(1)
Introduction. This rule explains the business and occupation
(B&O) tax credit for small businesses provided by
RCW
82.04.4451. This credit is commonly referred
to as the small business B&O tax credit or small business credit (SBC). The
amount of small business B&O tax credit available on a tax return can
increase or decrease, depending on the reporting frequency of the account and
the net B&O tax liability for that return. This rule also explains the
public utility tax income exemption provided by
RCW
82.16.040. The public utility tax exemption
is a fixed amount, or threshold, based on the reporting frequency assigned to
the account. Readers should refer to WAC
458-20-22801 (Tax reporting
frequency-Forms) for an explanation of how the department of revenue
(department) assigns a particular reporting frequency to each account. Readers
may also want to refer to WAC
458-20-101 for an explanation of
Washington's tax registration and tax reporting requirements.
This rule provides examples that identify a number of facts and
then state a conclusion regarding the applicability of the income exemption for
the public utility tax or small business B&O tax credit. These examples
should be used only as a general guide. The tax results of other situations
must be determined after a review of all facts and circumstances.
(2)
The public utility tax
income exemption. Persons subject to public utility tax (PUT) are exempt
from payment of this tax for any reporting period in which the gross taxable
amount reported under the combined total of all public utility tax
classifications does not equal or exceed the maximum exemption for the assigned
reporting period. Per
RCW
82.16.040, the public utility tax exemption
amounts are:
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for taxpayers reporting monthly ...............
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$2,000 per month
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for taxpayers reporting quarterly ..............
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$6,000 per quarter
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for taxpayers reporting annually ...............
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$24,000 per annum
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(a)
What if
the taxable income equals or exceeds the maximum exemption? If the
taxable income for a reporting period equals or exceeds the maximum exemption,
tax must be remitted on the full taxable amount.
(b)
How does the exemption apply if a
business does not operate for the entire tax reporting period? The
public utility tax maximum exemptions apply to the entire tax reporting period,
even though the business may not have operated during the entire
period.
(c)
Do taxable
amounts for B&O tax or other taxes affect this exemption? The public
utility tax exemption is not affected by taxable amounts reported in the
B&O tax section or any of the other tax sections of the tax
return.
(d)
Example - How is
the public utility tax exemption applied? Taxpayer registers with the
department and is assigned a quarterly tax reporting frequency. Taxpayer begins
business activities on February 1st. During the two months of the first quarter
that the taxpayer is in business, taxpayer's public utility gross income is
$7,000. After deductions provided by chapter 82.16 RCW (Public utility tax) are
computed, the total taxable amount is $5,000. In this case, the taxpayer does
not owe any public utility tax because the taxable amount of $5,000 is less
than the $6,000 exemption threshold for quarterly taxpayers. The fact that the
taxpayer was in business during only two months out of the three months in the
quarter has no effect on the threshold amount. However, if there were no
deductions available to the taxpayer, the taxable amount would have been
$7,000. The public utility tax would then have been due on the full taxable
amount of $7,000.
(3)
The small business B&O tax credit. Persons subject to the
B&O tax may be eligible to claim a small business B&O tax credit
against the amount of B&O tax otherwise due. The small business B&O tax
credit operates completely independent of the public utility tax exemption
described above in subsection (2) of this rule.
RCW
82.04.4451 authorizes the department to
create a tax credit table for use by all taxpayers when determining the amount
of their small business B&O tax credit. Taxpayers must use the tax credit
table to determine the appropriate amount of their small business B&O tax
credit. A tax credit table for each of the monthly, quarterly, and annual
reporting frequencies can be found on the department's internet site at
dor.wa.gov.
The statute provides that taxpayers who use the tables will not
owe any more tax than if they used the statutory credit formula to determine
the amount of the credit. For taxpayers that file electronically, the
department will automatically calculate the small business credit when the
taxpayer completes the online return.
Effective January 1, 2023, section 1, chapter 295, Laws of 2022
amended RCW 82.04.4451. Prior to that
amendment the small business credit was calculated at a maximum of $70
multiplied by the number of months in the reporting period for all eligible
taxpayers. As a result of the amendment, taxpayers that report at least 50
percent (i.e., 50 percent or greater) of their total B&O taxable amount
under RCW
82.04.255 (real estate brokers),
RCW
82.04.290(2)(a) (service and
other activities), and
RCW
82.04.285 (contests of chance) have their
maximum credit increased to $160 multiplied by the number of months in the
reporting period. A few examples of businesses that generally have taxable
amounts to report under
RCW
82.04.290(2)(a) are
for-profit hospitals, for-profit research and development, accountants,
attorneys, dentists, janitors, and landscape architects. Please see WAC
458-20-224, Service and other
business activities for information and more examples of who should report
under the service and other classification of the B&O tax.)
For taxpayers that do not report at least 50 percent of their
B&O taxable amount under
RCW
82.04.255,
82.04.290, and
82.04.285, prior to the amendment
the small business credit was calculated at a maximum of $35 multiplied by the
number of months in the reporting period. As a result of the amendment, the
maximum credit increased to $55 multiplied by the number of months in the
reporting period.
(a)
How is the
credit applied if a business does not operate during the entire tax reporting
period? The small business B&O tax credit applies to the entire
reporting period, even though the business may not have been operating during
the entire period.
(b)
Can a
husband and wife or partners in a state registered domestic partnership both
take the credit? Spouses or state registered domestic partners operating
distinct and separate businesses are each eligible for the small business
B&O tax credit. For both spouses or both domestic partners to qualify, each
must have a separate tax reporting number and file his or her own business tax
returns.
(c)
How do I
determine the amount of the credit? Taxpayers eligible for the small
business B&O tax credit must follow the steps outlined in subsection (5) of
this rule to determine the amount of credit available. Taxpayers who have other
B&O tax credits to apply on a tax return, in addition to the small business
B&O tax credit, may use the multiple B&O tax credit worksheet in
subsection (4) of this rule before determining the amount of small business
B&O tax credit available.
(d)
Can I carryover the small business B&O tax credit to future tax
reporting periods? Use of the small business B&O tax credit may not
result in a B&O tax liability of less than zero, and thus there will be no
unused credit.
(e)
Do I have
to report and pay retail sales tax even if I do not owe any B&O tax?
Persons making retail sales must collect and pay all applicable retail sales
taxes even if B&O tax is not due. There is no comparable retail sales tax
exemption.
(4)
Multiple business and occupation tax credit worksheet. The small
business B&O tax credit should be computed after claiming any other B&O
tax credits available under Title 82 RCW (Excise taxes). Examples of other
B&O tax credits to be taken before computing the small business B&O tax
credit include the multiple activities tax credit and commute trip reduction
credit. The following multiple B&O tax credit worksheet describes the
process taxpayers must follow to apply credits in the appropriate order. Refer
to subsection (6) of this rule for an example illustrating the use of the
multiple B&O tax credit worksheet.
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MULTIPLE B&O TAX CREDIT WORKSHEET
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1.
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Determine the total Business and Occupation (B&O)
tax due from the B&O section of your excise tax return.
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$ _________
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2.
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Add together the credit amounts taken for:
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Multiple Activities Tax Credit from Schedule C (if
applicable).
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$ _________
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(Add any other B&O tax credits from Title 82 RCW
that will be applied to this return period.)
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+
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$ _________
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Total (Enter 0 if none of these credits are being
taken.)
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$ _________
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3.
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Subtract line 2 from line 1. This is the total
B&O tax allowable for the Small Business Credit.
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$ _________
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4.
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Find the specific tax credit table (Table 1 or Table
2) appropriate for the business activities and B&O taxable amounts on your
excise tax return. Next, find the tax credit table which matches the reporting
frequency assigned to the account. Then find the range of amounts which
includes your total B&O tax due (see line three above).
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5.
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Read across to the next column. This is the amount of
the Small Business Credit to be used on the excise tax return.
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$ _________
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(5)
Using the tax credit table to determine your small business B&O tax
credit. The following steps explain how to use the small business
B&O tax credit table:
(a)
Step
one. Determine the total B&O tax amount due from the excise tax
return. This amount will normally be the total of the tax amounts due
calculated for each classification in the B&O tax section of the excise tax
return. However, if additional B&O tax credits will be taken on the return,
refer to subsection (4) of this rule and the multiple B&O tax credit
worksheet before going to step two.
(b)
Step two. Find the B&O
taxable amounts on the return reported under
RCW
82.04.255 (real estate brokers),
RCW
82.04.290(2)(a) (service and
other activities), and
RCW
82.04.285 (contests of chance) then add them
together. Divide that sum result by the total amount of all B&O taxable
amounts reported on the return. If the result indicates 50 percent or greater
of the total of all B&O taxable amounts came from activities reported under
RCW
82.04.255,
82.04.290(2)(a),
and 82.04.285 combined, use Table 1 of
the small business B&O tax credit table. If the result indicates less than
50 percent of the total of all B&O taxable amounts came from activities
reported under
RCW
82.04.255,
82.04.290(2)(a),
and 82.04.285 combined, use Table 2 of
the small business B&O tax credit table.
(c)
Step three. Find the small
business B&O tax credit table that matches the assigned reporting
frequency, monthly, quarterly, or annual.
(d)
Step four. Find the "If your
net B&O tax is" column of the tax credit table and come down the column
until you find the range of amounts which includes the total B&O tax due
figure obtained from the excise tax return or multiple B&O tax credit
worksheet.
(e)
Step
five. Read across to the "Your SBC is" column. The figure shown is the
amount of the small business B&O tax credit that can be claimed on the
"Small Business B&O Tax Credit" line in the "Credits" section of the excise
tax return.
(6)
Examples - Using the "Multiple B&O Tax Credit Worksheet" and the tax
credit tables.
(a)
Using the
"Multiple B&O Tax Credit Worksheet." Assume that ABC reports
quarterly. This quarter, ABC reports $190 under the wholesaling classification
and $70 under the manufacturing classification for a total B&O tax
liability of $260. ABC completes Schedule C, and determines it is entitled to a
multiple activities tax credit (MATC) of $70. Using the multiple B&O tax
credit worksheet, ABC enters $260 on line one, enters $70 on line two, and
enters $190 on line three (line two subtracted from line one). Line three, $190
is the total B&O tax. ABC will use this amount to determine whether it is
eligible for a small business B&O tax credit.
(b)
Using the small business B&O
tax credit tables. Assume the facts are the same as in the previous
example in subsection (6)(a) of this rule. After completing the multiple
B&O tax credit worksheet, ABC has $190 of B&O tax liability left for
potential application of the small business B&O tax credit. ABC does not
have any business activity taxable under
RCW
82.04.255 (real estate brokers),
RCW
82.04.290(2)(a) (service and
other activities), or
RCW
82.04.285 (contests of chance), so the ratio
of those combined taxable amounts compared to the total of all B&O taxable
amounts on the return is not 50 percent or greater. ABC will refer to Table 2
of the quarterly small business B&O tax credit table to find the "If your
net B&O tax is" column. Following down that column, ABC finds the tax range
of at least $190 but less than $195 and follows the row to the "Your SBC is"
column on the right, which indicates a credit in the amount of $140. Before
calculating the total amount of tax due for the return, ABC enters its small
business B&O tax credit of $140 in the "Credits" section of the return. For
taxpayers that file electronically, the department will automatically calculate
the small business credit when the taxpayer completes the online
return.
