Select advanced computing businesses

Beginning with business activities occurring on or after April 1, 2020, a workforce education investment surcharge applies to select advanced computing businesses. The surcharge is equal to the gross income of the business subject to B&O tax under the Service and Other Activities classification, multiplied by the rate of 1.22%. This is in addition to the Service and Other Activities B&O tax rate of 1.5% (for a total of 2.72%).

The total surcharge owed by a business, or an affiliated group will not be more than $9 million annually.

Who is subject to the workforce education investment surcharge?

The surcharge applies to select advanced computing businesses, which are businesses that are members of an affiliated group with at least one member engaging in the business of advanced computing, and the affiliated group has worldwide gross revenue of more than $25 billion in the prior calendar year.

The $25 billion threshold of an affiliated group includes the worldwide gross revenue received by all affiliates, even those that are excluded from the definition of select advanced computing business or are exempt from the surcharge.

However, the income of affiliated entities that are excluded from the definition of select advanced computing business or are exempt from the surcharge is not included in the amounts reported under the Advanced Computing account.

Tax return reporting

The parent company, or other designated entity, will report the surcharge for all affiliated businesses subject to the surcharge using the "Advanced Computing" account. The Advanced Computing account must report and pay the surcharge on a quarterly basis.

For businesses that report under one or more B&O tax classifications, the surcharge applies only to business activities subject to B&O tax under the Service and Other Activities classification.

All affiliated businesses of a select advanced computing group will continue to report under the Service and Other Activities classification (1.5%) on their regular reporting frequency. This is true even if your taxable income in the prior year was more than $1 million or your affiliate group has reached the annual $9 million cap.

The parent company for any select advanced computing business or affiliated group, or any other affiliate responsible for paying the surcharge, should contact the department at 360-705-6218 or dorteateam2@dor.wa.gov to ensure the affiliated group is properly registered with the department.

Advanced computing businesses grossing $25 billion or less worldwide

Advanced computing businesses (or advanced computing affiliated groups) that do not meet the annual revenue threshold of more than $25 billion are not subject to the surcharge. However, if the advanced computing business (or affiliated group) had $1 million or more in taxable income reportable under the Service and Other Activities B&O classification in the prior calendar year, they will be subject to the Service and Other Activities B&O tax rate of 1.75%. (See Workforce Education).

Exclusions from select advanced computing business

Persons who are primarily engaged in business as a financial institution as defined in RCW 82.04.29004 (as that section existed on January 1, 2020) are not considered select advanced computing businesses and are not subject to the surcharge.

Persons who are primarily engaged within this state in any of the following activities are not considered select advanced computing businesses, and are not subject to the surcharge:

• The provision of commercial mobile service, as that term is defined in 47 U.S.C. Sec. 332(d).
• Operation and provision of access to transmission facilities and infrastructure that the person owns or leases for the transmission of voice, data, text, sound, and video using wired telecommunications networks.

Exemptions from the workforce education investment surcharge

The workforce education investment surcharge does not apply to either of the following, even if they are engaged in advanced computing:

• Any hospital as defined in RCW 70.41.020, including any hospital that comes within the scope of chapter 71.12 RCW if the hospital is also licensed under chapter 70.41 RCW.
• A provider clinic offering primary care, multispecialty and surgical services, including behavioral health services, and any affiliate of the provider clinic if the affiliate is an organization that offers health care services or provides administrative support for a provider clinic, or is an independent practice association or accountable care organization.

Definitions

Advanced computing means designing or developing computer software or computer hardware, whether directly or contracting with another person, including modifications to computer software or computer hardware, cloud computing services, or operating as a marketplace facilitator, an online search engine, or online social networking platform.

Affiliate and affiliated means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another person.

Affiliated group means a group of two or more persons that are affiliated with each other. Person includes individuals and business entities as defined in RCW 82.04.030.

Cloud computing services means on-demand delivery of computing resources, such as networks, servers, storage, applications, and services, over the internet.

Control means the possession, directly or indirectly, of more than fifty percent of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise.

Health care services means services offered by healthcare providers relating to the prevention, cure, or treatment of illness, injury, or disease.

Primarily is determined based on gross income of the business and means more than 50% of the gross income of the business comes from that activity.

Primary care means wellness prevention services and the diagnosis and treatment of health conditions.

Select advanced computing business means a person who is a member of an affiliated group with at least one member of the affiliated group engaging in the business of advanced computing, and the affiliated group has worldwide gross revenue of more than $25 billion in the immediately preceding calendar year.