WAC 146-01

"Person," "company.

"Gross income of the business"

Tax on international investment management services or other business or service activities

Exemptions - International banking facilities

Business within and without state - Apportionment

Financial institutions--Income apportionment.Effective 7/1/97

Financial institutions-Income apportionment WAC 458-20-14601 (Rule 14601) provides tax reporting instructions for financial institutions doing business both inside and outside the state of Washington. Chapter 23, 2010 Laws 1st Special Session (2ESSB 6143) changed the apportionment and nexus provisions addressed in these rules, effective June 1, 2010. The Department is amending these rules to recognize that the guidance provided in the rules does not apply after May 31, 2010.

Financial institutions-Income apportionment WAC 458-20-14601 (Rule 14601) provides tax reporting instructions for financial institutions doing business both inside and outside the state of Washington. Chapter 23, 2010 Laws 1st Special Session (2ESSB 6143) changed the apportionment and nexus provisions addressed in these rules, effective June 1, 2010. The Department amended these rules to recognize that the guidance provided in the rules does not apply after May 31, 2010.

Deductibility of Interest Received on Investments or Loans Primarily Secured by First Mortgages or Trust Deeds on Nontransient Residential Properties. The Department issued ETA 3076.2011 Deductibility of Interest Received on Investments or Loans Primarily Secured by First Mortgages or Trust Deeds on Nontransient Residential Properties. ETA 3076 previously cited to Lacey Nursing v. Department of Revenue, 128 Wn.2d 40, 53, 905 P.2d 338 (2000). The Department updated the ETA to correct this citation to Lacey Nursing v. Department of Revenue, 103 Wn.App. 169, 11 P.3d 839 (2000).

International Investment Management Services This ETA explains the qualification and application of the lower tax rate imposed under RCW 82.04.290(1) for international investment management services as defined in RCW 82.04.293. This ETA provides guidance on how to determine whether a person is primarily engaged in the business of providing investment management services and whether a person's clients qualify them as engaged in international investment management services.

Purchases of Standard Financial Information by Qualifying International Investment Management Companies

Limits on Interest Deduction for First Mortgages

B&O Tax Reporting Requirement Continues After Business Activity Stops (Trailing Nexus)

New Law Limits First Mortgage Deduction for B&O Tax

New "Economic Nexus" in Washington State May Impact "Foreign Corporations"

New "Economic Nexus" in Washington State May Impact Financial Institutions Including Out-of-state Banks and Credit Card Issuers

Taxability of Federal Instrumentalities and Federally Created Corporate Entities

New "Economic Nexus" in Washington State May Impact Franchisors

Limited Exemption for Electronically Delivered Standard Financial Information Effective August 1, 2007

Tax Attorneys and CPAs New "Economic Nexus" in Washington State May Impact Your Clients

New Apportionment Method

Registered Out-of-state Businesses Currently not Reporting Income from Service Activities - New Apportionment for Certain Income

B&O TAX - APPORTIONMENT -COSTS USED TO CALCULATE COST APPORTIONMENT PERCENTAGE.The denominator of the cost apportionment formula is the total costs attributable to the related business activities partially performed in Washington.The numerator is the cost of doing the related business activities in Washington.The cost of doing business in Washington is not costs incurred in Washington, rather it is any cost, regardless of where incurred, that relates, directly or indirectly, to the Washington activities.OVERRULING: Det. No. 89-459, 8 WTD 227 (1989); Det. No.

B&O TAX - APPORTIONMENT - INTERIM APPORTIONMENT METHOD - FINANCIAL INSTITUTION.The decision in Det. No. 89-459A, 11 WTD 17 (1991) was intended to be an interim method of apportionment applicable only to financial institutions pending the adoption of a uniform rule.Det. No. 89-459A was overruled by Rule 14601, which became fully effective as of January 1, 2000.

B&O TAX - APPORTIONMENT - WHEN AVAILABLE.When a taxpayer renders services taxable under RCW 82.04.290, maintains places of business both within and without the state, and those places of business contribute to the rendition of those services, the taxpayer shall apportion to Washington the portion of its total income derived from services rendered in Washington.

B&O TAX - APPORTIONMENT - FINANCIAL INSTITUTION.Because the location where a financial institution manages its borrowing activity is not indicative of the cost of doing business at that location, Det. No. 89-459A did not express a proper cost apportionment method under RCW 82.04.460(1) and is OVERRULED.

B&O TAX - APPORTIONMENT - PLACE OF BUSINESS.For the purposes of RCW 82.04.460(1), a place of business does not mean a physical location.Rather, if a taxpayer conducts activities in a state sufficient to create nexus under Washington standards, then the taxpayer is deemed to have a "place of business" in that state for apportionment purposes.OVERRULING: Det. No. 86-297, 2 WTD 23 (1986); Det No. 92-117, 12 WTD 147 (1993).

B&O TAX - APPORTIONMENT - SEPARATE ACCOUNTING PREFERRED.Separate accounting is the preferred method of apportioning income.However, if separate accounting is not accurate, then cost apportionment (formulary apportionment) shall be used.

B&O TAX - APPORTIONMENT - SEPARATE ACCOUNTING DISTINGUISHED FROM COST APPORTIONMENT.Cost apportionment is the formulary apportionment method used by Washington.Cost apportionment focuses on costs and uses a formula based on those costs to determine the income from Washington activities.This is distinctly different from separate accounting, which focuses on income.Therefore, separate accounting concepts are not applicable to cost apportionment.

B&O TAX - APPORTIONMENT - INCOME SUBJECT TO COST APPORTIONMENT -- RELATED BUSINESS ACTIVITIES.Only income from related activities partially performed in Washington and subject to the B&O tax under RCW 82.04.290 is apportionable under RCW 82.04.460.When a taxpayer engages in related business activities subject to the B&O tax under RCW 82.04.290, the total income from the related business activities is subject to apportionment.However, if a taxpayer engages in an unrelated, discreet, out-of-state business activity, then the income from that discreet, out-of-state business activity

B&O TAX - APPORTIONMENT - INCOME SUBJECT TO COST APPORTIONMENT.When a bank, engages in lending activities and, related to that activity, it also engages in short-term and long-term interest rate swaps, servicing of loans, and sales of loans as well as receiving up-front fees, late-payment penalties, pre-payment payments, and interest, the income from these activities is related to the lending activity and is subject to apportionment.

RCW 82.04.293 B&O TAX - INTERNATIONAL INVESTMENT MANAGEMENT SERVICES. Registered investment advisory firm primarily provided investment management services because it actively managed client portfolios and had authority to buy and sell securities on its clients’ accounts. The firm met the “primarily” standard because a majority of its services involved those qualifying activities.

RCW 82.04.293 B&O TAX - INTERNATIONAL INVESTMENT MANAGEMENT SERVICES. Because a registered investment advisory firm actively managed its clients’ portfolios and had full discretion to buy and sell securities without client approval, its services have the requisite management components that qualify as “investment management services.”

RCW 82.32.052 - AMNESTY - UNRELATED CLAIM FOR REFUND. The granting of amnesty for penalties and interest on a B&O tax liability did not bar an unrelated claim for the refund of a retail sales tax for same period

ETA 3183; RCW 82.04.290, RCW 82.04.293: B&O TAX - INTERNATIONAL INVESTMENT MANAGEMENT SERVICES - PRIMARILY ENGAGED. A company primarily engaged in providing investment management services is entitled to the preferential B&O tax rate when at least 10% of its gross income is derived from investment management services for collective investment funds with at least ten percent of their investments located outside the United States.