The Washington legislature passed, and the Governor has signed, Engrossed Substitute Senate Bill 5882 which creates, expands or extends several tax incentives for businesses.
Probably the most broadly applicable section relates to advances and reimbursements for payroll costs. Businesses with several affiliated entities sometimes consolidate all employees under one Paymaster entity to simplify their accounting and reporting requirements. Typically, the Paymaster entity would act as the employer of record and be responsible for paying wages, payroll taxes and filing requirements. The Paymaster is then reimbursed for these payments by the affiliated entities.
The Department of Revenue (DOR) has recently indicated that these reimbursements to the Paymaster entity for wages and taxes are taxable revenues to the Paymaster, resulting in an additional layer of taxes for Washington companies. This legislation exempts reimbursements received by an entity which is considered the qualified employer of record for payroll and related costs from an affiliated entity. Of note, the legislation allows only one entity to be the functional employer (in charge of hiring, salary, work schedule, and layoffs) of the qualified employees, which would seem to exclude shared employees.
Many questions remain on how the DOR will interpret and apply this legislation. The DOR will be working with stakeholders on issuing further guidance related to this law, but a timeline is currently unknown. Berntson Porter will be active stakeholders in this process and will provide updates as necessary.
Sales/use tax exemptions
The legislation creates or extends several sales/use tax exemptions, including the purchase of flavoring products used by restaurants, hog fuel for manufacturers, repair charges for non-resident aircraft, standard financial information for investment management companies, mint processors, and other miscellaneous items specific to non-profits. Additionally, cover charges recently interpreted to be subject to sales tax due to nightclubs offering the "opportunity to dance" are now subject to the Service classification.
B&O tax incentives
Lower rates are enacted or extended for dairy product manufacturers, beekeepers, solar manufacturers, certain non-profits and blood banks.
Changes to future tax legislation
One new change included in this bill is the requirement for future tax incentives to include an expiration date and statement of legislative intent. The legislative intent section is included to help the legislature measure the effectiveness of the tax incentives in meeting stated goals, such as creating or preserving jobs and correcting structural deficiencies in the tax code. These statements of legislative intent may be useful in the future when disagreements arise between taxpayers and the DOR regarding how the laws should be applied, so businesses should be cognizant of them.
The complete text of the bill as well as the Final Bill Report, which summarizes the tax changes, is available through the link below.
If you have questions about the applicability of any of these incentives to your company's activities, please don't hesitate to call your Berntson Porter representative at 425.454.7990.