Effective June 1, 2010, new laws went into effect in Washington state regarding the taxability of businesses and revenue apportionment for business and occupation (B&O) taxes. These rules only apply to royalties and service related revenues. Revenues reported under retailing, wholesaling, manufacturing, and extracting (among others) are unchanged.

Under the new rules, service revenues are sourced to where the customer receives the benefit of the taxpayer's services. If the taxpayer is taxable in more than one state, they are able to use an apportionment calculation to determine their Washington taxable revenues. Briefly, this calculation is based on the amount of sales in Washington divided by all revenues in states where the business is taxable.

Since taxpayers will not know their total yearly sales when filing monthly or quarterly reports, they may use the prior year's sales for the apportionment calculation. However, a reconciliation form must be submitted to reconcile the reported amounts to the final taxable amounts once the yearly sales are known. This reconciliation form is due by October 31, 2011 for the 2010 year and annually thereafter. Interest will be applied to any over or under-reported amounts; however no penalties will apply if the reconciliation is filed by the due date.

The reconciliation form was recently released by the Department of Revenue and is available through the link below. You can also find additional information on the apportionment calculations on the Department's website at www.dor.wa.gov. If you have questions or would like assistance with the form please contact Chris Laine,
State and Local Tax Director, at claine@bpcpa.com or (425) 289-7609.

Annual Reconciliation form: http://www.dor.wa.gov/Docs/forms/Misc/AnnualRecApportionIncome.pdf