New Washington Tax Decision on B&O Tax
In Determination No. 06-0230, 27 WTD 1 (2008), the Washington State Department of Revenue Appeals Division affirmed the assessment of services and other B&O tax on franchisor subsidies received by a franchisee as credits against royalty payments to promote the sale of selected products at prices set by the franchisor.
The B&O tax is imposed on gross income, which is broadly defined to include, among other things, all "emoluments however designated, all without any deduction on account of the cost of tangible property sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense whatsoever paid or accrued and without deduction on account of losses." RCW 82.04.080. The Department was unpersuaded by the taxpayer's argument that the subsidies were not taxable because the franchisee did not perform services in order to receive the subsidy. Like it or not, the B&O tax is designed to capture as make income as possible. Taxpayers situated similarly to the taxpayer in this ruling may want to determine whether they are acting in a manner consistent with this recent guidance.
