consumption. "Farmer" does not include a person selling any animal or substance
obtained therefrom in connection with the person's business of operating a
stockyard or a slaughter or packing house. "Farmer" does not include any person
in respect to the business of taking, cultivating, or raising timber.
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"Artistic or cultural organization ". As used in this chapter:
1. The term "artistic or cultural organization" means an organization which is
organized and operated_ exclusively for the purpose of providing artistic or
cultural exhibitions, presentations, or performances or cultural or art education
programs, as defined in subsection (10) of this section, for viewing or attendance
by the general public.
2. The organization must be a not - for -profit corporation under chapter 24.03 RCW.
3. The organization must be managed by a governing board of not less than eight (8)
individuals none of whom is a paid employee of the organization or by a
corporation sole under chapter 24.12 RCW.
4. No part of its income may be paid directly or indirectly to its members,
stockholders, officers, directors, or trustees except in the form of services
rendered by the corporation in accordance with its purposes and bylaws.
5. Salary or compensation paid to its officers and executives must be only for actual
services rendered, and at levels comparable to the salary or compensation of like
positions within the state.
6. Assets of the corporation must be irrevocably dedicated to the activities for which
the exemption is granted and, on the liquidation, dissolution, or abandonment by
the corporation, may not inure directly or indirectly to the benefit of any member
or individual except a non -profit organization, association, or corporation which
also would be entitled to the exemption.
7. The corporation must be duly licensed or certified when licensing or certification
is required by law or regulation.
8. The amounts received that qualify for exemption must be used for the activities
for which the exemption is granted.
9. Services must be available regardless of race, color, national origin, ancestry,
religion, age, sex, marital status, sexual orientation, Vietnam or disabled veteran
status, or the presence of any mental or physical disability.
10. The term "artistic or cultural exhibitions, presentations, or performances or
cultural or art education programs" is limited to:
a. An exhibition or presentation
of works of art or
objects of
cultural
or
historical significance, such as
those commonly
displayed
in art or
history
museums;
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b. A musical or dramatic performance or series of performances; or
c. An educational seminar or program, or series of such programs, offered by the
organization to the general public on an artistic, cultural, or historical subject.
"Business."
"Business" includes all activities engaged in
with the
object of gain, benefit,
or advantage
.,
to the taxpayer or to another person or ciass,
directly
or indirectly.
"Business and occupation tax." "Business and occupation tax" or "gross receipts tax"
means a tax imposed on or measured by the value of products, the gross income of the
business, or the gross proceeds of sales, as the case may be, and that is the legal liability
of the business.
"Commercial or industrial use." "Commercial or industrial use" means the following
tIses of nrncIIIcts inl ibv- nrnhtc� by the etrrtnnr mamaet,rr therenf; � x l
1. Any use as a consumer;
2. The tnariufaeturing of products including articles, substances or commodities.
"Competitive telephone service." "Competitive telephone service" means the providing
by any person of telecommunications equipment or apparatus, or service related to that
equipment or apparatus such as repair or maintenance service, if the equipment or
apparatus is of a type which can be provided by persons that are not subject to regulation
as telephone companies under Title 80 RCW and for which a separate charge is made.
"Consumer." "Consumer" means the following:
1. Any person who purchases, acquires, owns, holds, or uses any tangible or
intangible personal property irrespective of the nature of the person's business and
including, among others, without limiting the scope hereof, persons who install,
repair, clean, alter, improve, construct, or decorate real or personal property of or
for a consumer other than for the purpose of:
a, resale as tangible or intangible personal property in the regular course of
business;
b. incorporating such property as an ingredient or component of real or personal
property when installing, repairing, cleaning, altering, imprinting, improving,
constructing, or decorating such real or personal property of or for consumers;
c. incorporating such property as an ingredient or component of a new product
or as a chemical used in processing a new product when the primary purpose
of such chemical is to create a chemical reaction directly through contact with
an ingredient of a new product; or
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d. consuming the property in producing fer-r-osilicon which is subsequently used
in producing magnesium for sale, if the primary purpose of such property is to
create a chemical reaction directly through contact with an ingredient of
ferrosilicon;
2. Any person engaged in any business activity taxable under section 5.05.050
(1)(g);
3. Any person who purchases, acquires, or uses any competitive telephone service as
herein defined, other than for resale in the regular course of business;
4. Any person who purchases, acquires, or uses any personal, business, or
professional service defined as a retail sale or retail service in section 5.05.030C,
other than for resale in the regular course of business;
5. Any person who is an end user of software;
6. Any person engaged in the business of "public road construction" in respect to
tangible personal property when that person incorporates the tangible personal
property as an ingredient or component of a publicly -owned street, place, road,
highway, easement, right -of -way, mass public transportation terminal or parking
facility, bridge, tunnel, or trestle by installing, placing or spreading the property in
or upon the right -of -way of a publicly -owned street, place, road, highway,
easement, bridge, tunnel, or trestle or in or upon the site of a publicly -owned mass
public transportation terminal or parking facility;
7. Any person who is an owner, lessee or has the right of possession to or an
easement in real property which is being constructed, repaired, decorated,
improved, or otherwise altered by a person engaged in business;
8. Any person who is an owner, lessee, or has the right of possession to personal
property which is being constructed, repaired, improved, cleaned, imprinted, or
otherwise altered by a person engaged in business;
9. Any person engaged in "government contracting." Any such person shall be a
consumer within the meaning of this subsection in respect to tangible personal
property incorporated into, installed in, or attached to such building or other
structure by such person.
Nothing contained in this or any other subsection of this section shall be construed to
modify any other definition of "consumer."
"Delivery" means the transfer of possession of tangible personal property between the
seller and the buyer or the buyer's representative. Delivery to an employee of a buyer is
considered delivery to the buyer. Transfer of possession of tangible personal property
occurs when the buyer or the buyer's representative first takes physical control of the
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property or exercises dominion and control over the property. Dominion and control
means the buyer has the ability to put the property to the buyer's own purposes. It means
the buyer or the buyer's representative has made the final decision to accept or reject the
property, and the seller has no further right to possession of the property and the buyer
has no right to return the property to the seller, other than under a warranty contract. A
buyer does not exercise dominion and control over tangible personal property merely by
r r .,
arranging for shipment or me property from the seller to itself. A buyer's representative
is a person, other than an employee of the buyer, who is authorized in writing by the
buyer to receive tangible personal property and take dominion and control by making the
final decision to accept or reject the property. Neither a shipping company nor a seller
can serve as a buyer's representative. It is immaterial where the contract of sale is
negotiated or where the buyer obtains title to the property. Delivery terms and other
provisions of the Uniform Commercial Code (Title 62A RCW) do not determine when or
where delivery of tangible personal property occurs for purposes of taxation.
"Director." "Director" means the Finance Director of the city or any officer, agent or
employee of the city designated to act on the Director's behalf.
Digiiai aut0H-1ateu seYvice, " "digital code," and "digital goods" have the same
meaning as in RCW 82.04.192.
"Digital products" means digital goods, digital codes, digital automated services, and
the services described in RCW 82.04.050(2)(g) and (6)(b).
"Eligible gross receipts tax." The term "eligible gross receipts tax" means a tax which:
1. Is imposed on the act or privilege of engaging in business activities within
section 5.05.050; and
2. Is measured by the gross volume of business, in terms of gross receipts and is
not an income tax or value added tax; and
3. Is not, pursuant to law or custom, separately stated from the sales price; and
4. Is not a sales or use tax, business license fee, franchise fee, royalty or
severance tax measured by volume or weight, or concession charge, or
payment for the use and enjoyment of property, property right or a privilege;
and
5. Is a tax imposed by a local jurisdiction, whether within or without the State of
Washington, and not by a Country, State, Province, or any other non -local
jurisdiction above the County level.
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"Engaging in business"
1. The term "engaging in business" means commencing, conducting, or
continuing in business, and also the exercise of corporate or franchise powers,
as well as liquidating a business_ when the liquidators thereof hold themselves
out to the public as conducting such business.
2. This section sets forth examples of activities that constitute engaging in
business in the city, and establishes safe harbors for certain of those activities
so that a person who meets the criteria may engage in de minimus business
activities in the city without having to register and obtain a business license or
pay city business and occupation taxes. The activities listed in this section are
illustrative only and are not intended to narrow the definition of "engaging in
business" in subsection (1). If an activity is not listed, whether it constitutes
engaging in business in the city shall be determined by considering all the
facts and circumstances and applicable law.
3. Without being all inclusive, any one of the following activities conducted
within the city by a person, or its employee, agent, representative, independent
contractor, broker or another acting on its behalf constitutes engaging in
business and requires a person to register and obtain a business license.
a. Owning, renting, leasing, maintaining, or having the right to use, or using,
tangible personal property, intangible personal property, or real property
permanently or temporarily located in the city.
b. Owning, renting, leasing, using, or maintaining, an office, place of
business, or other establishment in the city.
c. Soliciting sales.
d. Making repairs or providing maintenance or service to real or tangible
personal property, including warranty work and property maintenance.
e. Providing technical assistance or service, including quality control,
product inspections, warranty work, or similar services on or in connection
with tangible personal property sold by the person or on its behalf.
f. Installing, constructing, or supervising installation or construction of, real
or tangible personal property.
g. Soliciting, negotiating, or approving franchise, license, or other similar
agreements.
h. Collecting current or delinquent accounts.
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i. Picking up and transporting tangible personal property, solid waste,
construction debris, or excavated materials.
j. Providing disinfecting and pest control services, employment and labor
pool services, home nursing care, janitorial services, appraising, landscape
architectural services, security system services, surveying, and real estate
services including the 'listing of homes and managing real property.
k. Rendering professional services such as those provided by accountants,
architects, attorneys, auctioneers, consultants, engineers, professional
athletes, barbers, baseball clubs and other sports organizations, chemists,
consultants, psychologists, court reporters, dentists, doctors, detectives,
laboratory operators, teachers, veterinarians.
1 IN/leetino customers
or notential
�nct�moro
ivAVi loa
• ++b
with u
V♦ rV wubiui
vuJbV U1�1 J,
iviWi� ,,l. s „r
V Vl�ll VYlll+ll 11V JU1L.J Vl
orders are
solicited at the
meetings.
m. Training or recruiting agents, representatives, independent contractors,
brokers or others, domiciled or operating on a job in the city, acting on its
behalf or for customers or potential customers.
n. Investigating, resolving, or otherwise assisting in resolving customer
complaints.
o. In -store stocking or manipulating products or goods, sold to and owned by
a customer, regardless of where sale and delivery of the goods took place.
p. Delivering goods in vehicles owned, rented, leased, used, or maintained by
the person or another acting on its behalf.
q. Accepting or executing a contract with the city, irrespective of whether
goods or services are delivered within or without the city, or whether the
person's office or place of business is within or without the city.
4. If a person, or its employee, agent, representative, independent contractor,
broker or another acting on the person's behalf, engages in no other activities
in or with the city but the following, it need not register and obtain a business
license and pay tax.
a. Meeting with suppliers of goods and services as a customer.
b. Meeting with government representatives in their official capacity, other
than those performing contracting or purchasing functions.
c. Attending meetings, such as board meetings, retreats, seminars, and
conferences, or other meetings wherein the person does not provide
E
training in connection with tangible personal property sold by the person
or on its behalf. This provision does not apply to any board of director
member or attendee engaging in business such as a member of a board of
directors who attends a board meeting.
d. Renting tangible or intangible property as a customer when the property is
not used in the city.
e. Attending, but not participating in a "trade show" or "multiple vendor
events ". Persons participating at a trade show shall review the city's trade
show or multiple vendor event ordinances.
f. Conducting advertising through the mail.
g. Soliciting sales by phone from a location outside the city.
5. A seller located outside the city merely delivering goods into the city by
means of common carrier is not required to register and obtain a business
license, provided that it engages in no other business activities in the city.
Such activities do not include those in subsection (4).
The city expressly intends that engaging in business include any activity
sufficient to establish nexus for purposes of applying the tax under the law
and the constitutions of the United States and the State of Washington. Nexus
is presumed to continue as long as the taxpayer benefits from the activity that
constituted the original nexus generating contact or subsequent contacts.
"Extracting." "Extracting" in the activity engaged in by an extractor and is reportable
under the extracting classification.
"Extractor." "Extractor" means every person who from the person's own land or from
the land of another under a right or license granted by lease or contract, either directly or
by contracting with others for the necessary labor or mechanical services, for sale or for
commercial or industrial use, mines, quarries, takes or produces coal, oil, natural gas, ore,
stone, sand, gravel, clay, mineral or other natural resource product; or fells, cuts or takes
timber, Christmas trees, other than plantation Christmas trees, or other natural products;
or takes fish, or takes, cultivates, or raises shellfish, or other sea or inland water foods or
products. "Extractor" does not include persons performing under contract the necessary
labor or mechanical services for others; or persons meeting the definition of farmer.
"Extractor for Hire" "Extractor for hire" means a person who performs under contract
necessary labor or mechanical services for an extractor.
"Gross income of the business." "Gross income of the business" 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
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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.
"Gross proceeds of sales." Oross proceeds of sales" means the value proceeding or
accruing from the sale of tangible personal property, digital goods, digital codes, digital
automated services or for other services rendered, without any deduction on account of
the cost of property sold, the cost of materials used, labor costs, interest, discount paid,
delivery costs, taxes, or any other expense whatsoever paid or accrued and without any
deduction on account of losses.
"In this City," "within this City." "In this city " or "within this city" includes all
federa eac lying Jthn the ^Flate L' mthtl ui iii .i c Xv eXy iiis o e ciy.
B. Definitions, J -R.
"Manufacturing." "Manufacturing" means the activity conducted by a manufacturer and
is reporte_,d tinder the manufacturing elncgifwation,
"Manufacturer," "to manufacture."
1. "Manufacturer" means every person who, either directly or by contracting with
others for the necessary labor or mechanical services, manufactures for sale or for
commercial or industrial use from the person's own materials or ingredients any
products. When the owner of equipment or facilities furnishes, or sells to the
customer prior to manufacture, materials or ingredients equal to less than twenty
percent (20 %) of the total value of all materials or ingredients that become a part
of the finished product, the owner of the equipment or facilities will be deemed to
be a processor for hire and not a manufacturer. A business not located in this city
that is the owner of materials or ingredients processed for it in this city by a
processor for hire shall be deemed to be engaged in business as a manufacturer in
this city.
2. "To manufacture" means all activities of a commercial or industrial nature
wherein labor or skill is applied, by hand or machinery, to materials or ingredients
so that as a result thereof a new, different or useful product is produced for sale or
commercial or industrial use, and shall include:
a, the production of special made or custom made articles;
b. the production of dental appliances, devices, restorations, substitutes, or other
dental laboratory products by a dental laboratory or dental technician;
c. crushing and /or blending of rock, sand, stone, gravel, or ore; and
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d. the producing of articles for sale, or for commercial or industrial use from raw
materials or prepared materials by giving such materials, articles, and
substances of trade or commerce new forms, qualities, properties or
combinations including, _ but not limited to, such activities as _making,
fabricating, processing, refining, mixing, slaughtering, packing, aging, curing,
mild curing, preserving, canning, and the preparing and freezing of fresh fruits
and vegetables.
"To manufacture" shall not include the production of digital goods or the production
of computer software if the computer software is delivered from the seller to the
purchaser by means other than tangible storage media, including the delivery by use
of a tangible storage media where the tangible storage media is not physically
transferred to the purchaser.
"Newspaper," "magazine," "periodical."
"Newspaper" means a publication offered for sale regularly at stated intervals at least
once a week and printed on newsprint in tabloid or broadsheet format folded loosely
together without stapling, glue, or any other binding of any kind.
"Magazine, or periodical" means any printed publication, other than a newspaper, issued
and offered for sale regularly at stated intervals at•.least once every three (3) months,
including any supplement or special edition of the publication. Any publication meeting
this definition qualifies regardless of its content.
"Non- profit corporation or non - profit organization." "Non -profit corporation or non-
profit organization" means a corporation or organization in which no part of the income
can be distributed to its members, directors, or officers and that holds a current tax
exempt status as provided under Sec. 501(c)(3) of the Internal Revenue Code, as
hereafter amended, or is specifically exempted from the requirement to apply for its tax
exempt status under Sec. 501(c)(3) of the Internal Revenue Code, as hereafter amended.
Where the term non -profit organization is used, it is meant to include a non -profit
corporation.
"Office ", "place of business." "Office" or "place of business" means a fixed location or
permanent facility where the regular business of the person is conducted and which is
either owned by the person or over which the person exercises legal dominion and
control. The regular business of the person is presumed conducted at a location:
1. Whose address the person uses as its business mailing address; and
2. Where the place of primary use is shown on a telephone billing or a location
containing a telephone line listed in a public telephone directory or other similar
publication under the business narne; and
3. Where the person holds itself out to the general public as conducting its regular
business through signage or other means; and
4. Where the person is required to obtain any appropriate state and local business
license or registration unless they are exempted by law from such requirement.
A vehicle such as a pick -up, van, truck, boat or other motor vehicle is not an office or
place of business. A post office box is not an office or place of business.
If a person has an office or place of business, the person's home is not an office or place
of business unless it meets the criteria for office or place of business above. If a person
has no office or place of business, the person's home or apartment within the city will be
deemed the place of business.
"Person." "Person" means any individual, receiver, administrator, executor, assignee,
triN�teP in hanl`r'.,'.ptey, trNJL, estat °v, llr nl, eo -p'uii ner�hlp,�vilit Jeliiure, ciub, Colilpany,
joint stock company, business trust, municipal corporation, political subdivision of the
State of Washington, corporation, limited liability company, association, society, or any
group of individuals acting as a unit, whether mutual, cooperative, fraternal, non - profit,
or otherwise and the 'united States or any instrumentality thereof.
"Precious metal bullion or monetized bullion." "Precious metal bullion" means any
precious metal which has been put through a process of smelting or refining, including,
but not limited to, gold, silver, platinum, rhodium, and palladium, and which is in such
state or condition that its value depends upon its contents and not upon its form. For
purposes of this section, "monetized bullion" means coins or other forms of money
manufactured from gold, silver, or other metals and heretofore, now, or hereafter used as
a medium of exchange under the laws of this state, the United States, or any foreign
nation, but does not include coins or money sold to be manufactured into jewelry or
works of art.
"Processing for hire." "Processing for hire" means the performance of labor and
mechanical services upon materials or ingredients belonging to others so that as a result a
new, different or useful product is produced for sale, or commercial or industrial use. A
processor for hire is any person who would be a manufacturer if that person were
performing the labor and mechanical services upon that person's own materials or
ingredients. If a person furnishes, or sells to the customer prior to manufacture, materials
or ingredients equal to twenty percent (20 %) or more of the total value of all materials or
ingredients that become a part of the finished product the person will be deemed to be a
manufacturer and not a processor for hire.
"Product ", "Byproduct."
"Product" means tangible personal property, including articles, substances, or
commodities created, brought forth, extracted, or manufactured by human or mechanical
effort.
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"Byproduct" means any additional product, other than the principal or intended product,
which results from extracting or manufacturing activities and which has a market value,
without regard to whether or not such additional product was an expected or intended
result of the extracting or manufacturing activities.
"Retailing." "Retailing" means the activity of engaging in making sales at retail and is
reported under the retailing classification.
Retail Service. "Retail service" shall include the sale of or charge made for personal,
business, or professional services including amounts designated as interest, rents, fees,
admission, and other service emoluments however designated, received by persons
engaging in the following business activities:
1. Amusement and recreation services including but not limited to golf, pool,
billiards, skating, bowling, swimming, bungee jumping, ski lifts and tows,
basketball, racquet ball, handball, squash, tennis, batting cages, day trips for
sightseeing purposes, and others, when provided to consumers. "Amusement and
recreation services" also include the provision of related facilities such as
basketball courts, tennis courts, handball courts, swimming pools, and charges
made for providing the opportunity to dance. The term "amusement and
recreation services" does not include instructional lessons to learn a particular
activity such as tennis lessons, swimming lessons, or archery lessons.
2. Abstract, title insurance, and escrow services;
3. Credit bureau services;
4. Automobile parking and storage garage services;
5. Landscape maintenance and horticultural services but excluding (i) horticultural
services provided to farmers and (ii) pruning, trimming, repairing, removing, and
clearing of trees and brush near electric transmission or distribution lines or
equipment, if performed by or at the direction of an electric utility;
6. Service charges associated with tickets to professional sporting events;
7. The following personal services: Physical fitness services, tanning salon services,
tattoo parlor services, steam bath services, turkish bath services, escort services,
and dating services; and
8. The term shall also include the renting or leasing of tangible personal property to
consumers and the rental of equipment with an operator.
"Royalties." "Royalties" mean compensation for the use of intangible property, such as
copyrights, patents, licenses, franchises, trademarks, tradenames, and similar items.
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C. Definitions, S -V.
"Sale," "casual or isolated sale."
1. "Sale" means any transfer of the ownership of, title to, or possession of, property
for a valuable consideration and includes any activity classified as a "sale at
retail," or "retail sale," or "retail service." It includes renting or leasing,
conditional sale contracts, leases with option to purchase, and any contract under
which possession of the property is given to the purchaser but title is retained by
the vendor as security for the payment of the purchase price. It also includes the
furnishing of food, drink, or meals for compensation whether consumed upon the
premises or not.
2. "Casual or isolated sale" means a sale made by a person who is not engaged in the
h1 "sines of selling the type of property i�.volved o�i a I%JULI�ie nr %nV11 IUUU3 baSiS.
"Sale at retail," "retail sale.'
i . "Sale at retail" or "retail sale" means every sale of tangible personal property
(tncliidi_ng artir_.1PS produced, fabricated,
nr iniprintedl to all persons irrespective
of the nature of their business and including, among others, without limiting the
scope hereof, persons who install, repair, clean, alter, improve, construct, or
decorate real or personal property of or for consumers, other than a sale to a
person who presents a resale certificate under RCW 82.04.470 and who:
a. Purchases for the purpose of resale as tangible personal property in the regular
course of business without intervening use by such person; or
b. Installs, repairs, cleans, alters, imprints, improves, constructs, or decorates real
or personal property of or for consumers, if such tangible personal property
becomes an ingredient or component of such real or personal property without
intervening use by such person; or
c. Purchases for the purpose of consuming the property purchased in producing
for sale a new article of tangible personal property or substance, of which such
property becomes an ingredient or component or is a chemical used in
processing, when the primary purpose of such chemical is to create a chemical
reaction directly through contact with an ingredient of a new article being
produced for sale; or
d. Purchases for the purpose of consuming the property purchased in producing
ferrosilicon which is subsequently used in producing magnesium for sale, if
the primary purpose of such property is to create a chemical reaction directly
through contact with an ingredient of ferrosilicon; or
14
e. Purchases for the purpose of providing the property to consumers as part of
competitive telephone service, as defined in RCW 82.04.065. The term shall
include every sale of tangible personal property which is used or consumed or
to be used or consumed in the performance of any activity classified as a "sale
_ at retail" or "retail sale" even though such property -is resold or utilized as
provided in (a), (b), (c), (d), or (e) of this subsection following such use.
2. "Sale at retail" or "retail sale" also means every sale of tangible personal property
to persons engaged in any business activity which is taxable under .050(1)(g).
3. "Sale at retail" or "retail sale" shall include the sale of or charge made for tangible
personal property consumed and /or for labor and services rendered in respect to
the following:
a. The installing, repairing, cleaning, altering, imprinting, or improving of
tangible personal property of or for consumers, including charges made for the
mere use of facilities in respect thereto, but excluding charges made for the
use of coin - operated laundry facilities when such facilities are situated in an
apartment house, rooming house, or mobile home park for the exclusive use of
the tenants thereof, and also excluding sales of laundry service to nonprofit
health care facilities, and excluding services rendered in respect to live
animals, birds and insects;
b. "The constructing, repairing, decorating, or improving of new or existing
buildings or other structures under, upon, or above real property of or for
consumers, including the installing or attaching of any article of tangible
personal property therein or thereto, whether or not such personal property
becomes a part of the realty by virtue of installation, and shall also include the
sale of services or charges made for the clearing of land and the moving of
earth excepting the mere leveling of land used in commercial farming or
agriculture;
c. The charge for labor and services rendered in respect to constructing,
repairing, or improving any structure upon, above, or under any real property
owned by an owner who conveys the property by title, possession, or any
other means to the person performing such construction, repair, or
improvement for the purpose of performing such construction, repair, or
improvement and the property is then reconveyed by title, possession, or any
other means to the original owner;
d. The sale of or charge made for labor and services rendered in respect to the
cleaning, fumigating, razing or moving of existing buildings or structures, but
shall not include the charge made for janitorial services; and for purposes of
this section the term "janitorial services" shall mean those cleaning and
caretaking services ordinarily performed by commercial janitor service
businesses including, but not limited to, wall and window washing, floor
15
cleaning and waxing, and the cleaning in place of rugs, drapes and upholstery.
The term "janitorial services" does not include painting, papering, repairing,
furnace or septic tank cleaning, snow removal or sandblasting;
e. The sale of or charge made for labor and services rendered in respect to
automobile towing and similar automotive transportation services, but not in
respect to those required to report and pay taxes under chapter 82.16 RC W;
f. The sale of and charge made for the furnishing of lodging and all other
services, except telephone business _and cable service, by a hotel, rooming
house, tourist court, motel, trailer camp, and the granting of any similar
license to use real property, as distinguished from the renting or leasing of real
property, and it shall be presumed that the occupancy of real_ property for a
continuous period of one month or more constitutes a rental or lease of real
nrrinarty and not a mere lioiPncP t� iiea nr an ;o fl�A came Rnr fl�A r.,,,,. won ! f'
r+vr Va v.7 V11JV lV "Jt Vl V11Jll J� lll� J lllli. 1 Vl 111V l_l l.{1 rlVJ\+J UL
this subsection, it shall be presumed that the sale of and charge made for the
furnishing of lodging for a continuous period of one month or more to a
person is a rental or lease of real property and not a mere license to enjoy the
same;
g. The installing, repairing, altering, or improving of digital goods for
consumers;
h. The sale of or charge made for tangible personal property, labor and services
to persons taxable under (a), (b), (c), (d), (e), (f), and (g) of this subsection
when such sales or charges are for property, labor and services which are used
or consumed in whole or in part by such persons in the performance of any
activity defined as a "sale at retail" or "retail sale" even though such property,
labor and services may be resold after such use or consumption. Nothing
contained in this subsection shall be construed to modify subsection (1) of this
section and nothing contained in subsection (1) of this section shall be
construed to modify this subsection.
41 "Sale at retail" or "retail sale" shall also include the providing of competitive
telephone service to consumers.
5. a. "Sale at retail" or "retail sale" shall also include the sale of prewritten
software other than a sale to a person who presents a resale certificate under RCW
82.04.470, regardless of the method of delivery to the end user. For purposes of
this subsection (5)(a) the sale of the sale of prewritten computer software includes
the sale of or charge made for a key or an enabling or activation code, where the
key or code is required to activate prewritten computer software and put the
software into use. There is no separate sale of the key or code from the prewritten
computer software, regardless of how the sale may characterized by the vendor or
by the purchaser.
16
The term "sale at retail" or "retail sale" does not include the sale of or charge
made for:
i. Custom software; or
ii. __ The customization of prewritten software,
b. i. The term also includes the charge made to consumers for the right
to access and use prewritten computer software, where possession of the
software is maintained by the seller or a third party, regardless of whether
the charge for the service is on a per use, per user, per license,
subscription, or some other basis.
ii. A. The service described in (b)(i) of this subsection 5 includes the
right to access and use prewritten software to perform data processing.
B. For purposes of this subsection (b)(ii) "data processing" means the
systematic performance of operations on data to extract the required
information in an appropriate form or to convert the data to usable
information. Data processing includes check processing, image
processing, form processing, survey processing, payroll processing,
claim processing, and similar activities.
61 "Sale at retail" or "retail sale" shall also include the sale of or charge made for
labor and services rendered in respect to the building, repairing, or improving of
any street, place, road, highway, easement, right of way, mass public
transportation terminal or parking facility, bridge, tunnel, or trestle which is
owned by a municipal corporation or political subdivision of the state, the State of
Washington, or by the United States and which is used or to be used primarily for
foot or vehicular traffic including mass transportation vehicles of any kind.
(Public road construction)
7. "Sale at retail" or "retail sale" shall also include the sale of or charge made for an
extended warranty to a consumer. For purposes of this subsection, "extended
warranty" means an agreement for a specified duration to perform the
replacement or repair of tangible personal property at no additional charge or a
reduced charge for tangible personal property, labor, or both, or to provide
indemnification for the replacement or repair of tangible personal property, based
on the occurrence of specified events. The term "extended warranty" does not
include an agreement, otherwise meeting the definition of extended warranty in
this subsection, if no separate charge is made for the agreement and the value of
the agreement is included in the sales price of the tangible personal property
covered by the agreement.
8. "Sale at retail" or "retail sale" shall also include the sale of or charge made for
labor and services rendered in respect to the constructing, repairing, decorating, or
improving of new or existing buildings or other structures under, upon, or above
17
real property of or for the United States, any instrumentality thereof, or a county
or city housing authority created pursuant to chapter 35.82 RCW, including the
installing, or attaching of any article of tangible personal property therein or
thereto, whether or not such personal property becomes a part of the realty by
virtue of installation (government contracting).
y. "Sale at retail" or "retail sale" shall not include the sale of services or charges
made for the clearing of land and the moving of earth of or for the United States,
any instrumentality thereof, or a county or city housing authority. Nor shall the
term include the sale of services or charges made for cleaning up for the United
States, or its instrumentalities, radioactive waste and other byproducts of weapons
production and nuclear research and development. (This should be reported under
the service or other class:ficat on).
iv. vu,., u� i��uii vi r�.�uli �ui�, �uali nog iitCtuuc uii, Sail, vi yr Cuai�e tiiauc tvr
labor and services rendered for environmental remedial action. (This is reported
under the service and other classification).
"Sale at or "retail
saie''
shall
also include the following sales to consumers
7retail"'
of digital goods digital
b ,
codes,
and
dig tai automated servIOPC'
t) 4 AV ,
a. Sales in which the seller has granted the purchaser the right of permanent use;
b. Sales in which the seller has granted the purchaser a right of use that is less
than permanent;
c. Sales in which the purchaser is not obligated to make continued payment as a
condition of the sale; and
d. Sales in which the purchaser is obligated to make continued payment as a
condition of the sale.
A retail sale of digital goods, digital codes, or digital automated services under this
subsection includes any services provided by the seller exclusively in connection
with the digital goods, digital codes, or digital automated services, whether or not a
separate charge is made for such services.
For purposes of this subsection, "permanent" means perpetual or for an indefinite or
unspecified length of time. A right of permanent use is presumed to have been
granted unless the agreement between the seller and the purchaser specifies or the
circumstances surrounding the transaction suggest or indicate that the right to use
terminates on the occurrence of a condition subsequent.
12. "Sale at retail" or "retail sale" shall also include the installing, repairing, altering,
or improving of digital goods for consumers.
"Sale at wholesale," "wholesale sale." "Sale at wholesale" or "wholesale sale" means
any sale of tangible personal property, digital goods, digital codes, digital automated
services, prewritten computer software, or services described in subsection 5(b)(i) "sale
at retail" which is not a retail sale, and any charge made for labor and services rendered
for persons who are not consumers, in respect to real or personal property and retail
services, if such charge is expressly defined as a retail sale or retail service when
rendered to or for consumers. Sale at wholesale also includes the sale of telephone
business to another telecommunications company as defined in RCW 80.04.010 for the
purpose of resale, as contemplated by RCW 35.21.715.
"Services." No definition.
"Software ", "prewritten software," "custom software," "customization of canned
software," "master copies," "retained rights."
1. "Prewritten software" or "Canned software" means computer software, including
prewritten upgrades, that is not designed and developed by the author or other
creator to the specifications of a specific purchaser. The combining of two or
more prewritten computer software programs or prewritten portions thereof does
not cause the combination to be other than prewritten computer software.
Prewritten computer software includes software designed and developed by the
author or other creator to the specifications of a specific purchaser when it is sold
to a person other than such purchaser. Where a person modifies or enhances
computer software of which such persons is not the author- or creator, the person
shall be deemed to be the author or creator only of the person's modifications or
enhancements. Prewritten computer software or a prewritten portion thereof that
is modified or enhanced to any degree, where such modification or enhancement
is designed and developed to the specifications of a specific purchaser, remains
prewritten computer software; however where there is a reasonable, separately
stated charge or an invoice or other statement of the price given to the purchaser
for the modification or enhancement, the modification or enhancement shall not
constitute prewritten computer software.
2. "Custom software" means software created for a single person.
3. "Customization of canned software" means any alteration, modification, or
development of applications using or incorporating caroled software to specific
individualized requirements of a single person. Customization of canned software
includes individualized configuration of software to work with other software and
computer hardware but does not include routine installation. Customization of
canned software does not change the underlying character or taxability of the
original canned software.
4. "Master copies" of software means copies of software frorn which a software
developer, author, inventor, publisher, licensor, sublicensor, or distributor makes
I
copies for sale or license. The software encoded on a master copy and the media
upon which the software resides are both ingredients of the master copy.
5. "Retained rights" means any and all rights, including intellectual property rights
such as those rights arising from copyrights, patents, and trade secret laws, that
are owned or are held under contract or license by a software developer, author,
inventor, publisher, licensor, sublicensor, or distributor.
6. "Software" means any information, program, or routine, or any set of one (1) or
more programs, routines, or collections of information used, or intended for use,
to convey information that causes one or more computers or pieces of computer -
related peripheral equipment, or any combination thereof, to perform a task or set
of tasks. "Software" includes the associated documentation, materials, or
ingredients regardless of the media upon which that documentation is provided,
that decieribeci the code and it. °i uOe) viper Utioli, and mallltellallee alld that typll.a.11y
is delivered with the code to the consumer. All software is classified as either
canned or custom.
"Taxpayer." "Taxpayer" means any "person ", as herein defined, required to have a
business license under this chapter or liable for the eollPetinn of any tax or fee under this
chapter, or who engages in any business or who performs any act for which a tax or fee is
imposed by this chapter.
"Tuition fee." "Tuition fee" includes library, laboratory, health service and other special
fees, and amounts charged for room and board by an educational institution when the
property or service for which such charges are made is furnished exclusively to the
students or faculty of such institution. "Educational institution," as used in this section,
means only those institutions created or generally accredited as such by the state and
includes educational programs that such educational institution cosponsors with a non-
profit organization, as defined by the Internal Revenue Code Section 501(c)(3), as
hereafter amended, if such educational institution grants college credit for coursework
successfully completed through the educational program, or an approved branch campus
of a foreign degree - granting institution in compliance with chapter 2813.90 RCW, and in
accordance with RCW 82.04.4332 or defined as a degree- granting institution under RCW
28B.85.010(3) and accredited by an accrediting association recognized by the United
States secretary of education, and offering to students an educational program of a
general academic nature or those institutions which are not operated for profit and which
are privately endowed under a deed of trust to offer instruction in trade, industry, and
agriculture, but not including specialty schools, business colleges, other trade schools, or
similar institutions.
"Value proceeding or accruing." "Value proceeding or accruing" means the
consideration, whether money, credits, rights, or other property expressed in terms of
money, a person is entitled to receive or which is actually received or accrued. The term
shall be applied, in each case, on a cash receipts or accrual basis according to which
method of accounting is regularly employed in keeping the books of the taxpayer.
N
"Value of products."
1. The value of products, including by- products, extracted or manufactured, shall be
determined by the gross proceeds derived_froin the sale thereof whether such sale
is at wholesale or at retail, to which shall be added all subsidies and bonuses
received from the purchaser or from any other person with respect to the
extraction, manufacture, or sale of such products or by- products by the seller.
2. Where such products, including by- products, are extracted or manufactured for
commercial or industrial use; and where such products, including by- products, are
shipped, transported or transferred out of the city, or to another person, without
prior sale or are sold under circumstances such that the gross proceeds from the
sale are not indicative of the true value of the subject matter of the sale; the value
shall correspond as nearly as possible to the gross proceeds from sales in this state
of similar products of like quality and character, and in similar quantities by other
taxpayers, plus the amount of subsidies or bonuses ordinarily payable by the
purchaser or by any third person with respect to the extraction, manufacture, or
sale of such products. In the absence of sales of similar products as a guide to
value, such value may be determined upon a cost basis. In such cases, there shall
be included every item of cost attributable to the particular article or article
extracted or manufactured, including direct and indirect overhead costs. The
Director may prescribe rules for the purpose of ascertaining such values.
3. Notwithstanding subsection (2) above, the value of a product manufactured or
produced for purposes of serving as a prototype for the development of a new or
improved product shall correspond to (a) the retail selling price of such new or
improved product when first offered for sale; or (2) the value of materials
incorporated into the prototype in cases in which the new or improved product is
not offered for sale.
"Wholesaling." "Wholesaling" means engaging in the activity of making sales at
wholesale, and is reported under the wholesaling classification.
5.05.040 Agency - sales and services by agent, consignee, bailee, factor or auctioneer.
1. Sales in own name - sales or purchases as agent. Every person, including agents,
consignees, bailees, factors or auctioneers having either actual or constructive
possession of tangible personal property or having possession of the documents of
title thereto, with power to sell such tangible personal property in the person's
own name and actually so selling shall be deemed the seller of such tangible
personal property within the meaning of this chapter.
The burden shall be upon the taxpayer in every case to establish the fact that such
taxpayer is not engaged in the business of selling tangible personal property but is
acting merely as broker or agent in promoting sales or making purchases for a
21
principal. Such claim will be recognized only when the contract or agreement
between such persons clearly establishes the relationship of principal and agent
and when the following conditions are complied with:
a. The books and records of the broker or agent show the transactions were made
in the name and for the account of the principal, and show the name of the
actual owner of the property for whom the sale was made, or the actual buyer
for whom the purchase was made.
b. The books and records show the amount of the principal's gross sales, the
amount of commissions and any other incidental income derived by the broker
or agent from such sales. T he principal's gross sales must not be reflected as
the agent's income on any of the agent's books and records, Commissions
must be computed according to a set percentage or amount, which is agreed
anon in the aaPncy norPPmPnt
c. No ownership rights may be conferred to the agent unless the principal refuses
to pay, or refuses to abide by the agency agreement. Sales or purchases of any
goods by a person who has any ownership rights in such goods shah be taxed
as retail or wholesale sales.
d. Bulk goods sold or purchased on behalf of a principal must not be co- mingled
with goods belonging to another principal or lose their identity as belonging to
1.
the particular principal. Sales or purchases of any goods which have been co-
mingled or lost their identity as belonging to the principal shall be taxed as
retail or wholesale sales.
2. if the above requirements are not met the consignor, bailor, principal or other
shall be deemed a seller of such property to the agent, consignee, bailee, factor or
auctioneer.
3. Services in own name - procuring services as agent. For purposes of this
subsection, an agent is a person who acts under the direction and control of the
principal in procuring services on behalf of the principal that the person could not
itself render or supply. Amounts received by an agent for the account of its
principal as advances or reimbursements are exempted from the measure of the
tax only when the agent is not primarily or secondarily liable to pay for the
services procured.
Any person who claims to be acting merely as agent in obtaining services for a
principal will have such claim recognized only when the contract or agreement
between such persons clearly establishes the relationship of principal and agent
and when the following conditions are complied with:
22
a. The books and records of the agent show that the services were obtained in the
name and for the account of the principal, and show the actual principal for
whom the purchase was made.
b. The books and records show the amount of the service that was obtained for
the principal, the amount of commissions and any other income derived by the
agent for acting as such. Amounts received from the principal as advances
and reimbursements must not be reflected as the agent's income on any of the
agent's books and records. Commissions must be computed according to a set
percentage or amount, which is agreed upon in the agency agreement.
5.05.050 Imposition of the tax - tax or fee levied.
1. Except as provided in subsection (2) of this section, there is hereby levied upon
and shall be collected from every person a tax for the act or privilege of engaging
in business activities within the city, whether the person's office or place of
business be within or without the city. The tax shall be in amounts to be
determined by application of rates against gross proceeds of sale, gross income of
business, or value of products, including by- products, as the case may be, as
follows:
a. Upon every person engaging within the city in business as an extractor; as to
such persons the amount of the tax with respect to such business shall be equal
to the value of the products, including by- products, extracted within the city
for sale or for commercial or industrial use, multiplied by the rate of one -tenth
of one percent. The measure of the tax is the value of the products, including
by- products, so extracted, regardless of the place of sale or the fact that
deliveries inay be made to points outside the city.
b. Upon every person engaging within the city in business as a manufacturer; as
to such persons the amount of the tax with respect to such business shall be
equal to the value of the products, including by- products, manufactured within
the city, multiplied by the rate of one -tenth of one percent. The measure of the
tax is the value of the products, including by- products, so manufactured,
regardless of the place of sale or the fact that deliveries may be made to points
outside the city.
c. Upon every person engaging within the city in the business of making sales at
wholesale, except persons taxable under subsection 2 of this section; as to
such persons, the amount of tax with respect to such business shall be equal to
the gross proceeds of such sales of the business without regard to the place of
delivery of articles, commodities or merchandise sold, multiplied by the rate
of one -tenth of one percent.
d. Upon
every person engaging
within the city
in the business
of making sales at
retail;
as to such persons, the
amount of tax
with respect to
such business shall
23
be equal to the gross proceeds of such sales of the business without regard to
the place of delivery of articles, commodities or merchandise sold, multiplied
by the rate of one -tenth of one percent.
e. Upon every person engaging within the city in the business of (i) printing, (ii)
both printing and publishing newspapers, magazines, periodicals, books,
music, and other printed items, (iii) publishing newspapers, magazines and
periodicals, (iv) extracting for hire, and (v) processing for hire; as to such
persons, the amount of tax on such business shall be equal to the gross income
of the business multiplied by the rate of one -tenth of one percent.
f. Upon every person engaging within the city in the business of making sales of
retail services; as to such persons, the. amount of tax with respect to such
business shall be equal to the gross proceeds of sales multiplied by the rate of
nne -tenth of nne nPrrPnt
t.... .
g. Upon every other person engaging within the city in any business activity
other than or in addition to those enumerated in the above subsections; as to
such persons, the amount of tax on account of such activities shall be equal to
the gross income of the business multiplied by the rate of one -tenth of one
percent. This subsection includes, among others, and without limiting the
scope hereof (whether or not title to material used in the performance of such
business passes to another by accession, merger or other than by outright
sale), persons engaged in the business of developing, or producing custom
software or of customizing canned software, producing royalties or
commissions, and persons engaged in the business of rendering any type of
service which does not constitute a sale at retail, a sale at wholesale, or a retail
service.
2. The gross receipts tax imposed in this section shall not apply to any person whose
gross proceeds of sales, gross income of the business, and value of products,
including by- products, as the case may be, from all activities conducted within the
city during any calendar year is equal to or less than $150,000.00 per _year, and
where gross receipts do equal or exceed $150,000.00 per year, the tax shall only
apply to the amount of gross income exceeding $150,000.00 per year.
5.05.070 Multiple activities credit when activities take place in one or more cities
with eligible gross receipt taxes.
1. Persons who engage in business activities that are within the purview of two (2)
or more subsections of 5.05.050 shall be taxable under each applicable subsection.
2. Notwithstanding anything to the contrary herein, if imposition of the city's tax
would place an undue burden upon interstate commerce or violate constitutional
requirements, a taxpayer shall be allowed a credit to the extent necessary to
24
preserve the validity of the city's tax, and still apply the city tax to as much of the
taxpayer's activities as may be subject to the city's taxing authority.
3. To take the credit authorized by this section, a taxpayer must be able to document
that the amount of tax sought to be credited was paid upon the same gross receipts
used in computing the tax against which the credit is applied and that the taxpayer
paid the amount of tax sought to be credited.
4. Credit for persons that sell in the city products that they extract or manufacture.
Persons taxable under the retailing or wholesaling classification with respect to
selling products in this city shall be allowed a credit against those taxes for any
eligible gross receipts taxes paid (a) with respect to the manufacturing of the
products sold in the city, and (b) with respect to the extracting of the products, or
the ingredients used in the products, sold in the city. The amount of the credit
shall not exceed the tax liability arising under this chapter with respect to the sale
of those products.
5. Credit for persons that manufacture products in the city using ingredients they
extract. Persons taxable under the manufacturing classification with respect to
manufacturing products in this city shall be allowed a credit against those taxes
for any eligible gross receipts tax paid with respect to extracting the ingredients of
the products manufactured in the city. The amount of the credit shall not exceed
the tax liability arising under this chapter with respect to the manufacturing of
those products.
6. Credit for persons that sell within the city products that they print, or publish and
print. Persons taxable under the retailing or wholesaling classification with
respect to selling products in this city shall be allowed a credit against those taxes
for any eligible gross receipts taxes paid with respect to the printing, or the
printing and publishing, of the products sold within the city. The amount of the
credit shall not exceed the tax liability arising under this chapter with respect to
the sale of those products.
5.05.075 Deductions to prevent multiple taxation of manufacturing activities and
prior to January 1, 2008, transactions involving more than one city with an eligible
gross receipts tax.
1. Amounts subject to an eligible gross receipts tax in another city that also
maintains nexus over the same activity. For taxes due prior to January 1, 2008, a
taxpayer that is subject to an eligible gross receipts tax on the same activity in
more than one jurisdiction may be entitled to a deduction as follows:
a. A taxpayer that has paid an eligible gross receipts tax, with respect to a sale of
goods or services, to a jurisdiction in which the goods are delivered or the
services are provided may deduct an amount equal to the gross receipts used
to measure that tax from the measure of the tax owed to the city.
25
b. Notwithstanding the above, a person that is subject to an eligible gross
receipts tax in more than one jurisdiction on the gross income derived from
intangibles such as royalties, trademarks, patents, or goodwill shall assign
those gross receipts to the jurisdiction where the person is domiciled (its
headquarters is located).
c. A taxpayer that has paid an eligible gross receipts tax on the privilege of
accepting or executing a contract with another city may deduct an amount
equal to the contract price used to measure the tax due to the other city from
the measure of the tax owed to the city.
2. Person manufacturing products within and without. A person manufacturing
products within the city using products manufactured by the same person outside
the city 1'�Y1�Ay deduct "fr m ttiP mPnoiirP of +11A mn�nll %n +llri r.rt +�v too . n1 10 r
.] N.7 V111 111V 111VUUUxV Vl 111V 111 L1Ul Ull �. U1111� L"A llll JUl UI/ kiL
products manufactured outside the city and included in the measure of an eligible
gross receipts tax paid to the other jurisdiction with respect to manufacturing such
products.
5.05.076 Assignment of gross income derived from intangibles.
Gross income derived from the sale of intangibles such as royalties, trademarks, patents,
or goodwill shall be assigned to the jurisdiction where the person is domiciled (its
headquarters is located).
5.05.077 Allocation and apportionment of income when activities take place in more
than one jurisdiction.
Effective January 1, 2008, gross income, other than persons subject to the provisions of
chapter 82.14A RCW, shall be allocated and apportioned as follows:
1. Gross income derived from all activities other than those taxed as service or
royalties under 5.05.050(1)(g) shall be allocated to the location where the activity
takes place.
2. In the case of sales of tangible personal property, the activity takes place where
delivery to the buyer occurs.
3. In the case of sales of digital products, the activity takes place where delivery to
the buyer occurs. The delivery of digital products will be deemed to occur at:
a. The seller's place of business if the purchaser receives the digital product at
the seller's place of business;
b. If not received at the seller's place of business, the location where the
purchaser or the purchaser's donee, designated as such by the purchaser,
receives the digital product, including the location indicated by instructions
for delivery to the purchaser or donee, known to the seller;
c
c. If the location where the purchaser or the purchaser's done receives the digital
product is not known, the purchaser's address maintained in the ordinary
course of the seller's business when use of this address does not constitute bad
d. If no address for the purchaser is maintained in the ordinary course of the
seller's business, the purchaser's address obtained during the consummation of
the sale, including the address of a purchaser's payment instrument, if no other
address is available, when use of this address does not constitute bad faith;
and
e. If no address for the purchaser is obtained during the consummation of the
sale, the address where the digital good or digital code is first made available
for transmission by the seller or the address from which the digital automated
service or service described in RCW 82.04.050 (2)(g) or (6)(b) was provided,
disregarding for these purposes any location that merely provided the digital
transfer of the product sold.
4. If none of the methods in subsection 5.05.077(3) for determining where the
delivery of digital products occurs are available after a good faith effort by the
taxpayer to apply the methods provided in subsections 5.05.077(3)(a) through
- 5.05.077(3)(e), then the city and the taxpayer may mutually agree to employ any
other method to effectuate an equitable allocation of income from the sale of
digital products. The taxpayer will be responsible for petitioning the city to use an
alternative method under this subsection 5.05.077(D). The city may employ an
alternative method for allocating the income from the sale of digital products if
the methods provided in subsections 5.05.077(3)(a) through 5.05.077(3)(e) are not
available and the taxpayer and the city are unable to mutually agree on an
alternative method to effectuate an equitable allocation of income from the sale of
digital products.
5. For purposes of subsections 5.05.077(3)(a) through 5.05.077(3)(e), "Receive" has
the same meaning as in RCW 82.32.730,
6. Gross income derived from activities taxed as services and other activities taxed
under 5.05.050(1)(g) shall be apportioned to the city by multiplying apportionable
income by a fraction, the numerator of which is the payroll factor plus the service -
income factor and the denominator of which is two.
a. The payroll factor is a fraction, the numerator of which is the total amount
paid in the city during the tax period by the taxpayer for compensation and the
denominator of which is the total compensation paid everywhere during the
tax period. Compensation is paid in the city if.
i. The individual is primarily assigned within the city;
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M
ii. The individual is not primarily assigned to any place of business for the
tax period and the employee performs fifty percent or more of his or her
service for the tax period in the city; or
iii. The individual is not primarily assigned to any place of business for the
tax period, the individual does not perform fifty percent or more of his or
her service in any city and the employee resides in the city.
b. The service income factor is a fraction, the numerator of which is the total
service income of the taxpayer in the city during the tax period, and the
denominator of which is the total service income of the taxpayer everywhere
during the tax period. Service income is in the city if-
i. T he customer location is in the city; or
ii. The income - producing activity is performed in more than one location and
a greater FA�V Al XA of the serviee'invvme'prvd A" activity is performed
in the city than in any other location, based on costs of performance, and
the taxpayer is not taxable at the customer location; or
iii. The service- income - producing activity is performed within the city, and
the taxpayer is not taxable in the customer location.
c. If the allocation and apportionment provisions of this subsection do not fairly
represent the extent of the taxpayer's business activity in the city or cities in
which the taxpayer does business, the taxpayer may petition for or the tax
administrators may jointly require, in respect to all or any part of the
taxpayer's business activity, that one of the following methods be used jointly
by the cities to allocate or apportion gross income, if reasonable:
i. Separate accounting;
ii. The use of a single factor;
iii. The inclusion of one or more additional factors that will fairly represent
the taxpayer's business activity in the city; or
iv. The employment of any other method to effectuate an equitable allocation
and apportionment of the taxpayer's income.
The definitions in this subsection apply throughout this section.
a. "Apportionable income" means the gross income of the business taxable
under the service classifications of a city's gross receipts tax, including
income received from activities outside the city if the income would be
taxable under the service classification if received from activities within the
city, less any exemptions or deductions available.
b. "Compensation" means wages, salaries, commissions, and any other form of
remuneration paid to individuals for personal services that are or would be
included in the individual's gross income under the federal internal revenue
code.
C. "Individual" means 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.
d. "Customer
location" means the city
or unincorporated area of a county
where
the majority
of the contacts between
the taxpayer and the customer take
place.
e. "Primarily assigned" means the business location of the taxpayer where the
individual performs his or her duties.
f. "Service- taxable income" or "service income" means gross income of the
business subject to tax under either the service or royalty classification.
g. "Tax period" means the calendar year during which tax liability is accrued. If
taxes are reported by a taxpayer on a basis more frequent than once per year,
taxpayers shall calculate the factors for the previous calendar year for
reporting in the current calendar year and correct the reporting for the
previous year when the factors are calculated for that year, but not later than
the end of the first quarter of the following year.
h. "Taxable in the customer location" means either that a taxpayer is subject to
a gross receipts tax in the customer location for the privilege of doing
business, or that the government where the customer is located has the
authority to subject the taxpayer to gross receipts tax regardless of whether, in
fact, the government does so.
5. Assignment or apportionment of revenue under this Section shall be made in
accordance with and in full compliance with the provisions of the interstate
commerce clause of the United States Constitution where applicable.
5.05.078 Allocation and apportionment of printing and publishing income when
activities take place in more than one jurisdiction.
Notwithstanding RCW 35.102.130, effective January 1, 2008, gross income from the
activities of printing, and of publishing newspapers, periodicals, or magazines, shall be
allocated to the principal place in this state from which the taxpayer's business is directed
or managed. As used in this section, the activities of printing, and of publishing
newspapers, periodicals, or magazines, have the same meanings as attributed to those
terms in RCW 82.04.280(1) by the department of revenue.
5.05.090 Exemptions
The provisions of this chapter- shall not apply to the following.
A. Non -profit corporations or non -profit organizations. This chapter shall not apply
to non -profit organizations exempt from federal income tax under Section
29
501(c)(3) of the Internal Revenue Code, as hereafter amended, except with
respect to retail sales of such persons.
B. Health maintenance organization, health care service contractor, certified health
plan. This chapter does not apply to any health maintenance organization, health
care service contractor, or certified health plan in respect to premiums or
prepayments that are taxable under RC W 48.14.0201.
C. Public utilities. This chapter shall not apply to any person in respect to a business
activity with respect to which tax liability is specifically imposed under the
provisions of chapters 3.88, 5.08 or 5.10 BIMC.
D, Investments - dividends from subsidiary corporations, This chapter shall not
apply to amounts derived by persons, other than those engaging in banking, loan,
CPel.:r.ty, or otAAPA ifin ancial bu.ciineci.cie.ci, from inveci Li�lleiits oA the l OS oX molley aJ
such, and also amounts derived as dividends by a parent from its subsidiary
corporations.
E. International banking facilities. This chapter shah not apply to the gross receipts
of an international banking facility. As used in this subsection an "international
banking facility" means a facility represented by a set of asset and liability
accounts segregated on the books and records of a commercial bank, the principal
office of which is located in this state, and which is incorporated and doing
business under the laws of the United States or of this state, a United States
branch or agency of a foreign bank, an Edge corporation organized under Section
25(a) of the Federal Reserve Act, 12 United States Code 611 -631, or an
Agreement corporation having an agreement or undertaking with the Board of
Governors of the Federal Reserve System under Section 25 of the Federal Reserve
Act, 12 United States Code 601- 604(a), that includes only international banking
facility time deposits (as defined in subsection (a)(2) of Section 204.8 of
Regulation D (12 CFR Part 204), as promulgated by the Board of Governors of
the Federal Reserve System), and international banking facility extensions of
credit (as defined in subsection (a)(3) of Section 204.8 of Regulation D),
F. Insurance business. This chapter shall not apply to amounts received by any
person who is an insurer or their appointed insurance producer upon which a tax
based on gross premiums is paid to the state pursuant to RCW 48.14.020, and
provided further, that the provisions of this subsection shall not exempt any
bonding company from tax with respect to gross income derived from the
completion of any contract as to which it is a surety, or as to any liability as
successor to the liability of the defaulting contractor.
G. Farmers - agriculture. This chapter shall not apply to any farmer in respect to
amounts received from selling fruits, vegetables, berries, butter, eggs, fish, milk
poultry, meats or any other agricultural product that is raised, caught, produced, or
manufactured by such persons,
HE
H. Athletic exhibitions. This chapter shall not apply to any person in respect to the
business of conducting boxing contests and sparring or wrestling matches and
exhibitions for the conduct of which a license must be secured from the State
I. Racing. This chapter shall not apply to any person in respect to the business of
conducting race meets for the conduct of which a license must be secured from
the Washington State Horse Racing Commission,
J. Ride sharing. This chapter does not apply to any funds received in the course of
commuter ride sharing or ride sharing for persons with special transportation
needs in accordance with RCW 46.74.010.
K. Employees.
a. This chapter shall not apply to any person in respect to the person's
employment in the capacity as an employee or servant as distinguished from
that of an independent contractor. For the purposes of this subsection, the
definition of employee shall include those persons that are defined in the
Internal Revenue Code, as hereafter amended.
b. A booth renter, as defined by RCW 18.16.020, is an independent contractor
for purposes of this chapter.
L. Amounts derived from sale of real estate. This chapter shall not apply to gross
proceeds derived from the sale of real estate. This, however, shall not be
construed to allow an exemption of amounts received as commissions from the
sale of real estate, nor as fees, handling charges, discounts, interest or similar
financial charges resulting from, or relating to, real estate transactions. This
chapter shall also not apply to amounts received for the rental of real estate if the
rental income is derived from a contract to rent for a continuous period of thirty
(30) days or longer.
M. Mortgage brokers' third -party provider services trust accounts. This chapter shall
not apply to amounts received from trust accounts to mortgage brokers for the
payment of third -party costs if the accounts are operated in a manner consistent
with RCW 19.146.050 and any rules adopted by the director of financial
institutions.
N. Amounts derived from manufacturing, selling or distributing motor vehicle fuel.
This chapter shall not apply to the manufacturing, selling, or distributing motor
vehicle fuel, as the term "motor vehicle fuel" is defined in RCW 82.36.010 and
exempt under RCW 82.36.440, provided that any fuel not subjected to the state
fuel excise tax, or any other applicable deduction or exemption, will be taxable
under this chapter.
31
O. Amounts derived from liquor, and the sale or distribution of liquor. This chapter
shall not apply to liquor as defined in RCW 66.04.010 and exempt in RCW
66.08.120.
P. Casual and isolated sales. This chapter shall not apply to the gross proceeds
derived from casual or isolated sales.
Q. Accommodation sales. This chapter shall not apply to sales for resale by persons
regularly engaged in the business of making retail sales of the type of property so
sold to other persons similarly engaged in the business of selling such property
where (1) the amount paid by the buyer does not exceed the amount paid by the
seller to the vendor in the acquisition of the article and (2) the sale is made as an
accommodation to the buyer to enable the buyer to fill a bona fide existing order
of a eimtnmer nr iQ made W;thin fn»rtPPn nave to rAimh„roA in vind o prA.Ji� „o A 6,11111 "A Lli Ix µµYJ lV 1V1111V U1 Jl. 1111 \111U (.6 lJl t/V1V lAJ
accommodation sale by the buyer to the seller. 1
R. Taxes collected as trust funds. This chapter shall not apply to amounts collected
by the taxpayer from third parties to satisfy third party obligations to pay taxes
such as the retail sales tax; use tax, and admission tax.
5.05.100 Deductions. In computing the license fee or tax, there may be deducted from
the measure of tax the following items:
A. Compensation from public entities for health or social welfare services -
exception. In computing tax, there may be deducted from the measure of tax
amounts received from the United States or any instrumentality thereof or from
the State of Washington or any municipal corporation or political subdivision
thereof as compensation for, or to support, health or social welfare services
rendered by a health or social welfare organization (as defined in RCW
82.04.43 1) or by a municipal corporation or political subdivision, except
deductions are not allowed under this subsection for amounts that are received
under an employee benefit plan. For purposes of this subsection, "employee
benefit plan” includes the military benefits program authorized in 10 USC Sec.
1071 et seq., as amended, or amounts payable pursuant thereto.
B. Interest on investments or loans secured by mortgages or deeds of trust. In
computing tax, to the extent permitted by Chapter 82.14A RCW, there may be
deducted from the measure of tax by those engaged in banking, loan, security or
other financial businesses, amounts derived from interest received on investments
or loans primarily secured by first mortgages or trust deeds on non - transient
residential properties.
C. Interest on obligations of the state, its political subdivisions, and municipal
corporations. In computing tax, there may be deducted from the measure of tax by
those engaged in banking, loan, security or other financial businesses, amounts
Wj
derived from interest paid on all obligations of the State of Washington, its
political subdivisions, and municipal corporations organized pursuant to the laws
thereof.
D. Interest on loans to farmers and
or harvesters of aquatic
products, or their cooperatives. In computing tax, there may be deducted from the
measure of tax amounts derived as interest on loans to bona fide farmers and
ranchers, producers or harvesters of aquatic products, or their cooperatives by a
lending institution which is owned exclusively by its borrowers or members and
which is engaged solely in the business of making loans and providing finance -
related services to bona fide farmers and ranchers, producers or harvesters of
aquatic products, their cooperatives, rural residents for housing, or persons
engaged in furnishing farm - related or aquatic - related services to these individuals
or entities.
E. Receipts from tangible personal property delivered outside the State. In
computing tax, there may be deducted from the measure of tax under retailing or
wholesaling amounts derived from the sale of tangible personal property that is
delivered by the seller to the buyer or the buyer's representative at a location
outside the State of Washington.
F. Cash discount taken by purchaser. In computing tax, there may be deducted from
the measure of tax the cash discount amounts actually taken by the purchaser.
This deduction is not allowed in arriving at the taxable amount under the
extracting or manufacturing classifications with respect to articles produced or
manufactured, the reported values of which, for the purposes of this tax, have
been computed according to the "value of product" provisions.
G. Credit losses of accrual basis taxpayers. In computing tax, there may be deducted
from the measure of tax the amount of credit losses actually sustained by
taxpayers whose regular books of account are kept upon an accrual basis.
H. Repair, maintenance, replacement, etc., of residential structures and commonly
held property - eligible organizations.
1. In computing tax, there may be deducted from the measure of tax amounts
used solely for repair, maintenance, replacement, management, or
improvement of the residential structures and commonly held property, but
excluding property where fees or charges are made for use by the public who
are not guests accompanied by a member, which are derived by:
a. A cooperative housing association, corporation, or partnership from a
person who resides in a structure owned by the cooperative housing
association, corporation, or partnership;
33
b. An association of owners of property as defined in RCW 64.32.010, as
now or hereafter amended, from a person who is an apartment owner as
defined in RCW 64.32.010; or
c. An association of owners of residential property from a person who is a
member of the association. "Association of owners of residential property"
means any organization of all the owners of residential property in a
defined area who all hold the same property in common within the area.
2. For the purposes of this subsection "commonly held property" includes areas
required for common access such as reception areas, halls, stairways, parking,
etc., and may include recreation rooms, swimming pools and small parks or
recreation areas; but is not intended to include more grounds than ara
normally required in a residential area, or to include such extensive areas as
renttira fnr n1Formrcr e l�ikU and riding ring areas "U"ating areas
.1 a..a. vin gva.i .v., vuiiiN givuiluJ, 1111>i11� a11U 11Ui11�, areas UV Ullll�, areas
etc.
3. To qualify for the deductions under this subsection:
a. The salary or compensation paid to o ficers, managers or employees must
be only for actual services rendered and at levels comparable to the salary
or compensation of like positions within the county wherein the property
is located;
b. Dues, fees, or assessments in excess of amounts needed for the purposes
for which the deduction is allowed must be rebated to the members of the
association;
c. Assets of the association or organization must be distributable to all
members and must not inure to the benefit of any single member or group
of members.
I. Sales at wholesale or retail of precious metal bullion and monetized bullion. In
computing tax, there may be deducted from the measure of the tax amounts
derived from the sale at wholesale or retail of precious metal bullion and
monetized bullion. However, no deduction is allowed on amounts received as
commissions upon transactions for the accounts of customers over and above the
amount paid to other dealers associated in such transactions, and no deduction or
offset is allowed against such commissions on account of salaries or commissions
paid to salesmen or other employees.
J. Amounts representing rental of real estate for boarding homes. In computing tax,
there may be deducted from the measure of tax amounts representing the value of
the rental of real estate for "boarding homes." To qualify for the deduction, the
boarding home must meet the definition of "boarding home, and licensed by the
State of Washington under RCW 18.20. The deduction shall be in the amount of
34
twenty -five
percent (25 %) of the
gross monthly billing
when the boarder has
resided
within the boarding home
for longer than thirty
(30) days.
K. Radio and television broadcasting - advertising agency fees - national, regional,
and network advertising - interstate allocations. __In computing tax, there may be
deducted from the measure of tax by radio and television broadcasters amounts
representing the following:
a. advertising agencies' fees when such fees or allowances are shown as a
discount or price reduction in the billing or that the billing is on a net basis,
i.e., less the discount;
b. actual gross receipts from national network, and regional advertising or a
"standard deduction" as provided by RCW 82.04.280; and
c. local advertising revenue that represent advertising which is intended to reach
potential customers of the advertiser who are located outside the State of
Washington. The Director may issue a rule that provides detailed guidance as
to how these deductions are to be calculated.
L. Constitutional prohibitions. In computing tax, there may be deducted from the
measure of the tax amounts derived from business which the city is prohibited
from taxing under the Constitution of the State of Washington or the Constitution
of the United States.
I ,
M. Receipts from the sale of tangible personal property and retail services delivered
outside the city but within Washington. Effective January 1, 2008, amounts
included in the gross receipts reported on the tax return derived from the sale of
tangible personal property delivered to the buyer or the buyer's representative
outside the city but within the State of Washington may be deducted from the
measure of tax under the retailing, retail services, or wholesaling classification.
N. Professional employer services. In computing the tax, a professional employer
organization may deduct from the calculation of gross income the gross income of
the business derived from performing professional employer services that is equal
to the portion of the fee charged to a client that represents the actual cost of wages
and salaries, benefits, workers' compensation, payroll taxes, withholding, or other
assessments paid to or on behalf of a covered employee by the professional
employer organization under a professional employer agreement.
5.05.120 Tax part of overhead.
It is not the intention of this chapter that the taxes or tees herein levied upon persons
engaging in business be construed as taxes or fees upon the purchasers or customer, but
that such taxes or fees shall be levied upon, and collectible from, the person engaging in
the business activities herein designated and that such taxes or fees shall constitute a part
of the cost of doing business of such persons.
35
5.05.130 Severability Clause.
If any provision of this chapter or its application to any person or circumstance is held
invalid, the remainder of the chapter or the application of the provision to other persons
or circumstances shall not be affected.
Section L. This ordinance shall take effect and be in force on January I, 2013 after its passage,
approval, and publication as required by law.
PASSED BY THE CITY COUNCIL this 19th day of December, 2012.
APPROVED BY THE MAYOR this i 91h day of December, 2012.
ATTEST /AUTHENTICATE:
FILED WITH THE CITY CLERK:
PASSED BY THE CITY COUNCIL:
PUBLISHED:
EFFECTIVE DATE:
ORDINANCE NUMBER:
November 30, 2012
December 19, 2012
December 21, 2012
January 1, 2013
2012 -20
36