wa-law.org > bill > 2023-24 > SB 5733 > Original Bill
The unique nature of payment system arrangements distinguishes payment card processing companies from other taxpayers. Due to the unique nature of payment card processing companies' activities related to interchange fees and network fees, the legislature intends to address the business and occupation taxation of payment card processing companies' activities on a prospective and retroactive basis through the deduction and rate authorized in this act.
In computing the tax under RCW 82.04.290(4), a payment card processing company may deduct from the measure of the tax amounts received by persons other than the payment card processing company in the following forms:
Interchange fees; and
Network fees.
The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.
"Interchange fee" means a fee set by a payment network, or by agreement between an issuing bank and a merchant or merchant bank, that an issuing bank retains from the amounts settled to the merchant as compensation for the services the issuing bank provides in issuing a credit, debit, or prepaid card to a cardholder, advancing proceeds to settle a credit, debit, or prepaid card transaction, and incurring a portion of the risks relating to the transaction.
"Issuing bank" means a bank that issues payment network-branded credit, debit, or prepaid cards to cardholders.
"Merchant bank" means a bank that is a participant in payment networks that contracts, directly or indirectly, with a merchant, enabling that merchant to accept a payment network-branded credit, debit, or prepaid card and receive cash proceeds from the sale.
"Network fees" means fees a payment network charges and receives as compensation for its services, including for facilitating the payment of a credit, debit, or prepaid card transaction from cardholders to a merchant through its network.
"Payment card processing company" means a company, including a merchant bank, that acquires, either directly or indirectly, credit, debit, or prepaid card transactions from merchants, facilitates the submission of those transactions to payment networks, and facilitates the payment of proceeds of those transactions to merchants.
"Payment network" means an operator of a system or network connecting one or more issuing banks to one or more merchant banks that facilitates financial transactions through the use of a credit, debit, or prepaid product.
Upon every person engaging within this state in the business of providing qualifying international investment management services, as to such persons, the amount of tax with respect to such business is equal to the gross income or gross proceeds of sales of the business multiplied by a rate of 0.275 percent.
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Upon every person engaging within this state in any business activity other than or in addition to an activity taxed explicitly under another section in this chapter or subsection (1) or (3) of this section; as to such persons the amount of tax on account of such activities is equal to the gross income of the business multiplied by the rate of:
1.75 percent; or
1.5 percent for:
(A) Any person subject to the surcharge imposed under RCW 82.04.299;
(B) Any person whose gross income of the business subject to the tax imposed under this subsection (2), for the immediately preceding calendar year, was less than one million dollars, unless (I) the person is affiliated with one or more other persons, and (II) the aggregate gross income of the business subject to the tax imposed under this subsection (2) for all affiliated persons was greater than or equal to one million dollars for the immediately preceding calendar year; and
(C) Hospitals as defined in RCW 70.41.020, including any hospital that comes within the scope of chapter 71.12 RCW if the hospital is also licensed under chapter 70.41 RCW. This subsection (2)(a)(ii)(C) must not be construed as modifying RCW 82.04.260(10).
b. This subsection (2) includes, among others, and without limiting the scope hereof (whether or not title to materials used in the performance of such business passes to another by accession, confusion or other than by outright sale), persons engaged in the business of rendering any type of service which does not constitute a "sale at retail" or a "sale at wholesale." The value of advertising, demonstration, and promotional supplies and materials furnished to an agent by his or her principal or supplier to be used for informational, educational, and promotional purposes is not considered a part of the agent's remuneration or commission and is not subject to taxation under this section.
c. 14.3 percent of the revenues collected under (a)(i) of this subsection (2) must be deposited into the workforce education investment account created in RCW 43.79.195.
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i. To aid in the effective administration of this subsection (2), the department may require a person claiming to be subject to the 1.5 percent tax rate under (a)(ii)(B) of this subsection (2) to identify all of the person's affiliates, including their department tax registration number or unified business identifier number, as may be applicable, or to certify that the person is not affiliated with any other person. Requests under this subsection (2)(d)(i) must be in writing and may be made electronically.
ii. If the department establishes, by clear, cogent, and convincing evidence, that a person, with intent to evade the additional taxes due under the 1.75 percent tax rate in (a)(i) of this subsection (2), failed to provide the department with complete and accurate information in response to a written request under (d)(i) of this subsection (2) within thirty days of such request, the person is ineligible for the 1.5 percent tax rate in (a)(ii) of this subsection (2) for the entire current calendar year and the following four calendar years. However, the department must waive the provisions of this subsection (2)(d)(ii) for any tax reporting period that the person is otherwise eligible for the 1.5 percent tax rate in (a)(ii) of this subsection (2) if (A) the department has not previously determined that the person failed to fully comply with (d)(i) of this subsection (2), and (B) within thirty days of the notice of additional tax due as a result of the person's failure to fully comply with (d)(i) of this subsection (2) the department determines that the person has come into full compliance with (d)(i) of this subsection (2). This subsection (2)(d) applies only with respect to persons claiming entitlement to the 1.5 percent tax rate solely by reason of (a)(ii)(B) of this subsection (2).
e. For the purposes of (a)(ii)(B) of this subsection (2), if a taxpayer is subject to the reconciliation provisions of RCW 82.04.462(4), and calculates gross income of the business subject to the tax imposed under this subsection (2) for the immediately preceding calendar year, or aggregate gross income of the business subject to the tax imposed under this subsection (2) for the immediately preceding calendar year for all affiliated persons, based on incomplete information, the taxpayer must correct the reporting for the current calendar year when complete information for the immediately preceding calendar year is available.
f. For purposes of this subsection (2), the definitions in this subsection (2)(f) apply:
i. "Affiliate" means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another person; and
ii. "Control" means the possession, directly or indirectly, of more than eighty percent of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise.
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Until July 1, 2040, upon every person engaging within this state in the business of performing aerospace product development for others, as to such persons, the amount of tax with respect to such business is equal to the gross income of the business multiplied by a rate of 0.9 percent.
A person reporting under the tax rate provided in this subsection (3) must file a complete annual report with the department under RCW 82.32.534.
"Aerospace product development" has the meaning as provided in RCW 82.04.4461.
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Upon every person engaging within this state as a payment card processing company as defined in section 2 of this act, as to such persons, the amount of tax with respect to its payment card processing activities is equal to the gross income of the business from such activities multiplied by the rate of 3.0 percent.
The gross income of the business of a payment card processing company with respect to its payment card processing activities is the merchant discount of those merchants with which the payment card processing company has directly or indirectly contracted to perform payment card processing activities.
For payment card processing activities in which more than one payment card processing company receives a portion of the merchant discount, each company is required to include in its gross income the portion of the merchant discount it is entitled to retain.
For purposes of this subsection (4), the following definitions apply:
"Merchant discount" means the aggregate fee, or negotiated discount, incurred by a merchant for the processing of payment card transactions under its contract with a payment card processing company when it accepts a payment network-branded credit, debit, or prepaid card in a sale transaction.
"Payment card processing activities" means acquiring, either directly or indirectly, credit, debit, or prepaid card transactions from merchants, facilitating the submission of those transactions to payment networks, and facilitating the payment of proceeds of those transactions to merchants.
Beginning January 1, 2020, in addition to any other taxes imposed under this chapter, an additional tax is imposed on specified financial institutions. The additional tax is equal to the gross income of the business taxable under RCW 82.04.290 (2) and (4) multiplied by the rate of 1.2 percent.
The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.
"Affiliated" means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another person. For purposes of this subsection (2)(a), "control" means the possession, directly or indirectly, of more than 50 percent of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise.
"Consolidated financial institution group" means all financial institutions that are affiliated with each other.
"Consolidated financial statement" means a consolidated financial institution group's consolidated reports of condition and income filed with the federal financial institutions examination council, or successor agency.
"Financial institution" means:
Any corporation or other business entity chartered under Titles 30A, 30B, 31, 32, and 33 RCW, or registered under the federal bank holding company act of 1956, as amended, or registered as a savings and loan holding company under the federal national housing act, as amended;
A national bank organized and existing as a national bank association pursuant to the provisions of the national bank act, 12 U.S.C. Sec. 21 et seq.;
A savings association or federal savings bank as defined in the federal deposit insurance act, 12 U.S.C. Sec. 1813(b)(1);
Any bank or thrift institution incorporated or organized under the laws of any state;
Any corporation organized under the provisions of 12 U.S.C. Sec. 611 through 631;
Any agency or branch of a foreign depository as defined in 12 U.S.C. Sec. 3101 that is not exempt under RCW 82.04.315;
A production credit association organized under the federal farm credit act of 1933, all of whose stock held by the federal production credit corporation has been retired;
Any corporation or other business entity who receives gross income taxable under RCW 82.04.290, and whose voting interests are more than 50 percent owned, directly or indirectly, by any person or business entity described in (d)(i) through (vii) of this subsection other than an insurance company liable for the insurance premiums tax under RCW 48.14.020 or any other company taxable under chapter 48.14 RCW;
ix.(A) A corporation or other business entity that receives more than 50 percent of its total gross income for federal income tax purposes from finance leases. For purposes of this subsection, a "finance lease" means a lease that meets two requirements:
(I) It is the type of lease permitted to be made by national banks (see 12 U.S.C. Sec. 24(7) and (10), comptroller of the currency regulations, part 23, leasing (added by 56 C.F.R. Sec. 28314, June 20, 1991, effective July 22, 1991), and regulation Y of the federal reserve system 12 C.F.R. Part 225.25, as amended); and
(II) It is the economic equivalent of an extension of credit, i.e., the lease is treated by the lessor as a loan for federal income tax purposes. In no event does a lease qualify as an extension of credit where the lessor takes depreciation on such property for federal income tax purposes.
(B) For this classification to apply, the average of the gross income in the current tax year and immediately preceding two tax years must satisfy the more than 50 percent requirement;
x. Any other person or business entity, other than an insurance general agent taxable under RCW 82.04.280(1)(e), an insurance business exempt from the business and occupation tax under RCW 82.04.320, a real estate broker taxable under RCW 82.04.255, a securities dealer or international investment management company taxable under RCW 82.04.290(2), that receives more than 50 percent of its gross receipts from activities that a person described in (d)(ii) through (vii) and (ix) of this subsection is authorized to transact.
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i. "Specified financial institution" means a financial institution that is a member of a consolidated financial institution group that reported on its consolidated financial statement for the previous calendar year annual net income of at least $1,000,000,000, not including net income attributable to noncontrolling interests, as the terms "net income" and "noncontrolling interest" are used in the consolidated financial statement.
ii. If financial institutions are no longer required to file consolidated financial statements, "specified financial institution" means any person that was subject to the additional tax in this section in at least two of the previous four calendar years.
The department must notify the fiscal committees of the legislature if financial institutions are no longer required to file consolidated financial statements.
To aid in the effective administration of the additional tax imposed in this section, the department may require a person believed to be a specified financial institution to disclose whether it is a member of a consolidated financial institution group and, if so, to identify all other members of its consolidated financial institution group. A person failing to comply with this subsection is deemed to have intended to evade tax payable under this section and is subject to the penalty in RCW 82.32.090(7) on any tax due under this section by the person and any financial institution affiliated with the person.
Taxes collected under this section must be deposited into the general fund.
(1)(a) Beginning with business activities occurring on or after April 1, 2020, in addition to the taxes imposed under RCW 82.04.290 (2) and (4), a workforce education investment surcharge is imposed on select advanced computing businesses. The surcharge is equal to the gross income of the business subject to the tax under RCW 82.04.290 (2) and (4), multiplied by the rate of 1.22 percent.
RCW 82.32.805 and 82.32.808 do not apply to this act.
This act applies retroactively to tax periods open for assessment under RCW 82.32.050, including any disputed assessments pending before the department of revenue, board of tax appeals, or any court of law, and prospectively, except that no person is entitled to a refund of overpaid tax, interest, or penalties that results from the retroactive application. Taxes due as a result of this section if not previously paid must be paid within 90 days of the effective date of this section and in such cases are not subject to penalties or interest.
This act takes effect October 1, 2023.