miller nash llp | Fall 2010 brought to you by the tax law practice team NW Tax Wire ™ What Is the Washington Business and Occupation Tax? on the lien date. Similarly, a taxpayer When we discuss Washington’s tax incurs a net income tax because the regime, we typically compare the state’s taxpayer is a resident of or has a taxable business and occupation (“B&O”) tax by Valerie Sasaki presence in a jurisdiction. Some states regime to other states’ income taxes be- valerie.sasaki@millernash.com outside this region have franchise taxes. cause it is the primary state-level tax that These are also “status” taxes, since they most businesses pay and the incidence The “three-legged-stool” model of are often based on a taxpayer’s capital of taxation is on the business (meaning state-tax systems holds that an ideal attributes. Louisiana, for example, bases that it cannot be passed directly through state-tax system will have a property tax, to the businesses’ customers). 2 its franchise tax on a taxpayer’s appor- a net income tax, and a consumption (or tioned capital. In fact, the B&O tax is an excise tax sales) tax. The theory behind the model Sales taxes, however, fall into the and is therefore more analogous to the is that it allows a state to distribute the murky area of excise taxes. Excise state’s retail sales tax than to an income tax burden among as many different taxes are broadly understood as taxes tax. 3 Professor Hellerstein identifi es groups as possible. The Pacifi c North- that are occasioned by specifi c events. the B&O tax as a form of sales tax. west provides an interesting venue to They take a number of forms; the best- It is a multistage tax that is imposed study state-tax issues. Washington has known excise taxes are sales taxes. For on a taxpayer’s revenues at each step property, gross receipts, and sales taxes example, a taxpayer buys a television of the supply chain. Because a single but no income tax. Oregon has property in Washington or Idaho. The vendor taxpayer may perform multiple activi- and net income taxes, but no sales tax. charges a sales tax on the event of the ties giving rise to B&O tax in different Idaho has property, net income, and television purchase measured by the categories, the legislature implemented sales taxes. This means that a business value of the television. Professor Hell- the multiple-activities tax credit. This operating in the tri-state area needs to erstein notes that economists identify allows a taxpayer to take a credit and be relatively sophisticated with respect fi ve major types of general sales taxes: avoid paying B&O tax on different to the differences between these tax “(1) retail sales tax[es]; (2) single-stage activities performed with respect to the systems and plan its affairs accordingly. excise [taxes] on sales by manufacturers same product. In the current era of state-tax law, (continued on page 5) or wholesalers; (3) multiple-stage ‘gross the difference between a property tax sales’ or ‘turnover’ tax[es], applying to and a net income tax is well accepted. all sales by manufacturers, wholesalers, inside this issue Property taxes are generally ad valorem and retailers; (4) ‘gross income’ tax[es], taxes based on the value of property in a 2 Who Watches the Watchmen? applying not only to sales of tangible location. Net income taxes are based on 4 Welcome to Washington . . . commodities but also to gross income a taxpayer’s income, minus expenses. from services; fi nally (5) the tax[es] on Both property and net income taxes ‘value added’[, which] may be considered are occasioned by a status. A taxpayer * * * general consumption, as well as * * incurs property taxes because the tax- * general business, tax[es].” 1 payer owns property in a jurisdiction 1 2 Jerome R. Hellerstein & Walter Hellerstein, State Taxation ¶ 12.01 (2010). 2 Nelson v. Appleway Chevrolet, Inc. , 157 P3d 847 (Wash 2007). 3 2 Hellerstein, supra, ¶ 12.02, Table 12.1. www.millernash.com
Who Watches the Watchmen? The section was intended to direct taxpayers and the government to fed- eral pronouncements when Oregon law is silent on an issue. That makes sense, by Bill Manne since the state adopts federal adjusted bill.manne@millernash.com gross income as the starting point for Oregon enjoys a reputation as a its tax calculation. noncontroversial corporate income A recent case in the Oregon Tax tax jurisdiction. The state requires a Court, however, highlighted the pecu- unitary combined fi ling method, so liarity of the statute’s second sentence: available separate company planning “When a provision of the federal income techniques have not been an issue. Two tax law is the subject of confl icting of the most dramatic changes in recent opinions by two or more federal courts, years have been the Department of Rev- the department shall follow the rule enue’s new rule on economic nexus and egon legislature truly intend to have the observed by the United States Com- the legislature’s move to single-factor Department of Revenue adhere to a po- missioner of Internal Revenue until the sales apportionment. Ho-hum . . . sition of the Commissioner of Internal confl ict is resolved.” Revenue—and not to the holdings of its Every so often, however, a client’s Dep’t of Revenue v. Marks addressed geographic circuit (the Ninth Circuit)? unique facts will highlight an unusual the question whether the taxpayer’s point of law. That was the situation that Second, in Marks , the Department property transaction met the require- gave rise to the Oregon State Bar Taxa- asserted that the court—a component ments for nonrecognition as a 1031 tion Section’s proposed 2011 legislation of the judicial branch of govern- like-kind exchange. 1 The Department to address an odd quirk of Oregon ment—was bound to the position of the of Revenue asserted that there were statutory law. federal government’s executive branch. confl icting federal opinions about Article III, Section 1, of the Oregon Section 316.032(2) of the Oregon the treatment of this type of transac- Constitution separates the authority of Revised Statutes reads as follows: tion. Thus, the Department asserted, the legislative, executive, and judicial Oregon courts are bound to the posi- “Insofar as is practicable departments of government. Except tion of the Commissioner of Internal in the administration of this in very specifi c and enumerated situ- Revenue. Judge Breithaupt determined chapter, the department shall ap- ations, the executive branch does have that there was no actual confl ict in the ply and follow the administrative authority over the judicial branch. Even federal court opinions. Thus, he found and judicial interpretations of that ORS 316.032(2) was not implicated. the federal income tax law. When (continued on next page) a provision of the federal income The issues that the Department’s Electronic Newsletter tax law is the subject of confl ict- argument raises are peculiar. ing opinions by two or more Looking to Go Green in 2011? Just First, one can easily foresee a situ- federal courts, the department trying to cut out the clutter? ation in which the Ninth Circuit Court shall follow the rule observed of Appeals issues an opinion on an Lighten the load in your mailbox by the United States Commis- issue and a second circuit (let’s say, for and help us reduce our impact sioner of Internal Revenue until the sake of argument, the Fifth Circuit on the environment by choosing the confl ict is resolved. Nothing Court of Appeals) issues an opposite to receive NW Tax Wire via e- contained in this section limits opinion on that same issue. Again, mail. Please send us an e-mail at the right or duty of the depart- for the sake of argument, let’s say the clientservices@millernash.com ment to audit the return of any IRS Commissioner decides that the or call us at 503.205.2608 to sign taxpayer or to determine any fact Fifth Circuit’s opinion is the correct up for the electronic version of relating to the tax liability of any answer. In that situation, did the Or- this newsletter. taxpayer.” 1 Dep’t of Revenue v. Marks , No. 4797 (OTC Nov. 3, 2009). 2 | miller nash llp | NW Tax Wire
Recommend
More recommend
