Loading...
HomeMy WebLinkAbout4054 Ordinance No . 4054 (Amending or Repealing Ordinances) CFN= 104 - Finance Passed - 11 f 20/2012 Amend KCC711tie 3 - New Chapter 3.28 B&O Tax Ordinance Repealing Ordinance 4052 The date rBeginning July 1, 1998'j has led to confusion This date will be deleted from cover sheets of ordinance/resolution revision pages This cover sheet will be deleted on electronic pages only, no other deletions or Changes have been made to the document—6/21/2012 -w-r ORDINANCE NO. AN ORDINANCE of the City Council of the City of Kent, Washington, repealing Ordinance No. 4052 and adopting a new Chapter 3.28 to the Kent City code entitled, "Business and Occupation Tax Gross Receipts," and establishing an effective date. RECITALS A. One of the most important functions of a government, including municipal government, in setting and implementing tax policy is to strive for fairness, consistency, equity, and efficiency. B. In recognition of concerns over the business and occupation (B & O) tax, and legislative debates over how to address those concerns, the Association of Washington Cities (AWC) and six B & O tax jurisdictions formed a Task Force to analyze these issues. C. The Task Force, with the concurrence of the majority of other Washington cities levying gross receipts B & O taxes, has developed a model ordinance that creates greater uniformity and consistency among city gross receipts business and occupation taxes; includes a system of deductions to prevent multiple taxation of the same gross receipts; makes the city gross receipts business and occupation taxes simpler, more 1 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance predictable, and easier to administer; provides examples of activities that constitute "engaging in business" and establishes safe harbors for de minimis activities that a person may engage in without having to register or becoming subject to tax; and contains sufficient flexibility to provide local control over the city tax structure. D. The model ordinance also strives to minimize any major revenue impact on cities levying gross receipts B & 0 tax; and retains local control over B & 0 tax rates, thus preserving "local control" and revenue- protection measure that are critical to all cities in the State of Washington. E. Adoption of the model ordinance is also vital in demonstrating to the Washington State Legislature that cities are sensitive to legitimate complaints over the local B & 0 tax and are serious about ensuring that it more fairly, equitably, consistently, and efficiently administered. NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF KENT, WASHINGTON, DOES HEREBY ORDAIN AS FOLLOWS: ORDINANCE SECTION 1. - -Re ealer. Ordinance No. 4052 is hereby repealed in its entirety. SECTION 2. - Amendment. Title 3 of the Kent City Code is amended to adopt a new Chapter 3.28, entitled "Business and Occupation Tax - Gross Receipts," as follows: CHAPTER 3.28 Business and Occupation Tax - Gross Receipts 2 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance Sec. 3.28.010. Purpose. This section implements Washington Constitution Article XI, Sec. 12 and RCW 35A.82.020 and 35A.11.020, which gives municipalities the authority to license for revenue. In the absence of a legal or constitutional prohibition, municipalities have the power to define taxation categories as they see fit in order to respond to the unique concerns and responsibilities of local government. The city of Kent has developed over the last ' half century into a major manufacturing/warehousing hub. However, due to recent changes in sales tax and property tax laws, the city no longer receives sufficient revenue from warehousing activities to support the transportation infrastructure needed to serve warehouse activities. As a result, the city no longer generates sufficient revenue to maintain the level of general city services that supports this business base, and to maintain and operate its considerable past investment in local streets and arterial infrastructure. This ordinance, then, is intended to generate additional revenue to maintain, repair, and operate the city`s existing transportation network in order to fairly allocate the cost to provide those services and to maintain that infrastructure to those business entities that contribute most to the use and degradation of city streets. Sec. 3.28.020. Exercise of revenue license power. The provisions of this chapter shall be deemed an exercise of the power of the city to license for revenue. The provisions of this chapter are subject to periodic statutory or administrative rule changes or judicial interpretations of the ordinances or rules. The responsibility rests with the licensee or taxpayer to reconfirm tax computation procedures and remain in compliance with the city code. Sec. 3.28.028. Administrative Provisions. The administrative provisions contained in chapter 3.29 shall be fully applicable to the 3 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance provisions of this chapter except as expressly stated to the contrary herein. Sec. 3.28.030. Definitions. In construing the provisions of this chapter, the following definitions shall be applied. Words in the singular number shall include the plural, and the plural shall include the singular. A. "Advance," "reimbursement." (1) "Advance" means money or credits received by a taxpayer from a customer or client with which the taxpayer is to pay costs or fees on behalf of the customer or client. (2) "Reimbursement" means money or credits received from a customer or client to repay the taxpayer for money or credits expended by the taxpayer in payment of costs or fees of the customer or client. B. "Agricultural product," "farmer." (1) "Agricultural product" means any product of plant cultivation or animal husbandry including, but not limited to: A product of horticulture, grain cultivation, vermiculture, viticulture, or aquaculture as defined in RCW 15.85.020; plantation Christmas trees; turf; or any animal including but not limited to an animal that is a private sector cultured aquatic product as defined in RCW 15.85.020, or a bird, or insect, or the substances obtained from such an animal. "Agricultural product" does not include animals intended to be pets. (2) "Farmer" means any person engaged in the business of growing or producing, upon the person's own lands or upon the lands in which the person has a present right of possession, any agricultural product whatsoever for sale. "Farmer" does not include a person using such products as ingredients in a manufacturing process, or a person growing or producing such products for the person's own consumption. 4 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance "Farmer" does not include a person selling any animal or substance obtained therefrom in connection with the person's business of operating a stockyard or a slaughter or packing house. "Farmer" does not include any person in respect to the business of taking, cultivating, or raising timber. C. "Business." "Business" includes all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly. D. "Business and occupation tax." "Business and occupation tax" or "gross receipts tax" means a tax imposed on or measured by the value of products, the gross income of the business, or the gross proceeds of sales, as the case may be, and that is the legal liability of the business. E. "Commercial or industrial use." "Commercial or industrial use" means the following uses of products, including by-products, by the extractor or manufacturer thereof: (1) Any use as a consumer; and (2) The manufacturing of articles, substances or commodities; F. "Competitive telephone service." "Competitive telephone service" means the providing by any person of telecommunications equipment or apparatus, or service related to that equipment or apparatus such as repair or maintenance service, if the equipment or apparatus is of a type which can be provided by persons that are not subject to regulation as telephone companies under Title 80 RCW and for which a separate charge is made. G. "Consumer." "Consumer" means the following: 5 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (1) Any person who purchases, acquires, owns, holds, or uses any tangible or intangible personal property irrespective of the nature of the person's business and including, among others, without limiting the scope hereof, persons who install, repair, clean, alter, improve, construct, or decorate real or personal property of or for a consumer other than for the purpose of: (a) resale as tangible or intangible personal property in the regular course of business; (b) incorporating such property as an ingredient or component of real or personal property when installing, repairing, cleaning, altering, imprinting, improving, constructing, or decorating such real or personal property of or for consumers; (c) incorporating such property as an ingredient or component of a new product or as a chemical used in processing a new product when the primary purpose of such chemical is to create a chemical reaction directly through contact with an ingredient of a new product; or (d) consuming the property in producing ferrosilicon which is subsequently used in producing magnesium for sale, if the primary purpose of such property is to create a chemical reaction directly through contact with an ingredient of ferrosilicon; (2) Any person engaged in any business activity taxable under section 3.28.050(1)(g); (3) Any person who purchases, acquires, or uses any competitive telephone service as herein defined, other than for resale in the regular course of business; (4) Any person who purchases, acquires, or uses any personal, business, or professional service defined as a retail sale or retail service in section 3,28.030, other than for resale in the regular course of business; (5) Any person who is an end user of software; 6 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance (6) Any person engaged in the business of "public road construction" in respect to tangible personal property when that person incorporates the tangible personal property as an ingredient or component of a publicly-owned street, place, road, highway, easement, right-of-way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle by installing, placing or spreading the property in or upon the right- of-way of a publicly-owned street, place, road, highway, easement, bridge, tunnel, or trestle or in or upon the site of a publicly-owned mass public transportation terminal or parking facility; (7) Any person who is an owner, lessee or has the right of possession to or an easement in real property which is being constructed, repaired, decorated, improved, or otherwise altered by a person engaged in business; (8) Any person who is an owner, lessee, or has the right of possession to personal property which is being constructed, repaired, improved, cleaned, imprinted, or otherwise altered by a person engaged in business; (9) Any person engaged in "government contracting." Any such person shall be a consumer within the meaning of this subsection in respect to tangible personal property incorporated into, installed in, or attached to such building or other structure by such person. Nothing contained in this or any other subsection of this section shall be construed to modify any other definition of "consumer." H. "Delivery" means the transfer of possession of tangible personal property between the seller and the buyer or the buyer's representative. Delivery to an employee of a buyer is considered delivery to the buyer. Transfer of possession of tangible personal property occurs when the buyer or the buyer's representative first takes physical control of the 7 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance property or exercises dominion and control over the property. Dominion and control means the buyer has the ability to put the property to the buyer's own purposes. It means the buyer or the buyer's representative has made the final decision to accept or reject the property, and the seller has no further right to possession of the property and the buyer has no right to return the property to the seller, other than under a warranty contract. A buyer does not exercise dominion and control over tangible personal property merely by arranging for shipment of the property from the seller to itself. A buyer's representative is a person, other than an employee of the buyer, who is authorized in writing by the buyer to receive tangible personal property and take dominion and control by making the final decision to accept or reject the property. Neither a shipping company nor a seller can serve as a buyer's representative. It is immaterial where the contract of sale is negotiated or where the buyer obtains title to the property. Delivery terms and other provisions of the Uniform Commercial Code (Title 62A RCW) do not determine when or where delivery of tangible personal property occurs for purposes of taxation. I. "Director." "Director" means the finance director of the city or any officer, agent or employee of the city designated to act on the director's behalf. J. "Digital automated service," "digital code," and "digital goods." "Digital automated service," "digital code," and "digital goods" have the same meaning as in RCW 82.04.192. K. "Digital products." "Digital products" means digital goods, digital codes, digital automated services, and the services described in RCW 82.04.050(2)(g) and (6)(b). 8 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance L. "Eligible gross receipts tax." The term "eligible gross receipts tax" means a tax which; (1) Is imposed on the act or privilege of engaging in business activities within section .050; and (2) Is measured by the gross volume of business, in terms of gross receipts and is not an income tax or value added tax; and (3) Is not, pursuant to law or custom, separately stated from the sales price; and (4) Is not a sales or use tax, business license fee, franchise fee, royalty or severance tax measured by volume or weight, or concession charge, or payment for the use and enjoyment of property, property right or a privilege; and (5) Is a tax imposed by a local jurisdiction, whether within or without the State of Washington, and not by a country, state, province, or any other non-local jurisdiction above the county level. M. "Engaging in business." (1) The term "engaging in business" means commencing, conducting, or continuing in business, and also the exercise of corporate or franchise powers, as well as liquidating a business when the liquidators thereof hold themselves out to the public as conducting such business. (2) This section sets forth examples of activities that constitute engaging in business in the city, and establishes safe harbors for certain of those activities so that a person who meets the criteria may engage in de minimis business activities in the city without having to register and obtain a business license or pay city business and occupation taxes. The activities listed in this section are illustrative only and are not intended to narrow the definition of "engaging in business" in subsection (1). If an activity is not listed, whether it constitutes engaging in business in the city 9 Amend KCC Title 3 New Chapter 3.28 B A O Tax Ordinance shall be determined by considering all the facts and circumstances and applicable law. (3) Without being all inclusive, any one of the following activities conducted within the city by a person, or its employee, agent, representative, independent contractor, broker or another acting on its behalf constitutes engaging in business and requires a person to register and obtain a business license. (a) Owningr rentingr leasing, maintaining, or having the right to use, or using, tangible personal property, intangible personal property, or real property permanently or temporarily located in the city. (b) Owning, renting, leasing, using, or maintaining, an office, place of business, or other establishment in the city. (c) Soliciting sales. (d) Making repairs or providing maintenance or service to real or tangible personal property, including warranty work and property maintenance. (e) Providing technical assistance or service, including quality control, product inspections, warranty work, or similar services on or in connection with tangible personal property sold by the person or on its behalf. (f) Installing, constructing, or supervising installation or construction of, real or tangible personal property. . (g) Soliciting, negotiating, or approving franchise, license, or other similar agreements. (h) Collecting current or delinquent accounts. (i) Picking up and transporting tangible personal property, solid waste, construction debris, or excavated materials. (j) Providing disinfecting and pest control services, employment and labor pool services, home nursing care, janitorial services, appraising, landscape architectural services, security system 10 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance services, surveying, and real estate services including the listing of homes and managing real property. (k) Rendering professional services such as those provided by accountants, architects, attorneys, auctioneers, consultants, engineers, professional athletes, barbers, baseball clubs and other sports organizations, chemists, consultants, psychologists, court reporters, dentists, doctors, detectives, laboratory operators, teachers, veterinarians. (1) Meeting with customers or potential customers, even when no sales or orders are solicited at the meetings. (m) Training or recruiting agents, representatives, independent contractors, brokers or others, domiciled or operating on a job in the city, acting on its behalf, or for customers or potential customers. (n) Investigating, resolving, or otherwise assisting in resolving customer complaints. (o) In-store stocking or manipulating products or goods, sold to and owned by a customer, regardless of where sale and delivery of the goods took place. (p) Delivering goods in vehicles owned, rented, leased, used, or maintained by the person or another acting on its behalf. (q) Accepting or executing a contract with the city, irrespective of whether goods or services are delivered within or without the city, or whether the person's office or place of business is within or without the city. (4) If a person, or its employee, agent, representative, independent contractor, broker or another acting on the person's behalf, engages in no other activities in or with the city but the following, it need not register and obtain a business license and pay tax. (a) Meeting with suppliers of goods and services as a customer. 11 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (b) Meeting with government representatives in their official capacity, other than those performing contracting or purchasing functions. (c) Attending meetings, such as board meetings, retreats, seminars, and conferences, or other meetings wherein the person does not provide training in connection with tangible personal property sold by the person or on its behalf. This provision does not apply to any board of director member or attendee engaging in business, such as a member of a board of directors who attends a board meeting. (d) Renting tangible or intangible property as a customer when the property is not used in the city. (e) Attending, but not participating in a "trade show" or "multiple vendor events". Persons participating at a trade show shall review the city's trade show or multiple vendor event ordinances. (f) Conducting advertising through the mail. (g) Soliciting sales by phone from a location outside the city. (5) A seller located outside the city merely delivering goods into the city by means of common carrier is not required to register and obtain a business license, provided that it engages in no other business activities in the city. Such activities do not include those in subsection (4). (6) The city expressly intends that engaging in business includes any activity sufficient to establish nexus for purposes of applying the tax under the law and the constitutions of the United States and the State of Washington. Nexus is presumed to continue as long as the taxpayer benefits from the activity that constituted the original nexus generating contact or subsequent contacts. N. "Extracting." "Extracting" is the activity engaged in by an extractor and is reportable under the extracting classification. 12 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance O. "Extractor." "Extractor" means every person who from the person's own land or from the land of another under a right or license granted by lease or contract, either directly or by contracting with others for the necessary labor or mechanical services, for sale or for commercial or industrial use, mines, quarries, takes or produces coal, oil, natural gas, ore, stone, sand, gravel, clay, mineral or other natural resource product; or fells, cuts or takes timber, Christmas trees, other than plantation Christmas trees, or other natural products; or takes fish, shellfish, or other sea or inland water foods or products. "Extractor" does not include persons performing under contract the necessary labor or mechanical services for others; or persons meeting the definition of farmer. P. "Extractor for Hire." "Extractor for hire" means a person who performs under contract necessary labor or mechanical services for an extractor. Q. "Gross income of the business." "Gross income of the business" means the value proceeding or accruing by reason of the transaction of the business engaged in and includes gross proceeds of sales, compensation for the rendition of services, gains realized from trading in stocks, bonds, or other evidences of indebtedness, interest, discount, rents, royalties, fees, commissions, dividends, and other 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 any deduction on account of losses. R. "Gross proceeds of sales." "Gross proceeds of sales" means the value proceeding or accruing from the sale of tangible personal property, 13 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance digital goods, digital codes, digital automated services or for other services rendered, without any deduction on account of the cost of property sold, the cost of materials used, labor costs, interest, discount paid, delivery costs, taxes, or any other expense whatsoever paid or accrued and without any deduction on account of losses. S. "Manufacturing." "Manufacturing" means the activity conducted by a manufacturer and is reported under the manufacturing classification. T. "Manufacturer," "to manufacture." (1) "Manufacturer" means every person who, either directly or by contracting with others for the necessary labor or mechanical services, manufactures for sale or for commercial or industrial use from the person's own materials or ingredients any products. When the owner of equipment or facilities furnishes, or sells to the customer prior to manufacture, materials or ingredients equal to less than twenty percent (20%) of the total value of all materials or ingredients that become a part of the finished product, the owner of the equipment or facilities will be deemed to be a processor for hire, and not a manufacturer. A business not located in this city that is the owner of materials or ingredients processed for it in this city by a processor for hire shall be deemed to be engaged in business as a manufacturer in this city. (2) "To manufacture" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials or ingredients so that as a result thereof a new, different or useful product is produced for sale or commercial or industrial use, and shall include: (a) The production of special made or custom made articles; 14 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (b) The production of dental appliances, devices, restorations, substitutes, or other dental laboratory products by a dental laboratory or dental technician; (c) Crushing and/or blending of rock, sand, stone, gravel, or ore; and (d) The producing of articles for sale, or for commercial or industrial use from raw materials or prepared materials by giving such materials, articles, and substances of trade or commerce new forms, qualities, properties or combinations including, but not limited to, such activities as making, fabricating, processing, refining, mixing, slaughtering, packing, aging, curing, mild curing, preserving, canning, and the preparing and freezing of fresh fruits and vegetables. "To manufacture" shall not include the production of digital goods or the production of computer software if the computer software is delivered from the seller to the purchaser by means other than tangible storage media, including the delivery by use of a tangible storage media where the tangible storage media is not physically transferred to the purchaser. U. Newspaper, magazine, periodical. Newspaper means a publication offered for sale regularly at stated intervals at least once a week and on printed newsprint in tabloid or broadsheet format folded P loosely together without stapling, glue, or any other binding of any kind. "Magazine, or periodical" means any printed publication, other than a newspaper, issued and offered for sale regularly at stated intervals at least once every three (3) months, including any supplement or special edition of the publication. Any publication meeting this definition qualifies regardless of its content. 15 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance V. "Non-profit corporation or non-profit organization." "Non-profit corporation or non-profit organization" means a corporation or organization in which no part of the income can be distributed to its members, directors, or officers and that holds a current tax exempt status as provided under Sec. 501(c)(3) of the Internal Revenue Code, as hereafter amended, or is specifically exempted from the requirement to apply for its tax exempt status under Sec. 501(c)(3) of the Internal Revenue Code, as hereafter amended. Where the term non-profit organization is used, it is meant to include a non-profit corporation. W. "Office", "place of business." "Office" or "place of business" means a fixed location or permanent facility where the regular business of the person is conducted and which is either owned by the person or over which the person exercises legal dominion and control. The regular business of the person is presumed conducted at a location: (1) Whose address the person uses as its business mailing address; (2) Where the place of primary use is shown on a telephone billing or a location containing a telephone line listed in a public telephone directory or other similar publication under the business name; (3) Where the person holds itself out to the general public as conducting its regular business through signage or other means; and (4) Where the person is required to obtain any appropriate state and local business license or registration unless they are exempted by law from such requirement. A vehicle such as a pick-up, van, truck, boat or other motor vehicle is not an office or place of business. A post office box is not an office or place of business. If a person has an office or place of business, the person's home is not an office or place of business unless it meets the criteria for office or place of 16 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance business above. If a person has no office or place of business, the person's home or apartment within the city will be deemed the place of business. X. "Person." "Person" means any individual, receiver, administrator, executor, assignee, trustee in bankruptcy, trust, estate, firm, co- partnership, joint venture, club, company, joint stock company, business trust, municipal corporation, political subdivision of the State of Washington, corporation, limited liability company, association, society, or any group of individuals acting as a unit, whether mutual, cooperative, fraternal, non-profit, or otherwise and the United States or any instrumentality thereof. Y. "Processing for hire." "Processing for hire" means the performance of labor and mechanical services upon materials or ingredients belonging to others so that as a result a new, different or useful product is produced for sale, or commercial or industrial use. A processor for hire is any person who would be a manufacturer if that person were performing the labor and mechanical services upon that person's own materials or ingredients. If a person furnishes, or sells to the customer prior to manufacture, materials or ingredients equal to twenty percent (20%) or more of the total value of all materials or ingredients that become a part of the finished product, the person will be deemed to be a manufacturer and not a processor for hire. Z. "Product", "Byproduct." "Product" means tangible personal property, including articles, substances, or commodities created, brought forth, extracted, or manufactured by human or mechanical effort. "Byproduct" means any additional product, other than the principal or intended product, which results from extracting or manufacturing activities 17 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance and which has a market value without regard to whether or not such additional product was an expected or intended result of the extracting or manufacturing activities. AA. "Retailing." `Retailing" means the activity of engaging in making sales at retail and is reported under the retailing classification. BB. "Retail Service." 'Retail service" shall include the sale of or charge made for personal, business, or professional services including amounts designated as interest, rents, fees, admission, and other service emoluments however designated, received by persons engaging in the following business activities: (1) Amusement and recreation services including but not limited to golfr pool, billiards, skating, bowling, swimming, bungee jumping, ski lifts and tows, basketball, racquet ball, handball, squash, tennis, batting cages, day trips for sightseeing purposes, and others, when provided to consumers. "Amusement and recreation services" also include the provision of related facilities such as basketball courts, tennis courts, handball courts, swimming pools, and charges made for providing the opportunity to dance. The term "amusement and recreation services" does not include instructional lessons to learn a particular activity such as tennis lessons, swimming lessons, or archery lessons. (2) Abstract, title insurance, and escrow services; (3) Credit bureau services; (4) Automobile parking and storage garage services; (5) Landscape maintenance and horticultural services but excluding (i) horticultural services provided to farmers and (ii) pruning, trimming, repairing, removing, and clearing of trees and brush near electric transmission or distribution lines or equipment, if performed by or at the direction of an electric utility; 18 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance (6) Service charges associated with tickets to professional sporting events; and (7) The following personal services: Physical fitness services, tanning salon services, tattoo parlor services, steam bath services, turkish bath services, escort services, and dating services. (8) The term shall also include the renting or leasing of tangible personal property to consumers and the rental of equipment with an operator. CC. "Sale," "casual or isolated sale." (1) "Sale" means any transfer of the ownership of, title to, or possession of, property for a valuable consideration and includes any activity classified as a "sale at retail," "retail sale," or "retail service." It includes renting or leasing, conditional sale contracts, leases with option to purchase, and any contract under which possession of the property is given to the purchaser but title is retained by the vendor as security for the payment of the purchase price. It also includes the furnishing of food, drink, or meals for compensation whether consumed upon the premises or not. (2) "Casual or isolated sale" means a sale made by a person who is not engaged in the business of selling the type of property involved on a routine or continuous basis. DD. "Sale at retail," "retail sale." (1) "Sale at retail" or "retail sale" means every sale of tangible personal property (including articles produced, fabricated, or imprinted) to all persons irrespective of the nature of their business and including, among others, without limiting the scope hereof, persons who install, repair, clean, alter, improve, construct, or decorate real or personal 19 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance property of or for consumers, other than a sale to a person who presents a resale certificate under RCW 82.04.470 and who: (a) Purchases for the purpose of resale as tangible personal property in the regular course of business without intervening use by such person; or (b) Installs, repairs, cleans, alters, imprints, improves, constructs, or decorates real or personal property of or for consumers, if such tangible personal property becomes an ingredient or component of such real or personal property without intervening use by such person; or (c) Purchases for the purpose of consuming the property purchased in producing for sale a new article of tangible personal property or substance, of which such property becomes an ingredient or component or is a chemical used in processing, when the primary purpose of such chemical is to create a chemical reaction directly through contact with an ingredient of a new article being produced for sale; or (d) Purchases for the purpose of consuming the property purchased in producing ferrosilicon which is subsequently used in producing magnesium for sale, if the primary purpose of such property is to create a chemical reaction directly through contact with an ingredient of ferrosilicon; or (e) Purchases for the purpose of providing the property to consumers as part of competitive telephone service, as defined in RCW 82.04.065. The term shall include every sale of tangible personal property which is used or consumed or to be used or consumed in the performance of any activity classified as a "sale at retail" or "retail sale" even though such property is resold or utilized as provided in (a), (b), (c), (d), or (e) of this subsection following such use. (f) Purchases for the purpose of satisfying the person's obligations under an extended warranty as defined in subsection (7) of 20 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance this section, if such tangible personal property replaces or becomes an ingredient or component of property covered by the extended warranty without intervening use by such person. (2) "Sale at retail" or "retail sale" also means every sale of tangible personal property to persons engaged in any business activity which is taxable under section 3.28.050(1)(g). (3) "Sale at retail" or "retail sale" shall include the sale of or charge made for tangible personal property consumed and/or for labor and services rendered in respect to the following: (a) The installing, repairing, cleaning, altering, imprinting, or improving of tangible personal property of or for consumers, including charges made for the mere use of facilities in respect thereto, but excluding charges made for the use of coin-operated laundry facilities when such facilities are situated in an apartment house, rooming house, or mobile home park for the exclusive use of the tenants thereof, and also excluding sales of laundry service to nonprofit health care facilities, and excluding services rendered in respect to live animals, birds and insects; (b) The constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property of or for consumers, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation, and shall also include the sale of services or charges made for the clearing of land and the moving of earth excepting the mere leveling of land used in commercial farming or agriculture; (c) The charge for labor and services rendered in respect to constructing, repairing, or improving any structure upon, above, or under any real property owned by an owner who conveys the property by title, possession, or any other means to the person performing such 21 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance construction, repair, or improvement for the purpose of performing such construction, repair, or improvement and the property is then reconveyed by title, possession, or any other means to the original owner; (d) The sale of or charge made for labor and services rendered in respect to the cleaning, fumigating, razing or moving of existing buildings or structures, but shall not include the charge made for janitorial services; and for purposes of this section the term "janitorial services" shall mean those cleaning and caretaking services ordinarily performed by commercial janitor service businesses including, but not limited to, wall and window washing, floor cleaning and waxing, and the cleaning in place of rugs, drapes and upholstery. The term "janitorial services" does not include painting, papering, repairing, furnace or septic tank cleaning, snow removal or sandblasting; (e) The sale of or charge made for labor and services rendered in respect to automobile towing and similar automotive transportation services, but not in respect to those required to report and pay taxes under chapter 82.16 RCW; (f) The sale of and charge made for the furnishing of lodging and all other services, except telephone business and cable service, by a hotel, rooming house, tourist court, motel, trailer camp, and the granting of any similar license to use real property, as distinguished from the renting or leasing of real property, and it shall be presumed that the occupancy of real property for a continuous period of one month or more constitutes a rental or lease of real property and not a mere license to use or enjoy the same. For the purposes of this subsection, it shall be presumed that the sale of and charge made for the furnishing of lodging for a continuous period of one month or more to a person is a rental or lease of real property and not a mere license to enjoy the same; (g) The installing, repairing, altering, or improving of digital goods for consumers; 22 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (h) The sale of or charge made for tangible personal property, labor and services to persons taxable under (a), (b), (c), (d), (e), (f), and (g) of this subsection when such sales or charges are for property, labor and services which are used or consumed in whole or in part by such persons in the performance of any activity defined as a "sale at retail" or "retail sale" even though such property, labor and services may be resold after such use or consumption. Nothing contained in this subsection shall be construed to modify subsection (1) of this section and nothing contained in subsection (1) of this section shall be construed to modify this subsection. (4) "Sale at retail" or "retail sale" shall also include the providing of competitive telephone service to consumers. (5)(a)"Sale at retail" or "retail sale" shall also include the sale of prewritten software other than a sale to a person who presents a resale certificate under RCW 82.04.470, regardless of the method of delivery to the end user. For purposes of this subsection (5)(a) the sale of prewritten computer software includes the sale of or charge made for a key or an enabling or activation code, where the key or code is required to activate prewritten computer software and put the software into use. There is no separate sale of the key or code from the prewritten computer software, regardless of how the sale may be characterized by the vendor or by the purchaser. The term "sale at retail" or "retail sale" does not include the sale of or charge made for: (i) Custom software; or (ii) The customization of prewritten software. (b)(i) The term also includes the charge made to consumers for the right to access and use prewritten computer software, where possession of the software is maintained by the seller or a third party, 23 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance regardless of whether the charge for the service is on a per use, per user, per license, subscription, or some other basis. (ii)(A)The service described in (b)(i) of this subsection 5 includes the right to access and use prewritten software to perform data processing. (B) For purposes of this subsection (b)(ii) "data processing" means the systematic performance of operations on data to extract the required information in an appropriate form or to convert the data to usable information. Data processing includes check processing, image processing, form processing, survey processing, payroll processing, claim processing, and similar activities. (6) "Sale at retail" or "retail sale" shall also include the sale of or charge made for labor and services rendered in respect to the building, repairing, or improving of any street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle which is owned by a municipal corporation or subdivision of he state the State of Washington, or the United politicalsub s t g y States and which is used or to be used primarily for foot or vehicular traffic including mass transportation vehicles of any kind. (7) "Sale at retail" or "retail sale" shall also include the sale of or charge made for an extended warranty to a consumer. For purposes of this subsection, "extended warranty" means an agreement for a specified duration to perform the replacement or repair of tangible personal property at no additional charge or a reduced charge for tangible personal property, labor, or both, or to provide indemnification for the replacement or repair of tangible personal property, based on the occurrence of specified events. The term "extended warranty" does not include an agreement, otherwise meeting the definition of extended warranty in this subsection, if no separate charge is made for the agreement and the value 24 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance of the agreement is included in the sales price of the tangible personal property covered by the agreement. (8) "Sale at retail" or "retail sale" shall also include the sale of or charge made for labor and services rendered in respect to the constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing, or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation. (9) "Sale at retail" or "retail sale" shall not include the sale of services or charges made for the clearing of land and the moving of earth of or for the United States, any instrumentality thereof, or a county or city housing authority. Nor shall the term include the sale of services or charges made for cleaning up for the United States, or its instrumentalities, radioactive waste and other byproducts of weapons production and nuclear research and development. (10) "Sale at retail" or "retail sale" shall not include the sale of or charge made for labor and services rendered for environmental remedial action. (11) "Sale at retail" or "retail sale" shall also include the following sales to consumers of digital goods, digital codes, and digital automated services: (a) Sales in which the seller has granted the purchaser the right of permanent use; (b) Sales in which the seller has granted the purchaser a right of use that is less than permanent; (c) Sales in which the purchaser is not obligated to make continued payment as a condition of the sale; and 25 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance (d) Sales in which the purchaser is obligated to make continued payment as a condition of the sale. A retail sale of digital goods, digital codes, or digital automated services under this subsection 3.28.030.DD(11) includes any services provided by the seller exclusively in connection with the digital goods, digital codes, or digital automated services, whether or not a separate charge is made for such services. For purposes of this subsection, "permanent" means perpetual or for an indefinite or unspecified length of time. A right of permanent use is presumed to have been granted unless the agreement between the seller and the purchaser specifies or the circumstances surrounding the transaction suggest or indicate that the right to use terminates on the occurrence of a condition subsequent. (12) "Sale at retail" or "retail sale" shall also include the installing, repairing, altering, or improving of digital goods for consumers. EE. "Sale at wholesale," "wholesale sale." "Sale at wholesale" or "wholesale sale" means any sale of tangible personal property, digital goods, digital codes, digital automated services, prewritten computer software, or services described in section 3.28.030.DD(5)(b)(i), which is not a retail sale, and any charge made for labor and services rendered for persons who are not consumers, in respect to real or personal property and retail services, if such charge is expressly defined as a retail sale or retail service when rendered to or for consumers. Sale at wholesale also includes the sale of telephone business to another telecommunications company as defined in RCW 80.04.010 for the purpose of resale, as contemplated by RCW 35.21.715. FF. "Services." "Services" includes those activities that do not fall within one of the other tax classifications used by the city. 26 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance GG. "Software", "prewritten software," "custom software," "customization of canned software," "master copies," "retained rights." (1) "Prewritten software" or "canned software" means computer software, including prewritten upgrades, that is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. Prewritten computer software includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than such purchaser. Where a person modifies or enhances computer software of which such persons is not the author or creator, the person shall be deemed to be the author or creator only of the person's modifications or enhancements. Prewritten computer software or a prewritten portion thereof that is modified or enhanced to any degree, where such modification or enhancement is designed and developed to the specifications of a specific purchaser, remains prewritten computer software; however where there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser for the modification or enhancement, the modification or enhancement shall not constitute prewritten computer software. (2) "Custom software" means software created for a single person. (3) "Customization of canned software" means any alteration, modification, or development of applications using or incorporating canned software to specific individualized requirements of a single person. Customization of canned software includes individualized configuration of software to work with other software and computer hardware but does not include routine installation. Customization of canned software does not 27 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance change the underlying character or taxability of the original canned software. (4) "Master copies" of software means copies of software from which a software developer, author, inventor, publisher, licensor, sublicensor, or distributor makes copies for sale or license. The software encoded on a master copy and the media upon which the software resides are both ingredients of the master copy. (5) "Retained rights" means any and all rights, including intellectual property rights such as those rights arising from copyrights, patents, and trade secret laws, that are owned or are held under contract or license by a software developer, author, inventor, publisher, licensor, sublicensor, or distributor. (6) "Software" means any information, program, or routine, or any set of one (1) or more programs, routines, or collections of information used, or intended for use, to convey information that causes one or more computers or pieces of computer-related peripheral equipment, or any combination thereof, to perform a task or set of tasks. "Software" includes the associated documentation, materials, or ingredients regardless of the media upon which that documentation is provided, that describes the code and its use, operation, and maintenance and that typically is delivered with the code to the consumer. All software is classified as either canned or custom. HH. "Taxpayer." "Taxpayer" means any "person", as herein defined, required to have a business license under this chapter or liable for the collection of any tax or fee under this chapter, or who engages in any business or who performs any act for which a tax or fee is imposed by this chapter. 28 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance II. "Tuition fee." "Tuition fee" includes library, laboratory, health service and other special fees, and amounts charged for room and board by an educational institution when the property or service for which such charges are made is furnished exclusively to the students or faculty of such institution. "Educational institution," as used in this section, means only those institutions created or generally accredited as such by the state and includes educational programs that such educational institution cosponsors with a non-profit organization, as defined by the Internal Revenue Code Section 501(c)(3), as hereafter amended, if such educational institution grants college credit for coursework successfully completed through the educational program, or an approved branch campus of a foreign degree-granting institution in compliance with chapter 2813.90 RCW, and in accordance with RCW 82.04.4332 or defined as a degree-granting institution under RCW 28B.85.010(3) and accredited by an accrediting association recognized by the United States secretary of education, and offering to students an educational program of a general academic nature or those institutions which are not operated for profit and which are privately endowed under a deed of trust to offer instruction in trade, industry, and agriculture, but not including specialty schools, business colleges, other trade schools, or similar institutions. 33. "Value proceeding or accruing." "Value proceeding or accruing" means the consideration, whether money, credits, rights, or other property expressed in terms of money, a person is entitled to receive or which is actually received or accrued. The term shall be applied, in each case, on a cash receipts or accrual basis according to which method of accounting is regularly employed in keeping the books of the taxpayer. KK. "Value of products." 29 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance (1) The value of products, including by-products, extracted or manufactured, shall be determined by the gross proceeds derived from the sale thereof whether such sale is at wholesale or at retail, to which shall be added all subsidies and bonuses received from the purchaser or from any other person with respect to the extraction, manufacture, or sale of such products or by-products by the seller. (2) Where such products, including by-products, are extracted or manufactured for commercial or industrial use; and where such products, including by-products, are shipped, transported or transferred out of the city, or to another person, without prior sale or are sold under circumstances such that the gross proceeds from the sale are not indicative of the true value of the subject matter of the sale; the value shall correspond as nearly as possible to the gross proceeds from sales in this state of similar products of like quality and character, and in similar quantities by other taxpayers, plus the amount of subsidies or bonuses ordinarily payable by the purchaser or by any third person with respect to the extraction, manufacture, or sale of such products. In the absence of sales of similar products as a guide to value, such value may be determined upon a cost basis. In such cases, there shall be included every item of cost attributable to the particular article or article extracted or manufactured, including direct and indirect overhead costs. The director may prescribe rules for the purpose of ascertaining such values. (3) Notwithstanding subsection (2) above, the value of a product manufactured or produced for purposes of serving as a prototype for the development of a new or improved product shall correspond to: (a) the retail selling price of such new or improved product when first offered for sale; or (b) the value of materials incorporated into the prototype in cases in which the new or improved product is not offered for sale. 30 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance ILL. "Wholesaling." "Wholesaling" means engaging in the activity of making sales at wholesale, and is reported under the wholesaling classification. Sec. 3.28.040. Agency — sales and services by agent, consignee, ballee, factor or auctioneer. (1) Sales in own name - sales or purchases as agent. Every person, including agents, consignees, bailees, factors or auctioneers having either actual or constructive possession of tangible personal property or having possession of the documents of title thereto, with power to sell such tangible personal property in the person's own name and actually so selling shall be deemed the seller of such tangible personal property within the meaning of this chapter. The burden shall be upon the taxpayer in every case to establish the fact that such taxpayer is not engaged in the business of selling tangible personal property but is acting merely as broker or agent in promoting sales or making purchases for a principal. Such claim will be recognized only when the contract or agreement between such persons clearly establishes the relationship of principal and agent and when the following conditions are complied with: (a) The books and records of the broker or agent show the transactions were made in the name and for the account of the principal, and show the name of the actual owner of the property for whom the sale was made, or the actual buyer for whom the purchase was made. (b) The books and records show the amount of the principal's gross sales, the amount of commissions and any other incidental income derived by the broker or agent from such sales. The principal's gross sales must not be reflected as the agent's income on any of the agent's books and records. Commissions must be computed 31 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance according to a set percentage or amount, which is agreed upon in the agency agreement. (c) No ownership rights may be conferred to the agent unless the principal refuses to pay, or refuses to abide by the agency agreement. Sales or purchases of any goods by a person who has any ownership rights in such goods shall be taxed as retail or wholesale sales. (d) Bulk goods sold or purchased on behalf of a principal must not be co-mingled with goods belonging to another principal or lose their identity as belonging to the particular principal. Sales or purchases of any goods which have been co-mingled or lost their identity as belonging to the principal shall be taxed as retail or wholesale sales. (2) If the above requirements are not met the consignor, bailor, principal or other shall be deemed a seller of such property to the agent, consignee, bailee, factor or auctioneer. (3) Services in own name - procuring_ services as agent. For purposes of this subsection, an agent is a person who acts under the direction and control of the principal in procuring services on behalf of the principal that the person could not itself render or supply. Amounts received by an agent for the account of its principal as advances or reimbursements are exempted from the measure of the tax only when the agent is not primarily or secondarily liable to pay for the services procured. Any person who claims to be acting merely as agent in obtaining services for a principal will have such claim recognized only when the contract or agreement between such persons clearly establishes the relationship of principal and agent and when the following conditions are complied with: (a) The books and records of the agent show that the services were obtained in the name and for the account of the principal, and show the actual principal for whom the purchase was made. 32 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance (b) The books and records show the amount of the service that was obtained for the principal, the amount of commissions and any other income derived by the agent for acting as such. Amounts received from the principal as advances and reimbursements must not be reflected as the agent's income on any of the agent's books and records. Commissions must be computed according to a set percentage or amount, which is agreed upon in the agency agreement. Sec. 3.28.050. Imposition of the tax - tax or fee levied. Except as provided in subsection (3) of this section, there is hereby levied upon and shall be collected from every person a tax for the act or privilege of engaging in business activities within the city, whether the person's office or place of business be within or without the city. The tax shall be in amounts to be determined by application of rates against the gross proceeds of sale, gross income of business, or value of products, including by-products, and by application of rates against the square footage of business office or facility space within the city, as the case may be, as follows: (1) Gross receipts tax. (a) Upon every person engaging within the city in business as an extractor; as to such persons the amount of the tax with respect to such business shall be equal to the value of the products, including by- products, extracted within the city for sale or for commercial or industrial use, multiplied by the rate of 0.152 hundredths of one percent (0.00152). The measure of the tax is the value of the products, including by-products, so extracted, regardless of the place of sale or the fact that deliveries may be made to points outside the city. (b) Upon every person engaging within the city in business as a manufacturer, as to such persons the amount of the tax with respect to such business shall be equal to the value of the products, including by- 33 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance products, manufactured within the city, multiplied by the rate of 0.046 hundredths of one percent (0.00046). The measure of the tax is the value of the products, including by-products, so manufactured, regardless of the place of sale or the fact that deliveries may be made to points outside the city. (c) Upon every person engaging within the city in the business of making sales at wholesale, as to such persons, the amount of tax with respect to such business shall be equal to the gross proceeds of such sales of the business without regard to the place of delivery of articles, commodities or merchandise sold, multiplied by the rate of 0.152 hundredths of one percent (0.00152). (d) Upon every person engaging within the city in the business of making sales at retail, as to such persons, the amount of tax with respect to such business shall be equal to the gross proceeds of such sales of the business, without regard to the place of delivery of articles, commodities or merchandise sold, multiplied by the rate of 0.046 hundredths of one percent (0.00046). (e) Upon every person engaging within the city in the business of (i) printing, (ii) both printing and publishing newspapers, magazines, periodicals, books, music, and other printed items, (iii) publishing newspapers, magazines and periodicals, (iv) extracting for hire, and (v) processing for hire; as to such persons, the amount of tax on such business shall be equal to the gross income of the business multiplied by the rate of 0.046 hundredths of one percent (0.00046). (f) Upon every person engaging within the city in the business of making sales of retail services; as to such persons, the amount of tax with respect to such business shall be equal to the gross proceeds of sales multiplied by the rate of 0.152 hundredths of one percent (0.00152). 34 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (g) Upon every other person engaging within the city in any business activity other than or in addition to those enumerated in the above subsections; as to such persons, the amount of tax on account of such activities shall be equal to the gross income of the business multiplied by the rate of 0.152 hundredths of one percent (0.00152). This subsection includes, among others, and without limiting the scope hereof (whether or not title to material used in the performance of such business passes to another by accession, merger or other than by outright sale), persons engaged in the business of developing, or producing custom software or of customizing canned software, producing royalties or commissions, and persons engaged in the business of rendering any type of service which does not constitute a sale at retail, a sale at wholesale, or a retail service. (2) Square footage tax. Upon every person who leases, owns, occupies, or otherwise maintains an office, warehouse, or other place of business within the city for purposes of engaging in business activities in the city, the tax shall be measured by the number of square feet of warehouse business floor space or other business floor space for each office, warehouse, or other place of business leased, owned, occupied, or otherwise maintained within the city during the reporting period, calculated to the nearest square foot. (a) Subject to the reductions established in subsection (f), the amount of the tax due shall be equal to the sum of the number of square feet of business warehouse floor space for each business warehouse leased, owned, occupied, or otherwise maintained within the city multiplied by the rate of $0.03 quarterly for each calendar year, and the number of square feet of other business floor space for each office or other place of business leased, owned, occupied, or otherwise maintained within the city multiplied by the rate of $0.01 quarterly for each calendar year. 35 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (b) For purposes of this section, "business warehouse" means a building or structure, or any part thereof, in which goods, wares, merchandise or commodities are received or stored, whether or not for compensation, in furtherance of engaging in business. (c) For purposes of this section, 'other business floor space" means the floor space of an office or place of business, other than a business warehouse. (d) For purposes of this section, the square footage shall be computed by measuring to the inside finish of permanent outer building walls and shall include space used by columns and projections necessary to the building. Square footage shall not include stairs, elevator shafts, flues, pipe shafts, vertical ducts, heating or ventilation shafts, janitor closets, and electrical or utility closets. (e) Persons with more than one office, warehouse, or other place of business within the city must include all business warehouse floor space and other business floor space for all locations within the city. When a person rents space to another person, the person occupying the rental space is responsible for the square footage business tax on that rental space only if the renter has exclusive right of possession in the space as against the landlord. Space rented for the storage of goods in a warehouse where no walls separate the goods, and where the exclusive right of possession in the space is not held by the person to whom the space is rented, and space rented out in "self-storage" facilities whereby customers have direct access to individual storage areas by separate entrances, shall be included in the warehouse business floor space of the person that operates the warehouse business, and not by the person renting the warehouse space. (f) If the square footage tax imposed in this subsection (2) is less than or equal to the gross receipts tax imposed in subsection (1), no square footage tax will be due; it the square footage tax imposed 36 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance in this subsection (2) exceeds the gross receipts tax imposed in subsection (1), the taxpayer shall also remit the excess over the gross receipts tax payable under subsection (1). (3) Gross receipts exemption/square footage threshold. (a) Any person whose gross proceeds of sales, gross income of the business, and value of products, including by-products, as the case may be, from all activities conducted within the city during any quarter is equal to or less than $62,500.00 during that quarter shall be exempt from the gross receipts tax imposed in this chapter. The applicable tax rates shall only apply to amounts in excess of $62,500.00 during any quarter. (b) The square footage tax imposed in subsection (2) shall not apply to any person unless that person's total floor area of business space within the city exceeds the following threshold: (i) 4,000 taxable square feet of business warehouse space, or (ii) 12,000 taxable square feet of other business floor space. This is a threshold and not an exemption. If the square footage tax applies, it applies to all business space leased, owned, occupied or otherwise maintained by the taxpayer during the applicable reporting period. (4) Rules. The director may promulgate rules and regulations regarding the manner, means and method of calculating any tax imposed under this section. Sec. 3.28.070. Multiple activities credit when activities take place in one or more cities with eligible gross receipt taxes. 37 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (1) Persons who engage in business activities that are within the purview of two (2) or more subsections of section 3.28.050 shall be taxable under each applicable subsection. (2) Notwithstanding anything to the contrary herein, if imposition of the city's tax would place an undue burden upon interstate commerce or violate constitutional requirements, a taxpayer shall be allowed a credit to the extent necessary to preserve the validity of the city's tax, and still apply the city tax to as much of the taxpayer's activities as may be subject to the city's taxing authority. (3) To take the credit authorized by this section, a taxpayer must be able to document that the amount of tax sought to be credited was paid upon the same gross receipts used in computing the tax against which the credit is applied and that the taxpayer paid the amount of tax sought to be credited. (4) Credit for persons that sell in the city products that they extract or manufacture. Persons taxable under the retailing or wholesaling classification with respect to selling products in this city shall be allowed a credit against those taxes for any eligible gross receipts taxes paid (a) with respect to the manufacturing of the products sold in the city, and (b) with respect to the extracting of the products, or the ingredients used in the products, sold in the city. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the sale of those products. (5) Credit for persons that manufacture products in the city using ingredients they extract. Persons taxable under the manufacturing classification with respect to manufacturing products in this city shall be allowed a credit against those taxes for any eligible gross receipts tax paid with respect to extracting the ingredients of the products manufactured in the city. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the manufacturing of those products. 38 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance (6) Credit for ersons that sell within the city products that thev print or publish and print. Persons taxable under the retailing or wholesaling classification with respect to selling products in this city shall be allowed a credit against those taxes for any eligible gross receipts taxes paid with respect to the printing, or the printing and publishing, of the products sold within the city. The amount of the credit shall not exceed the tax liability arising under this chapter with respect to the sale of those products. Sec. 3.28.075. Deductions to prevent multiple taxation of certain manufacturing activities involving more than one city with an eligible gross receipts tax. A person manufacturing products within the city using products manufactured by the same person outside the city may deduct from the measure of the manufacturing tax the value of products manufactured outside the city and included in the measure of an eligible gross receipts tax paid to the other jurisdiction with respect to manufacturing such products. Sec. 3.28.076. Assignment of gross income derived from intangibles. Gross income derived from the sale of intangibles such as royalties, trademarks, patents, or goodwill shall be assigned to the jurisdiction where the person is domiciled (its headquarters is located). Sec. 3.28.077. Allocation and apportionment of income when activities take place in more than one jurisdiction. Gross income, other than for persons subject to the provisions of chapter 82.14A RCW, shall be allocated and apportioned as follows: (1) Gross income derived from all activities other than those taxed as service or royalties under section 3.28.050(1)(g) shall be allocated to the location where the activity takes place. 39 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance (2) In the case of sales of tangible personal property, the activity takes place where delivery to the buyer occurs. (3) In the case of sales of digital products, the activity takes place where delivery to the buyer occurs. The delivery of digital products will be deemed to occur at: (a) The seller's place of business if the purchaser receives the digital product at the seller's place of business; (b) If not received at the seller's place of business, the location where the purchaser or the purchaser's donee, designated as such by the purchaser, receives the digital product, including the location indicated by instructions for delivery to the purchaser or donee, known to the seller; (c) If the location where the purchaser or the purchaser's donee receives the digital product is not known, the purchaser's address maintained in the ordinary course of the seller's business when use of this address does not constitute bad faith; (d) If no address for the purchaser is maintained in the ordinary course of the seller's business, the purchaser's address obtained during the consummation of the sale, including the address of a purchaser's payment instrument, if no other address is available, when use of this address does not constitute bad faith; and (e) If no address for the purchaser is obtained during the consummation of the sale, the address where the digital good or digital code is first made available for transmission by the seller or the address from which the digital automated service or service described in RCW 82.04.050 (2)(g) or (6)(b) was provided, disregarding for these purposes any location that merely provided the digital transfer of the product sold. (4) If none of the methods in subsection 3.28.077(3) for determining where the delivery of digital products occurs are available after a good faith effort by the taxpayer to apply the methods provided in 40 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance subsections 3.28.077(3)(a) through 3.28.077(3)(e), then the city and the taxpayer may mutually agree to employ any other method to effectuate an equitable allocation of income from the sale of digital products. The taxpayer will be responsible for petitioning the city to use an alternative method under this subsection. The city may employ an alternative method for allocating the income from the sale of digital products if the methods provided in subsections 3.28.077(3)(a) through 3.28.077(3)(e) are not available and the taxpayer and the city are unable to mutually agree on an alternative method to effectuate an equitable allocation of income from the sale of digital products. (5) For purposes of subsections 3.28.077(3)(a) through 3.28.077(3)(e), "Receive" has the same meaning as in RCW 82.32.730. (6) Gross income derived from activities taxed as services and other activities taxed under section 3.28.050(1)(g) shall be apportioned to the city by multiplying apportionable income by a fraction, the numerator of which is the payroll factor plus the service-income factor and the denominator of which is two. (a) The payroll factor is a fraction, the numerator of which is the total amount paid in the city during the tax period by the taxpayer for compensation and the denominator of which is the total compensation paid everywhere during the tax period. Compensation is paid in the city if: (i) The individual is primarily assigned within the city; (ii) The individual is not primarily assigned to any place of business for the tax period and the employee performs fifty percent or more of his or her service for the tax period in the city; or (iii) The individual is not primarily assigned to any place of business for the tax period, the individual does not perform fifty percent or more of his or her service in any city and the employee resides in the city. 41 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (b) The service income factor is a fraction, the numerator of which is the total service income of the taxpayer in the city during the tax period, and the denominator of which is the total service income of the taxpayer everywhere during the tax period. Service income is in the city if: (i) The customer location is in the city; or (ii) The income-producing activity is performed in more than one location and a greater proportion of the service-income- producing activity is performed in the city than in any other location, based on costs of performance, and the taxpayer is not taxable at the customer location; or (iii) The service-income-producing activity is performed within the city, and the taxpayer is not taxable in the customer location. (c) If the allocation and apportionment provisions of this subsection do not fairly represent the extent of the taxpayer's business activity in the city or cities in which the taxpayer does business, the taxpayer may petition for or the tax administrators may jointly require, in respect to all or any part of the taxpayer's business activity, that one of the following methods be used jointly by the cities to allocate or apportion gross income, if reasonable: (i) Separate accounting; (I i) The use of a single factor; (iii) The inclusion of one or more additional factors that will fairly represent the taxpayer's business activity in the city; or (iv) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income. (7) The definitions in this subsection apply throughout this section. 42 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance (a) "Apportionable income" means the gross income of the business taxable under the service classifications of a city's gross receipts tax, including income received from activities outside the city If the income would be taxable under the service classification if received from activities within the city, less any exemptions or deductions available. (b) "Compensation" means wages, salaries, commissions, and any other form of remuneration paid to individuals for personal services that are or would be included in the individual's gross income under the federal internal revenue code. (c) "Individual" means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee of that taxpayer. (d) (d) "Customer location" means the city or unincorporated area of a county where the majority of the contacts between the taxpayer and the customer take place. (e) "Primarily assigned" means the business location of the taxpayer where the individual performs his or her duties. (f) "Service-taxable income" or "service income" means gross income of the business subject to tax under either the service or royalty classification. (g) "Tax period" means the calendar year during which tax liability is accrued. If taxes are reported by a taxpayer on a basis more frequent than once per year, taxpayers shall calculate the factors for the previous calendar year for reporting in the current calendar year and correct the reporting for the previous year when the factors are calculated for that year, but not later than the end of the first quarter of the following year. (h) "Taxable in the customer location" means either that a taxpayer is subject to a gross receipts tax in the customer location for the privilege of doing business, or that the government where the customer is 43 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance located has the authority to subject the taxpayer to gross receipts tax regardless of whether, in fact, the government does so. (8) Assignment or apportionment of revenue under this Section shall be made in accordance with and in full compliance with the provisions of the interstate commerce clause of the United States Constitution where applicable. Sec. 3.28.078. Allocation and apportionment of printing and publishing income when activities take place in more than one jurisdiction. Notwithstanding RCW 35.102.130, gross income from the activities of printing, and of publishing newspapers, periodicals, or magazines, shall be allocated to the principal place in this state from which the taxpayer's business is directed or managed. As used in this section, the activities of printing, and of publishing newspapers, periodicals, or magazines, have the same meanings as attributed to those terms in RCW 82.04.280(1) by the department of revenue. Sec. 3.28.090. Exemptions. (1) Non-profit corporations or non-profit organizations. This chapter shall not apply to non-profit organizations exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code, as hereafter amended, except with respect to retail sales of such persons. (2) Health maintenance organization, health care service contractor, certified health plan. This chapter does not apply to any health maintenance organization, health care service contractor, or certified health plan in respect to premiums or prepayments that are taxable under RCW 48.14.0201. (3) Public utilities. This chapter shall not apply to any person in respect to a business activity with respect to which tax liability is 44 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance specifically imposed under the utility tax provisions of Chapter 3.18 of the Kent City Code. (4) Investments - dividends from subsidiary corporations. This chapter shall not apply to amounts derived by persons, other than those engaging in banking, loan, security, or other financial businesses, from investments or the use of money as such, and also amounts derived as dividends by a parent from its subsidiary corporations. (5) International banking facilities. This chapter shall not apply to the gross receipts of an international banking facility. As used in this subsection, an "international banking facility" means a facility represented by a set of asset and liability accounts segregated on the books and records of a commercial bank, the principal office of which is located in this state, and which is incorporated and doing business under the laws of the United States or of this state, a United States branch or agency of a foreign bank, an Edge corporation organized under Section 25(a) of the Federal Reserve Act, 12 United States Code 611-631, or an Agreement corporation having an agreement or undertaking with the Board of Governors of the Federal Reserve System under Section 25 of the Federal Reserve Act, 12 United States Code 601-604(a), that includes only international banking facility time deposits (as defined in subsection (a)(2) of Section 204.8 of Regulation D (12 CFR Part 204), as promulgated by the Board of Governors of the Federal Reserve System), and international banking facility extensions of credit (as defined in subsection (a)(3) of Section 204.8 of Regulation D). (6) Insurance business. This chapter shall not apply to amounts received by any person who is an insurer, or their appointed insurance producer, upon which a tax based on gross premiums is paid to the state pursuant to RCW 48.14.020, and provided further, that the provisions of this subsection shall not exempt any bonding company from tax with respect to gross income derived from the completion of any contract as to 45 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance which it is a surety, or as to any liability as successor to the liability of the defaulting contractor. (7) Farmers - agriculture. This chapter shall not apply to any farmer in respect to amounts received from selling fruits, vegetables, berries, butter, eggs, fish, milk poultry, meats or any other agricultural product that is raised, caught, produced, or manufactured by such persons. (8) Athletic exhibitions. This chapter shall not apply to any person in respect to the business of conducting boxing contests and sparring or wrestling matches and exhibitions for the conduct of which a license must be secured from the State Boxing Commission. (9) Racing. This chapter shall not apply to any person in respect to the business of conducting race meets for the conduct of which a license must be secured from the Washington State Horse Racing Commission. (10) Ride sharing. This chapter does not apply to any funds received in the course of commuter ride sharing or ride sharing for persons with special transportation needs in accordance with RCW 46.74.010. (11) Employees. (a) This chapter shall not apply to any person in respect to the person's employment in the capacity as an employee or servant as distinguished from that of an independent contractor. For the purposes of this subsection, the definition of employee shall include those persons that are defined in the Internal Revenue Code, as hereafter amended. (b) A booth renter is an independent contractor for purposes of this chapter. (12) Amounts derived from sale of real estate. This chapter shall not apply to gross proceeds derived from the sale of real estate. This, however, shall not be construed to allow an exemption of amounts 46 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance received as commissions from the sale of real estate, nor as fees, handling charges, discounts, interest or similar financial charges resulting from, or relating to, real estate transactions. This chapter shall also not apply to amounts received for the rental of real estate if the rental income is derived from a contract to rent for a continuous period of thirty (30) days or longer. (13) Mortgage brokers' third-party provider services trust accounts. This chapter shall not apply to amounts received from trust accounts to mortgage brokers for the payment of third-party costs if the accounts are operated in a manner consistent with RCW 19.146.050 and any rules adopted by the director of financial institutions. (14) Amounts derived from manufacturing, selling or distributing motor vehicle fuel. This chapter shall not apply to the manufacturing, selling, or distributing motor vehicle fuel, as the term "motor vehicle fuel" is defined in RCW 82.36.010 and exempt under RCW 82,36.440, provided that any fuel not subjected to the state fuel excise tax, or any other applicable deduction or exemption, will be taxable under this chapter. (15) Amounts derived from liquor, and the sale or distribution of liquor. This chapter shall not apply to liquor as defined in RCW 66.04.010 and exempt in RCW 66.08.120. (16) Casual and isolated sales. This chapter shall not apply to the gross proceeds derived from casual or isolated sales. (17) Accommodation sales. This chapter shall not apply to sales for resale by persons regularly engaged in the business of making retail sales of the type of property so sold to other persons similarly engaged in the business of selling such property where (1) the amount paid by the buyer does not exceed the amount paid by the seller to the vendor in the acquisition of the article and (2) the sale is made as an accommodation to the buyer to enable the buyer to fill a bona fide existing order of a 47 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance customer or is made within fourteen days to reimburse in kind a previous accommodation sale by the buyer to the seller. (18) Taxes collected as trust funds. This chapter shall not apply to amounts collected by the taxpayer from third parties to satisfy third party obligations to pay taxes such as the retail sales tax, use tax, and admission tax. (19) United States, Washington State governmental entities. This chapter shall not apply to gross income received by the United State or any instrumentality thereof and by the State of Washington or any municipal subdivision thereof. (20) Research and development under federal contracts. This chapter shall not apply to amounts received for research and development activities performed on behalf of, under contract to, or in partnership with the United States government. For purposes of this section, "research and development activities" means activities performed to discover technological information, and technical and non-routine activities concerned with translating technological information into new or improved products, processes, techniques, formulas, inventions, or software, the application of which is intended to be useful in the development of a new or improved federal project or component thereof. Sec. 3.28.100. Deductions. In computing the license fee or tax, there may be deducted from the measure of tax the following items: (1) Compensation from public entities for health or social welfare services - exception. In computing tax, there may be deducted from the measure of tax amounts received from the United States or any instrumentality thereof or from the State of Washington or any municipal corporation or political subdivision thereof as compensation for, or to support, health or social welfare services rendered by a health or social welfare organization (as defined in RCW 82.04.431) or by a municipal 48 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance corporation or political subdivision, except deductions are not allowed under this subsection for amounts that are received under an employee benefit plan. For purposes of this subsection, "employee benefit plan" includes the military benefits program authorized in 10 USC Sec. 1071 et seq., as amended, or amounts payable pursuant thereto. (2) Interest on investments or loans secured by mortgages or deeds of trust. In computing tax, to the extent permitted by Chapter 82.14A RCW, there may be deducted from the measure of tax by those engaged in banking, loan, security or other financial businesses, amounts derived from interest received on investments or loans primarily secured by first mortgages or trust deeds on non-transient residential properties. (3) Interest on obligations of the state, its political subdivisions,, and municipal corporations. In computing tax, there may be deducted from the measure of tax by those engaged in banking, loan, security or other financial businesses, amounts derived from interest paid on all obligations of the State of Washington, its political subdivisions, and municipal corporations organized pursuant to the laws thereof. (4) Interest on loans to farmers and ranchers, producers or harvesters of aquatic products, or their cooperatives. In computing tax, there may be deducted from the measure of tax amounts derived as interest on loans to bona fide farmers and ranchers, producers or harvesters of aquatic products, or their cooperatives by a lending institution which is owned exclusively by its borrowers or members and which is engaged solely in the business of making loans and providing finance-related services to bona fide farmers and ranchers, producers or harvesters of aquatic products, their cooperatives, rural residents for housing, or persons engaged in furnishing farm-related or aquatic-related services to these individuals or entities. (5) Receipts from tangible personal {property delivered outside the State. In computing tax, there may be deducted from the measure of 49 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance tax under retailing or wholesaling amounts derived from the sale of tangible personal property that is delivered by the seller to the buyer or the buyer's representative at a location outside the State of Washington. (6) Cash discount taken by_purchase r. In computing tax, there may be deducted from the measure of tax the cash discount amounts actually taken by the purchaser. This deduction is not allowed in arriving at the taxable amount under the extracting or manufacturing classifications with respect to articles produced or manufactured, the reported values of which, for the purposes of this tax, have been computed according to the "value of product" provisions. (7) Credit losses of accrual basis taxpayers. In computing tax, there may be deducted from the measure of tax the amount of credit losses actually sustained by taxpayers whose regular books of account are kept upon an accrual basis. (8) Constitutional prohibitions. In computing tax, there may be deducted from the measure of the tax amounts derived from business which the City is prohibited from taxing under the Constitution of the State of Washington or the Constitution of the United States. (9) Receipts from the sale of tangible personal property and retail services delivered outside the city but within Washington. Amounts included in the gross receipts reported on the tax return derived from the sale of tangible personal property delivered to the buyer or the buyer's representative outside the city but within the State of Washington may be deducted from the measure of tax under the retailing, retail services, or wholesaling classification. (10) Professional employer services. In computing the tax, a professional employer organization may deduct from the calculation of gross income the gross income of the business derived from performing professional employer services that is equal to the portion of the fee charged to a client that represents the actual cost of wages and salaries, 50 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance benefits, workers' compensation, payroll taxes, withholding, or other assessments paid to or on behalf of a covered employee by the professional employer organization under a professional employer agreement. Sec. 3.28.120. Tax part of overhead. It is not the intention of this chapter that the taxes or fees herein levied upon persons engaging in business be construed as taxes or fees upon the purchasers or customer, but that such taxes or fees shall be levied upon, and collectible from, the person engaging in the business activities herein designated and that such taxes or fees shall constitute a part of the cost of doing business of such persons. Sec. 3.28.130. Limitation of revenue received. Revenue received from the tax imposed by this chapter shall first be applied to the cost of administering this tax, which shall not exceed $300,000 per annum. This allocation for administrative costs shall be adjusted annually in accordance with the applicable inflation factor listed in the consumer price index. One hundred percent of the remaining revenue shall be allocated to the design, construction, maintenance, improvement, operation, and repair of the city's transportation infrastructure and appurtenant improvements including, without limitation, streets, curbs, gutters, sidewalks, bicycle and pedestrian lanes and paths, street trees, drainage, lighting, and signalization up to a total annual allocation of four million seven hundred thousand dollars ($4,700,000). Any remaining revenues received shall be applied to the capital improvement fund and allocated according to the direction of the city council. Sec. 3.28.140. Severability Clause. If any provision of this chapter or its application to any person or circumstance is held invalid, the 51 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance remainder of the chapter or the application of the provision to other persons or circumstances shall not be affected. SECTION 3. - Corrections by City Clerk or Code Reviser. Upon approval of the City Attorney, the City Clerk and the code reviser are authorized to make necessary corrections to this ordinance, including the correction of clerical errors; ordinance, section, or subsection numbering; or references to other local, state or federal laws, codes, rules, or regulations. SECTION 4. - Petition for referendum. A referendum procedure is required pursuant to RCW 35.21.706 for cities first imposing a business and occupation tax. A referendum petition may be filed with the City Clerk within seven (7) days of passage of this ordinance. Within ten (10) days, the City Clerk shall confer with the petitioner concerning the form and style of the petition, issue the petition an identification number, and secure an accurate, concise, and positive ballot title from the City Attorney. The petitioner shall have thirty (30) days in which to secure the signatures of not less than fifteen (15) percent of the registered voters of the city, as of the last municipal general election, upon petition forms which contain the ballot title and the full text of the measure to be referred. The City Clerk shall verify the sufficiency of the signatures on the petition and, if sufficient valid signatures are properly submitted, shall certify the referendum measure to the next election ballot within the city or at a special election ballot as provided pursuant to RCW 35.17.260(2). This above procedure shall be the exclusive method of referendum for this ordinance and shall supersede the procedures provided under chapters 35.17 and 35A.11 RCW and all other statutory or other provisions for initiative or referendum that might otherwise apply. 52 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance SECTION 5, - Severaj? tv. If any one or more section, subsection, or sentence of this ordinance is held to be unconstitutional or invalid, that decision shall not affect the validity of the remaining portion of this ordinance and that remaining portion shall maintain its full force and effect. SECTION 6, - Effective Date. This ordinance shall take effect and be in force beginning January 1, 2013, which is at least thirty (30) days from and after its passage and publication, as provided by law. �z z - S ETT COOKE, MAYOR ATTEST: BRENDA JACOBER,&&Y CLERK 53 Amend KCC Title 3 New Chapter 3.28 8 & O Tax Ordinance APPROVED AS TO FORM: Wy` TOA BRUBAK , CITY ATTORNEY PASSED: day of , 2012. APPROVED: a'� day of PUBLISHED: day of 12012. I hereby certify that this is a true copy of Ordinance No. ' L15-4 passed by the City Council of the City of Kent, Washington, and approved by the Mayor of the City of Kent as hereon indicated. BRENDA JACO E , CITY CLERK (SEAL) 54 Amend KCC Title 3 New Chapter 3.28 B & O Tax Ordinance