wa-law.org > bill > 2025-26 > HB 2097 > Original Bill
The legislature finds no reason that counties in Washington state should not be permitted to levy business and occupation taxes. To fund services related to behavioral health, public safety, transit, and waste management, Washington counties rely primarily on sales taxes, property taxes, and federal grants. Sales taxes are the most regressive form of tax possible because they consume a disproportionate share of the income of poor and middle class spenders. Property taxes are often hard on middle-income and working-class homeowners; in section 1, chapter 39, Laws of 2015 3rd sp.s., the legislature recognized that "property taxes impose a substantial financial burden on those with fixed incomes." In addition, the prospect of depending upon federal grants has become increasingly dubious under the current presidential administration.
Therefore, the legislature intends to authorize Washington counties to impose business and occupation taxes to fund services that Washingtonians rely on.
This chapter does not apply to any person with respect to a business activity to which tax liability is specifically imposed under chapter 82.16 RCW including amounts derived from activities for which a deduction is allowed under RCW 82.16.050. The exemption in this section does not apply to sales of natural gas, including compressed natural gas and liquefied natural gas used or sold to manufacture transportation fuel, and renewable natural gas, by a gas distribution business, if such sales are exempt from the tax imposed under chapter 82.16 RCW as provided in RCW 82.16.310.
The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
"Business" has the same meaning as in RCW 82.04.140.
"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.
"City" means a city, town, or code city.
"County" means any county of the state.
"Gross income of the business" has the same meaning as in RCW 82.04.080.
"Gross proceeds of sales" has the same meaning as in RCW 82.04.070.
"Value of products" has the same meaning as in RCW 82.04.450.
A county legislative authority may impose a business and occupation tax in accordance with the terms of this chapter.
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Washington state counties, working through the Washington state association of counties, must form a model ordinance development committee made up of a representative sampling of counties that intend to levy a business and occupation tax on or after July 1, 2027. The committee must also include a representative sampling of cities that impose a business and occupation tax. The committee may include other relevant parties. This committee must use a process to adopt a model ordinance and subsequent amendments that includes opportunity for substantial input from business stakeholders and other members of the public. Input must be solicited from statewide business associations and from local chambers of commerce and business associations.
The department of commerce must contract to post the model ordinance on an internet website and to make paper copies available for inspection upon request. The department of revenue and the department of licensing must post copies of or links to the model ordinance on their internet websites. Additionally, a county that imposes a business and occupation tax must make copies of its ordinance available for inspection and copying as provided in chapter 42.56 RCW.
The definitions and tax classifications in the model ordinance may not be amended more frequently than once every four years, however the model ordinance may be amended at any time to comply with changes in state law. Any amendment to a mandatory provision of the model ordinance must be adopted with the same effective date by all counties.
A county that imposes a business and occupation tax must adopt the mandatory provisions of the model ordinance. The following provisions are mandatory:
A system of credits that meets the requirements of section 9 of this act and a form for such use;
A uniform, minimum small business tax threshold of at least the equivalent of $20,000 in gross income annually. A county may elect to deviate from this requirement by creating a higher threshold or exemption, but it must not deviate lower than the level required in this subsection (2)(b);
Tax reporting frequencies that meet the requirements of section 10 of this act;
Penalty and interest provisions that meet the requirements of sections 11 and 12 of this act;
Claim periods that meet the requirements of section 13 of this act;
Refund provisions that meet the requirements of section 14 of this act; and
Definitions, which at a minimum, must include the definitions in sections 3 and 15 of this act. The definitions in chapter 82.04 RCW must be used as the baseline for all definitions in the model ordinance, and any deviation in the model ordinance from these definitions must be described by a comment in the model ordinance.
The model ordinance must be drafted to address the issue of multiple taxation for those tax classifications that are in addition to those enumerated in section 9 (3) through (5) of this act. The objective of any such provisions must be to eliminate multiple taxation of the same income by two or more counties or by a city located within a county.
The model ordinance must be drafted to include a provision allowing a credit against the county tax imposed under this chapter for the full amount of any city business and occupation tax imposed under chapter 35.102 RCW upon the same taxable event.
In addition to the deduction required by section 21 of this act and the system of credits developed to address multiple taxation under section 9 of this act, a county may adopt its own provisions for tax exemptions, tax credits, preferential rates, and tax deductions.
Any county that adopts an ordinance that deviates from the nonmandatory provisions of the model ordinance must make a description of such differences available to the public, in written and electronic form.
Every county first imposing a business and occupation tax or increasing the rate of tax must provide for a referendum procedure to apply to an ordinance imposing the tax or increasing the rate of the tax. This referendum procedure must specify that a referendum petition may be filed within seven days of passage of the ordinance with a filing officer, as identified in the ordinance. Within 10 days, the filing officer must confer with the petitioner concerning form and style of the petition, issue the petition an identification number, and secure an accurate, concise, and positive ballot title from the designated local official. The petitioner has 30 days in which to secure the signatures of not less than 15 percent of the registered voters of the county, as of the last county general election, upon petition forms which contain the ballot title and the full text of the measure to be referred. The filing officer must verify the sufficiency of the signatures on the petition and, if sufficient valid signatures are properly submitted, must certify the referendum measure to the next election ballot pursuant to RCW 29A.04.321.
This referendum procedure must be exclusive in all instances for any county ordinance imposing a business and occupation tax or increasing the rate of the tax and must supersede the procedures all other statutory or charter provisions for initiative or referendum which might otherwise apply.
Any county that imposes a tax upon business activities consisting of the making of retail sales of tangible personal property that are measured by gross receipts or gross income from such sales, must impose such tax at a single uniform rate upon all such business activities. This section does not apply to any business activities subject to the tax imposed by chapter 82.16 RCW. For purposes of this section, the providing to consumers of competitive telephone service, as defined in RCW 82.04.065, or the providing of payphone service as defined in RCW 35.21.710, must be subject to tax at the same rate as business activities consisting of the making of retail sales of tangible personal property.
A county may not impose a business and occupation tax on a person unless that person has nexus with the county. For the purposes of this section, nexus means business activities conducted by a person sufficient to subject that person to the taxing jurisdiction of a county under the standards established for interstate commerce under the commerce clause of the United States Constitution. Mere registration under or compliance with the streamlined sales and use tax agreement does not constitute nexus for the purposes of this section.
A county that imposes a business and occupation tax must provide for a system of credits to avoid multiple taxation as follows:
Persons who engage in business activities that are within the purview of more than one classification of the tax must be taxable under each applicable classification.
Notwithstanding anything to the contrary in this section, if imposition of the tax would place an undue burden upon interstate commerce or violate constitutional requirements, a taxpayer must be allowed a credit only to the extent necessary to preserve the validity of the tax.
Persons taxable under the retailing or wholesaling classification with respect to selling products in a county must be allowed a credit against those taxes for any eligible gross receipts taxes paid by the person: (a) With respect to the manufacturing of the products sold in the county; and (b) with respect to the extracting of the products, or the ingredients used in the products, sold in the county. The amount of the credit must not exceed the tax liability arising with respect to the sale of those products.
Persons taxable under the manufacturing classification with respect to manufacturing products in a county must be allowed a credit against that tax for any eligible gross receipts tax paid by the person with respect to extracting the ingredients of the products manufactured in the county and with respect to manufacturing the products other than in the county. The amount of the credit must not exceed the tax liability arising with respect to the manufacturing of those products.
Persons taxable under the retailing or wholesaling classification with respect to selling products in a county must be allowed a credit against those taxes for any eligible gross receipts taxes paid by the person with respect to the printing, or the printing and publishing, of the products sold within the county. The amount of the credit must not exceed the tax liability arising with respect to the sale of those products.
A county that imposes a business and occupation tax must allow reporting and payment of tax on a monthly, quarterly, or annual basis. The frequency for any particular person may be assigned at the discretion of the county, except that monthly reporting may be assigned only if it can be demonstrated that the taxpayer is remitting excise tax to the state on a monthly basis. Payment is due within the same time period provided under RCW 82.32.045.
A county that imposes a business and occupation tax must compute interest charged a taxpayer on an underpaid tax or penalty in accordance with RCW 82.32.050.
A county that imposes a business and occupation tax must compute interest paid on refunds or credits of amounts paid or other recovery allowed a taxpayer in accordance with RCW 82.32.060.
A county that imposes a business and occupation tax must provide for the imposition of penalties in accordance with chapter 82.32 RCW.
The provisions of a business and occupation tax relating to the time period allowed for an assessment or correction of an assessment for additional taxes, penalties, or interest must be in accordance with chapter 82.32 RCW.
The provisions of a business and occupation tax relating to the time period allowed for a refund of taxes paid must be in accordance with chapter 82.32 RCW.
In addition to the definitions in section 3 of this act, the following terms and phrases must be defined in the model ordinance under this chapter, and the definitions must include any specific requirements as noted in this subsection:
Commercial and industrial use;
Eligible gross receipts tax;
Engaging in business;
Extracting;
Manufacturing. Software development may not be defined as a manufacturing activity;
Person;
Retail sale;
Retailing;
To manufacture;
Wholesale sale; and
Wholesaling.
Any tax classifications in addition to those enumerated in subsection (1) of this section that are included in the model ordinance must be uniform among all counties.
The taxing authority granted to counties for taxes upon business activities measured by gross receipts or gross income from sales must not exceed a rate of 0.0020.
The rate may not be increased unless the qualified voters of a county, by majority vote, approve rates in excess of the limit in subsection (1) of this section.
Counties that impose a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property that are measured by gross receipts or gross income from such sales must be required to submit an annual report to the state auditor identifying the rate established and the revenues received from the tax.
A county that imposes a business and occupation tax must provide for the allocation and apportionment of a person's gross income, other than persons subject to the provisions of chapter 82.14A RCW, as follows:
Gross income derived from all activities other than those taxed as service or royalties must be allocated to the location where the activity takes place.
In the case of sales of tangible personal property, the activity takes place where delivery to the buyer occurs.
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(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) If the location where the purchaser or the purchaser's donee 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 faith;
(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.
ii. If none of the methods in (b)(i) of this subsection (1) 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 (b)(i)(A) through (E) of this subsection (1), then the county 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 is responsible for petitioning the county to use an alternative method under this subsection (1)(b)(ii). The county may employ an alternative method for allocating the income from the sale of digital products if the methods provided in (b)(i)(A) through (E) of this subsection (1) are not available and the taxpayer and the county are unable to mutually agree on an alternative method to effectuate an equitable allocation of income from the sale of digital products.
iii. For purposes of this subsection (1)(b), the following definitions apply:
(A) "Digital automated services," "digital codes," and "digital goods" have the same meaning as in RCW 82.04.192;
(B) "Digital products" means digital goods, digital codes, digital automated services, and the services described in RCW 82.04.050 (2)(g) and (6)(b); and
(C) "Receive" has the same meaning as in RCW 82.32.730.
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i. If a business activity allocated under this subsection (1) takes place in more than one county and all counties impose a gross receipts tax, or in a city located within a county and both the city and the county impose a gross receipts tax, a credit must be allowed as provided in section 9 of this act.
ii. If not all the cities or counties impose a gross receipts tax, the affected cities and counties must allow another credit or allocation system as they and the taxpayer agree.
Gross income derived as royalties from the granting of intangible rights must be allocated to the commercial domicile of the taxpayer.
Gross income derived from activities taxed as services must be apportioned to a county 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.
The payroll factor is a fraction, the numerator of which is the total amount paid in the county 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 county if:
The individual is primarily assigned within the county;
The individual is not primarily assigned to any place of business for the tax period and the employee performs 50 percent or more of his or her service for the tax period in the county; or
The individual is not primarily assigned to any place of business for the tax period, the individual does not perform 50 percent or more of the individual's service in any county, and the employee resides in the county.
The service income factor is a fraction, the numerator of which is the total service income of the taxpayer in the county 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 county if the customer location is in the county.
Gross income of the business from engaging in an apportionable activity must be excluded from the denominator of the service income factor if, with respect to such activity, the gross income is attributable under (b) of this subsection (3) to a county within the United States or foreign country in which the taxpayer is not taxable. For purposes of this subsection (3)(c), not taxable means that the taxpayer is not subject to a business activities tax by that county within the United States or by that foreign country, except that a taxpayer is taxable in a city or county within the United States or in a foreign country in which it would be deemed to have a substantial nexus with the city or county within the United States or with the foreign country under the standards in section 8 of this act regardless of whether that city or county within the United States or that foreign country imposes such a tax.
If the allocation and apportionment provisions of this subsection (3) do not fairly represent the extent of the taxpayer's business activity in the county, the taxpayer may petition for or the tax administrator may require, with respect to all or any part of the taxpayer's business activity, if reasonable:
Separate accounting;
The exclusion of any one or more of the factors;
The inclusion of one or more additional factors that will fairly represent the taxpayer's business activity in the county; or
The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.
The party petitioning for, or the tax administrator requiring, the use of any method to effectuate an equitable allocation and apportionment of the taxpayer's income pursuant to (d) of this subsection (3) must prove by a preponderance of the evidence:
That the allocation and apportionment provisions of this subsection (3) do not fairly represent the extent of the taxpayer's business activity in the county; and
That the alternative to such provisions is reasonable. The same burden of proof must apply whether the taxpayer is petitioning for, or the tax administrator is requiring, the use of an alternative, reasonable method to effectuate an equitable allocation and apportionment of the taxpayer's income.
If the tax administrator requires any method to effectuate an equitable allocation and apportionment of the taxpayer's income, the tax administrator may not impose any civil or criminal penalty with reference to the tax due that is attributable to the taxpayer's reasonable reliance solely on the allocation and apportionment provisions of this subsection (3).
A taxpayer that has received written permission from the tax administrator to use a reasonable method to effectuate an equitable allocation and apportionment of the taxpayer's income may not have that permission revoked with respect to transactions and activities that have already occurred unless there has been a material change in, or a material misrepresentation of, the facts provided by the taxpayer upon which the tax administrator reasonably relied in approving a reasonable alternative method.
The definitions in this subsection apply throughout this section.
"Apportionable income" means the gross income of the business taxable under the service classifications of a county's gross receipts tax, including income received from activities outside the county if the income would be taxable under the service classification if received from activities within the county, less any exemptions or deductions available.
"Business activities tax" means a tax measured by the amount of, or economic results of, business activity conducted in a city or county within the United States or within a foreign country. Business activities tax includes taxes measured in whole or in part on net income or gross income or receipts. Business activities tax does not include a sales tax, use tax, or a similar transaction tax, imposed on the sale or acquisition of goods or services, whether or not denominated a gross receipts tax or a tax imposed on the privilege of doing business.
"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.
"Customer" means a person or entity to whom the taxpayer makes a sale or renders services or from whom the taxpayer otherwise receives gross income of the business.
"Customer location" means the following:
For a customer not engaged in business, if the service requires the customer to be physically present, where the service is performed.
For a customer not engaged in business, if the service does not require the customer to be physically present:
(A) The customer's residence; or
(B) If the customer's residence is not known, the customer's billing or mailing address.
iii. For a customer engaged in business:
(A) Where the services are ordered from;
(B) At the customer's billing or mailing address if the location from which the services are ordered is not known; or
(C) At the customer's commercial domicile if none of the above are known.
f. "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.
g. "Primarily assigned" means the business location of the taxpayer where the individual performs the individual's duties.
h. "Service income" means gross income of the business subject to tax under either the service or royalty classification.
i. "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 must 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.
A county that imposes a business and occupation tax may by ordinance provide that return or tax information is confidential, privileged, and subject to disclosure in the manner provided by RCW 82.32.330.
Notwithstanding section 17 of this act, a county that imposes a business and occupation tax must allocate a person's gross income from the activities of printing, and of publishing newspapers, periodicals, or magazines, 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 are those activities to which the exemption in RCW 82.04.759 and the tax rate in RCW 82.04.280(1)(a) apply.
This section expires January 1, 2034.
Notwithstanding section 17 of this act, a county that imposes a business and occupation tax must allocate a person's gross income from the activities of printing, and of publishing newspapers, periodicals, or magazines, 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 are those activities to which the tax rates in RCW 82.04.260(13) and 82.04.280(1)(a) apply.
A county that imposes its business and occupation tax on professional employer services performed by a professional employer organization, regardless of the tax classification applicable to such services, must provide a deduction identical to the deduction in RCW 82.04.540(2).
For the purposes of this section, "professional employer organization" and "professional employer services" have the same meaning as in RCW 82.04.540.
RCW 82.32.805 and 82.32.808 do not apply to this act.
Sections 2 through 19 and 21 of this act take effect January 1, 2027.
Section 20 of this act takes effect January 1, 2034.