Business & Occupation Tax

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.

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 (IRC).

Customer means a person or entity to whom the taxpayer makes a sale or renders services, or from whom the taxpayer otherwise receives gross income of the business.

Customer location means the following:

1. For a customer not engaged in business, if the service requires the customer to be physically present, where the service is performed.
2. For a customer not engaged in business, if the service does not require the customer to be physically present:

1. The customer’s residence; or
2. If the customer’s residence is not known, the customer’s billing/mailing address.

3. For a customer engaged in business:

1. Where the services are ordered from; or
2. At the customer’s billing/mailing address if the location from which the services are ordered is not known; or
3. At the customer’s commercial domicile if none of the above are known.

The customer location of a customer under (ii) and (iii) is determined based on a cascading method or series of steps. Only if the first step is unknown may the taxpayer move to the next step and so forth. 

Extracting means the activity engaged in by an extractor and is reportable under the extracting classification.

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 time, 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.

Extracting for Hire means labor or mechanical services performed under contract for an extractor. Gross income is allocated to where the activity occurs.

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 if 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, and any other expense whatsoever paid or accrued and with any deduction on account of losses.

Gross Proceeds of Sales means the value proceeding or accruing from the sale of tangible personal property, 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.

Gross Receipts Tax means a tax measured by the amount of, or economic results of, business activity conducted in a city or county within the United States or within a foreign country. The term includes taxes measured in whole or in part on net income or gross income or receipts.   “Business activities tax” does not include a sales tax, use tax, or a similar transaction tax, imposed on the sale or acquisition of goods or services, whether or not denominated as a gross receipts tax or a tax imposed on the privileged of doing business.

Gross Revenue on the Island means any revenue generated as the result of engaging in business within the jurisdictional boundaries of the City. Gross revenue means all revenue generated by the business when the business is physically located within the jurisdictional boundaries of the City. The City does not acknowledge a distinction between wholesale and retail for Business & Occupation Tax purposes. 

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.

Long-term Rental means the renter has complete dominion and control of property for thirty (30) days or longer.

Manufacturing means the activity conducted by a manufacturer and is reported under the manufacturing classification.  Manufacturing is all activities 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.  The measure of tax is the value of products, including byproducts, which is allocated to where the manufacturing activity takes place, irrespective of where the goods are sold. The value to products is generally determined by the selling price.

Manufacturer and "To Manufacture" 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.

"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:

• the production of special made or custom made articles;
• the production of dental appliances, devices, restorations, substitutes, or other dental laboratory products by a dental laboratory or dental technician;
• crusting and/or blending of rock, sand, stone, gravel, or ore, and
• 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 combination 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.

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.

Physical Presence Nexus means the physical presence as a nexus standard, which need only be demonstrably more than the slightest presence. This nexus standard is used to determine the necessity of City business licensing and B&O taxation. Per RCW 82.04.067(1)(c)(ii) and WAC 458-20-193, activities which establish a physical presence nexus within the City include but are not limited to:

• having an employee working in the State and, subsequently, in the City
• having property in the State, and, subsequently, in the City
• having a stock of goods in the State, and, subsequently, in the City, including inventory held by a marketplace facilitator or another third-party representative
• renting or leasing tangible personal property in the State, and, subsequently, in the City
• having an agent or third-party representative engage in activities that are significantly associated with establishing or maintaining a market in the State and, subsequently, in the City
• soliciting sales in the State and, subsequently, in the City, through employees or other representatives
• installing or assembling goods in the State and, subsequently, in the City, either by employees or other representatives
• constructing, installing, repairing, or maintaining real property or tangible personal property in the State and, subsequently, in the City, either by employees or other representatives
• providing services in Washington and, subsequently in the City, such as accepting returns or providing product training, either by employees or other representatives
• delivering goods into Washington and, subsequently, in the City, other than by mail or common carrier, including using the seller's own vehicles
• having an exhibit at a trade show to maintain or establish a mart for in the State and, subsequently, in the City, except as provided in Special Notice titled Trade Convention Exception from Nexus for Retail Sales

Primarily assigned means the business location of the taxpayer where the individual performs his or her duties.

Processing for Hire means the performance of labor and mechanical services upon materials or ingredients belonging to others so that as a result thereof a new, different or useful product is produced for sale or commercial or industrial use. The gross income is allocated to the location where the processing activity takes place.

Reporting Period means a twelve-month period beginning the first day of January of each year (annual).

Retailing means sales of tangible personal property, digital goods, lodging, and labor and services with respect to installing, repairing, altering, imprinting or improving of tangible personal property of or for consumers. Retailing is the activity of engaging in making sales at retail and is reported under the retailing classification.

Retail Service means 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 for a variety of services performed for consumers, such as: amusement and recreation services, title insurance and escrow services, credit bureau services, landscape maintenance, renting or leasing tangible personal property, physical fitness services, dating services, tattoo and tanning, and service charges associated with tickets to professional sporting events.

Service-taxable Income or Service Income means gross income of the business subject to tax under either the service or royalty classification.

Services and Other Activities means gross income from every business activity for which no other specific tax classification applies. This activity covers a variety of professional services, such as lawyers, doctors, architects, financial institutions, accountants, and consultants. Income may be allocated to the City using a two-factor apportionment formula as computed on Schedule A.

Short-term Rental means the renter has dominion and control (within specified parameters) for less than thirty (30) days.

Tax period or Tax Year or Taxable Year means the 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 years 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.

Tax Return means the document(s) a person is required by the City to file to satisfy or establish a tax or fee obligation that is administered or collected by the City and that has a statutorily defined due date.

Taxable Presence in Another Jurisdiction means the business meets any of the following requirements in the current or prior calendar year as of January 1,2020:

• Is subject to a business activities tax by another state or country on income received from engaging in apportionable activity.
• Has a physical presence nexus in the other state or country.
• Has more than $100,000 in gross receipts sourced or attributed to the other state or country whereby exceeding the receipts threshold means apportionable income attributed to another state or country is included along with its retail and wholesale sales sourced to the same state or country.
• Is organized or commercially domiciled in the other state or country

Temporary Stationary Business means any business carried on at the same fixed location within the City for not more than one day per week and not more than four consecutive weeks in one calendar year or any business carried on at the same fixed location in the City for not more than four consecutive days in one calendar year. (BIMC 5.40, Ord. 2003-22 § 8, Ord. 82-21 § 1, 1982)

Value of Products 

Wholesaling means sales or services rendered to persons who are not consumers. This business activity applies when such sales or services would otherwise be taxable as a "retail sale" or "retail service" if sold to or performed for consumers. Wholesaling is engaging in the activity of making sales at wholesale, and is reported under the wholesaling classification.