Chapter 3.08
BUSINESS AND OCCUPATION TAX
Sections:
3.08.020 Exercise of revenue license power.
3.08.025 Administrative provisions.
3.08.040 Imposition of the tax – Tax or fee levied.
3.08.050 Repealed.
3.08.060 Repealed.
3.08.065 Assignment of gross income derived from intangibles.
3.08.100 Tax part of overhead.
3.08.010 Purpose.
The provisions of this chapter shall be deemed an exercise of the power of the city to license and/or tax for revenue the privilege of engaging in business in the city. It is the intent of this chapter to comply with the provisions of RCW 35A.11.020. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.020 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. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.025 Administrative provisions.
The administrative provisions contained in Chapter 5.30 GFMC shall be fully applicable to the provisions of this chapter except as expressly stated to the contrary herein. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.030 Definitions.
In construing the provisions of this chapter, the following definitions shall be applied. Words in the singular number shall include the plural, and the plural shall include the singular.
“Business” includes all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly.
“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” means the following uses of products, including by-products, by the extractor thereof:
(1) Any use as a consumer; and
(2) The manufacturing of articles, substances or commodities.
“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 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 arranging for shipment of the 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 (RCW Title 62A) do not determine when or where delivery of tangible personal property occurs for purposes of taxation.
“Eligible gross receipts tax” means a tax which:
(1) Is imposed on the act or privilege of engaging in business activities within GFMC 3.08.040; 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 nonlocal jurisdiction above the county level.
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 minimis 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) of this definition. 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 and may subject them to pay city business and occupation tax:
(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.
(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, and veterinarians.
(l) Meeting with customers or potential customers, even when no sales or 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 training in connection with tangible personal property sold by the person or on its behalf. This provision does not apply to any board of directors 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.”
(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 or pay tax; provided, that it engages in no other business activities in the city. Such activities do not include those in subsection (4) of this definition.
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” is the activity engaged in by an extractor and is reportable under the extracting classification.
“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, 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” means a person who performs under contract necessary labor or mechanical services for an extractor.
“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 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” 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.
“Person” means any individual, receiver, administrator, executor, assignee, trustee in bankruptcy, trust, estate, firm, co-partnership, joint venture, club, company, 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, nonprofit, or otherwise and the United States or any instrumentality thereof.
“Taxpayer” means any “person,” as herein defined, required to have a business license under this chapter or liable for the collection 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.
Value of Products.
(1) The value of products, including by-products, extracted shall be determined by the gross proceeds derived from 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 or sale of such products or by-products by the seller.
(2) Where such products, including by-products, are extracted 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 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, including direct and indirect overhead costs. The city may prescribe rules for the purpose of ascertaining such values.
“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. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.040 Imposition of the tax – Tax or fee levied.
(A) Except as provided in subsection (B) 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:
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 0.002. 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 may be made to points outside the city.
(B) 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 $20,000, or is equal to or less than $5,000 during any quarter if on a quarterly reporting basis. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.050 Multiple activities credit when activities take place in one or more city or cities with eligible gross receipt taxes.
Repealed by Ord. 909. [Ord. 836 § 2, 2012.]
3.08.060 Deductions to prevent multiple taxation of manufacturing activities and prior to January 1, 2008, transactions involving more than one city or city with an eligible gross receipts tax.
Repealed by Ord. 909. [Ord. 836 § 2, 2012.]
3.08.065 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). [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.070 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:
(A) Gross income derived from all activities shall be allocated to the location where the activity takes place.
(B) In the case of sales of tangible personal property, the activity takes place where delivery to the buyer occurs.
(C) Repealed by Ord. 909.
(D) Repealed by Ord. 909.
(E) Repealed by Ord. 909.
(F) Gross income derived from activities taxed as services and other activities (city does not tax retail services) 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.
(1) 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:
(a) The individual is primarily assigned with the city;
(b) 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 city; or
(c) 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 his or her service in any city and the employee resides in the city.
(2) 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:
(a) The customer location is in the city; or
(b) The income-producing activity is performed in more than one location and a greater proportion of the service-income-producing 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
(c) The service-income-producing activity is performed within the city, and the taxpayer is not taxable in the customer location.
(3) 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:
(a) Separate accounting;
(b) The use of a single factor;
(c) The inclusion of one or more additional factors that will fairly represent the taxpayer’s business activity in the city; or
(d) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income.
(G) Repealed by Ord. 909.
(H) The definitions in this subsection apply throughout this section.
(1) “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.
(2) “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.
(3) “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.
(4) “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.
(5) “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.
(6) “Primarily assigned” means the business location of the taxpayer where the individual performs his or her duties.
(7) “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.
(8) “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.
(I) 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. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.080 Exemptions.
(A) Public Utilities. This chapter shall not apply to any person in respect to a business activity with respect to which utility tax liability is imposed.
(B) Investments – Dividends from Subsidiary Corporations. This chapter shall not apply to amounts derived by persons, other than those engaging in banking, loan, security, or other financial businesses, from investments or the use of money as such, and also amounts derived as dividends by a parent from its subsidiary corporations.
(C) Employees.
(1) 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.
(2) A booth renter is an independent contractor for purposes of this chapter.
(D) Amounts Derived from Sale of Real Estate. This chapter shall not apply to gross proceeds derived from the sale of real estate even if extracting occurs on the real estate.
(E) Casual and Isolated Sales. This chapter shall not apply to the gross proceeds derived from casual or isolated sales. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.090 Deductions.
In computing the license fee or tax, there may be deducted from the measure of tax the following items:
(A) 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.
(B) 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 classifications with respect to articles produced, the reported values of which, for the purposes of this tax, have been computed according to the “value of product” provisions.
(C) 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.
(D) 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. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.100 Tax part of overhead.
It is not the intention of this chapter that the taxes or fees herein levied upon persons engaging in business be construed as taxes or fees upon the purchasers or customers, 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. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]
3.08.110 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. [Ord. 909 § 1, 2016; Ord. 836 § 2, 2012.]