2.06.2015

Taxation Procrastination: HB1861 B&O Tax Deferment for New Small Businesses

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Seldom do I find good legislation when perusing bills, but today I found something that is better than most: 

House Bill 1861: Creating a business and occupation tax deferral program for small businesses (to begin in 2016).

Woo-hoo for small business tax deferrals. Boo-hoo for creating new laws and more paperwork, which HB1861 would add a new section to 82.04 RCW and require business owners to apply for a credit in order to take advantage of the deferral.

To begin with, under Sec. 1(2) 'A small business may defer taxes under this section only if: (a) the business electronically files with the department all returns, forms, and any other information required by the department, in an electronic format as provided by the department.' In other words, file all the required paperwork in the required way in order to qualify.

Also in order to qualify under Sec. 1(2)(b), the business must be a new business, which I will go into more detail on shortly.

A potentially good thing with HB1861, according to Sec. 1(4)(a), is that the deferred taxes would be 'due and payable by the 25th of January of the sixth calendar year subsequent to the calendar year in which the taxes were deferred under this section.' Six years to make payments could help new business owners greatly.

Plus, according to Sec. 1(4)(b), 'the department may not assess interest and penalties on deferred taxes unless the taxpayer does not meet the repayment provisions described in (a) of this subsection,' which is the 6-year deadline. So if the deferred taxes are paid after the 6-year deadline, then interest and penalties can start to be assessed. 

Soon-to-be small businesses in Washington State may want to take note of HB1861 because, according to Sec. 1(2), 'A small business may defer taxes underneath this section only if: (b) the business is a new business.' Now, here is where HB1861 gets detailed with what constitutes or doesn't constitute a 'new business' in order to qualify for the deferral.

According to Sec. 1(5)(a)(i) '"New Business" means a business that has not been operating in Washington longer than twelve months from the time the business applies for the credit under this section.' The text continues and gives more specifics as to when it is determined a business began its operation, but I'm not going to include it here (click here to read it).

Sec. 1(5)(a)(ii) then defines what is not considered a 'new business' under (A), (B), and (C). For example, restructured entities and new branch offices, to name a couple, would not qualify as new businesses.

When it comes to a 'small business,' that is defined in Sec. 1(5)(b) where it states '"Small Business" means a person reporting a gross amount on the combined excise tax return of five hundred thousand dollars or less in the prior calendar year with respect to activities taxable under this chapter.'

In other words, beginning in 2016 new business entities in Washington State
could benefit from HB1861 if they:
  • have been operating for less than a year,
  • file all applicable forms electronically,
  • are not a restructured entity, etc.,
  • report less than $500,000 on combined excise taxes. 

It is nice to see some consideration being given to the small business owners who take on the challenges of setting up shop in the overly taxed and obscenely regulated business environment that is Washington State.

However, while HB1861 appears helpful on the surface,
I cannot help but wonder what it could be implying:
  • If new businesses need to defer B&O taxes for up to six years, does that mean the taxes are too high and too hard to pay off?
    • Would businesses defer taxes if they are low and easy to pay?
  • If taxes can only get deferred and not lowered or abolished, does that mean taxes will continue to rise?

Only time will tell if this bill will come to be law or not; set up a free account like I did at LegiScan.com to track the bill, or keep an eye on it at the Washington Legislature's website Leg.Wa.Gov.

I encourage people to (1) read HB1861 here as I did not include every word of the 3-page bill in my breakdown, and (2) always consult with professional legal experts.

Thank You for deferring other matters to read about HB1861!
Share your thoughts in a comment.


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