WAC 458-20-179
Public utility tax. (1) Introduction. Persons engaged in certain public service businesses are
taxable under the public utility tax. (See chapter 82.16 RCW.) These businesses are exempt from the business and
occupation tax on the gross receipts which are subject to the
public utility tax. (See RCW 82.04.310.) However, many
persons taxable under the public utility tax are also engaged
in some other business activity which is taxable under the
business and occupation (B&O) tax. For example, a gas
distribution company engaged in operating a plant or system
for distribution of natural gas for sale, may also be engaged
in selling at retail various gas appliances. Such a company
would be taxable under the public utility tax with respect to
its distribution of natural gas to consumers, and also taxable
under the business and occupation tax with respect to its sale
of gas appliances. It should also be noted that some services
which generally are taxable under the public utility tax are
taxable under the B&O tax if the service is performed for a
new customer, prior to receipt of regular utility services by
the customer.
(2) Definitions. The following definitions apply to this
section:
(a) The term "gross income" means the value proceeding or
accruing from the performance of the particular public service
or transportation businesses involved. It includes operations
incidental to the public utility activity, but without any
deduction on account of the cost of the commodity furnished or
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.
(b) The term "service charge" means those specific
charges made to a customer for providing a specific service. The term includes the actual charge to a customer for the sale
or distribution of water, gas, or electricity. This term does
not include utility local improvement district assessments
(ULID) or local improvement district assessments (LID).
(c) The term "subject to control by the state" means
control by the utilities and transportation commission or any
other state department required by law to exercise control of
a business of a public service nature as to rates charged or
services rendered.
(3) Persons taxable under the public utility tax. The
term "public service businesses" includes any of the
businesses defined in RCW 82.16.010 (1) through (9), and (11).
It also includes any business subject to control by the
state, or having the powers of eminent domain, or any business
declared by the legislature to be of a public service nature,
irrespective of whether the business has the powers of eminent
domain or the state exercises its control over the business. It includes, among others, without limiting the scope thereof:
Railroad, express, railroad car, water distribution, sewerage
collection, light and power, telegraph, gas distribution,
urban transportation and common carrier vessels under
sixty-five feet in length, motor transportation, tugboat
businesses, certain airplane transportation, boom, dock,
ferry, pipe line, toll bridge, toll logging road, and wharf
businesses. (See WAC 458-20-251 for sewerage collection.)
Persons engaged in these business activities are subject to
the public utility tax even if they are not publicly
recognized as providing that type of service or the amount of
income from these activities is not substantial.
(a) "Light and power business" includes charges made for
the "wheeling" of electricity for others. "Wheeling" is the
activity of delivering or distributing electricity owned by
others using power lines and equipment of the person doing the
wheeling.
(b) Persons engaged in hauling for hire by motor vehicle
should also refer to WAC 458-20-180.
(c) Persons hauling property, other than U.S. mail, by
air transportation equipment are taxable under the other
public service public utility tax. Income from the hauling of
U.S. mail or passengers is not subject to the public utility
tax because of specific federal law. (See 49 U.S.C. section
1301 and section 1513(a).)
(d) Persons engaged in hauling persons or property for
hire by watercraft between points in Washington are taxable
under the public utility tax. Income from operating tugboats
of any size and income from the sale of transportation
services by vessels over sixty-five feet is taxable under the
public service utility tax classification. Income from the
sale of transportation services using vessels under sixty-five
feet, other than tugboats, is taxable under "vessels under
sixty-five feet" public utility tax classification. These
classifications include businesses engaged in chartering or
transporting persons by water from one location in Washington
to another location within this state. This does not include
sightseeing tours or activities which are in the nature of
guided tours where the tour may include some water
transportation. Persons engaged in providing tours should
refer to WAC 458-20-258.
(e) Income from activities which are incidental to a
public utility activity are generally taxable under the public
utility tax when performed for an existing customer. This
includes charges for line extensions, connection fees, line
drop charges, start up fees, pole replacements, testing,
replacing meters, line repairs, line raisings, pole contact
charges, load factor charges, meter reading fees, etc. However, if any of these services are performed for a customer
prior to sale of a public utility service to the customer, the
income is taxable under the business and occupation tax. (See
subsection (4) of this section.)
(4) Business and occupation tax. As indicated above,
services which are incidental to a public utility activity are
generally subject to the public utility tax. However, these
types of charges are taxable under the service and other
business activities B&O tax classification if performed for a
customer prior to receipt of the utility services (gas, water,
electricity) by a new customer. A "new customer" is a
customer who previously has not received utility services,
such as water, gas, or electricity, at the location where the
charge for a specific service was provided. For example, a
customer of a water supplier who currently receives water at a
residence constructs a new residence a short distance from the
first location. This customer will be considered a "new
customer" with respect to any charges for services performed
at the new location until the customer actually receives water
at the new location, even though this customer may be
receiving services at a different location. The charge for
installing a meter or a connection charge for this customer at
the new location would be taxable under the service and other
activities B&O tax classification.
Amounts charged to customers as interest or penalties are
generally taxable under the service and other business
activities B&O tax classification. This includes interest
charged for failure to timely pay for utility services or for
special services which were performed prior to the customer
receiving services, such as connection charges. However, any
interest and/or penalty charged because of the failure to
timely pay a LID or ULID assessment will not be taxable for
the public utility tax or the B&O tax.
(5) Tax rates. The rates of tax for each business
activity are imposed under RCW 82.16.020 and set forth on
appropriate lines of the combined excise tax return forms.
(6) Uniform system of accounts. In distinguishing gross
income taxable under the public utility tax from gross income
taxable under the business and occupation tax, the department
of revenue will be guided by the uniform system of accounts
established for the specific type of utility concerned. However, because of differences in the uniform systems of
accounts established for various types of utility businesses,
such guides will not be deemed controlling for the purposes of
classifying revenue under the Revenue Act.
(7) Volume exemption. Persons subject to the public
utility tax are exempt from the payment of this tax if the
taxable income from utility activities does not meet a minimum
threshold. Prior to July 1, 1994, there was a similar
exemption for the business and occupation tax with different
threshold amounts. Beginning July 1, 1994, the law provides
for a B&O tax credit for taxpayers who have a minimal B&O tax
liability. (See WAC 458-20-104.) The volume exemption for
the public utility tax applies independently of the business
and occupation tax credit or exemption. The volume exemption
for the public utility tax applies for any reporting period in
which taxable income reported under the combined total of all
public utility tax classifications does not equal or exceed
the minimum taxable amount for the reporting periods assigned
to such persons according to the following schedule:
Monthly reporting basis . . . . . . . . . . . .
$500 per month
Quarterly reporting basis . . . . . . . . . . . .
$1500 per quarter
Annual reporting basis . . . . . . . . . . . .
$6000 per annum
(8) Exemption of amounts or value paid or contributed to
any county, city, town, political subdivision, or municipal
corporation for capital facilities. RCW 82.04.417 previously
provided an exemption from the public utility tax and the
business and occupation tax for amounts received by cities,
counties, towns, political subdivisions, or municipal
corporations representing contributions for capital
facilities. These contributions are often referred to as
"contributions in aid of construction." This law was repealed
effective July 1, 1993, and this exemption is no longer
available after that date. (See chapter 25, Laws of 1993
sp.s.) However, contributions in the form of equipment or
facilities will not be considered as taxable income. For
example, if an industrial customer purchases and installs
transformers which it donates to a public utility district as
a condition of receiving future service, the public utility
district will not be subject to the public utility tax or B&O
tax on the receipt of the donated transformers. For a water
or sewerage collection business, the value of pipe, valves,
pumps, or similar items donated by a developer to the utility
business would not be taxable income to the utility business. Monetary payments are considered to be payments for
installation of facilities so that a customer may receive the
public utility commodity or service. When the facilities are
installed or constructed by the customer and subsequently
given to the utility business, there is no payment for
installation of the facilities.
(9) Specific deductions. Amounts derived from the
following sources may be deducted from the gross income under
the public utility tax if included in the gross amounts
reported:
(a) Amounts derived by municipally owned or operated
public services businesses directly from taxes levied for the
support thereof, but not including service charges which are
spread on the property tax rolls and collected as taxes. LID
and ULID assessments, including interest and penalties on such
assessments, will not be considered part of the taxable income
because they are exercises of the jurisdiction's taxing
authority. These assessments may be composed of a share of
the costs of capital facilities, installation labor,
connection fees, etc. A deduction may be taken for these
amounts if they are included in the LID or ULID assessments.
(b) Amounts derived from the sale of commodities to
persons in the same public service business as the seller, for
resale as such within this state. This deduction is allowed
only with respect to water distribution, light and power, gas
distribution or other public service businesses which furnish
water, electrical energy, gas or any other commodity in the
performance of a public service business.
(c) Amounts actually paid by a taxpayer to another person
taxable under chapter 82.16 RCW as the latter's portion of the
consideration due for services jointly furnished by both. This includes the amount paid to a ferry company for the
transportation of a vehicle and its contents (but not amounts
paid to state owned or operated ferries) when such vehicle is
carrying freight or passengers for hire and is being operated
by a person engaged in the business of urban transportation or
motor transportation. It does not include amounts paid for
the privilege of moving such vehicles over toll bridges. However, this deduction applies only to the purchases of
services and does not include the purchase of commodities. The following examples show how this deduction and the
deduction for sales of commodities would apply:
(i) CITY Water Department purchases water from
Neighboring City Water Department. CITY sells the water to
its customers. Neighboring City Water Department may take a
deduction for its sales of water to CITY since this is a sale
of water (commodities) to a person in the same public service
business. CITY may not take a deduction for its payment to
Neighboring City Water as "services jointly furnished." The
service or sale of water to the end consumers was made solely
by CITY and was not a jointly furnished service.
(ii) Customer A hires ABC Transport to haul goods from
Tacoma, Washington to a manufacturing facility at Bellingham. ABC Transport subcontracts part of the haul to XYZ Transport
and has XYZ haul the goods from Tacoma to Everett where the
goods are loaded into ABC's truck. ABC may deduct the
payments it makes to XYZ as a "jointly furnished service."
(d) Amounts derived from the distribution of water
through an irrigation system, solely for irrigation purposes.
(e) Amounts derived from the transportation of
commodities from points of origin in this state to final
destination outside this state, or from points of origin
outside this state to final destination in this state with
respect to which the carrier grants to the shipper the
privilege of stopping the shipment in transit at some point in
this state for the purpose of storing, manufacturing, milling,
or other processing, and thereafter forwards the same
commodity, or its equivalent, in the same or converted form,
under a through freight rate from point of origin to final
destination.
(f) Amounts derived from the transportation of
commodities from points of origin in the state to an export
elevator, wharf, dock or shipside on tidewater or navigable
tributaries thereto from which such commodities are forwarded,
without intervening transportation, by vessel, in their
original form, to an interstate or foreign destination:
Provided, That no deduction will be allowed when the point of
origin and the point of delivery to such export elevator,
wharf, dock, or shipside are located within the corporate
limits of the same city or town. The following examples show
how this deduction applies:
(i) ABC Trucking delivers logs to a storage area which is
adjacent to the dock from where shipments are made by vessel
to a foreign country. The logs go through a peeling process
at the storage area prior to being placed on the vessel. The
peeling process changes the form of the original log. Because
the form of the log is changed, ABC Trucking may not take a
deduction for the haul to the storage area. It is immaterial
that the trucker may be paid based on an "export" rate.
(ii) ABC Trucking hauls logs from the woods to a log
storage area which is adjacent to the dock. The logs will be
sorted prior to being placed in the hold of the vessel, but no
further processing will be performed. The storage area is
quite large and the logs will be moved by log stacker and will
be placed alongside the ship. The logs are loaded using the
ship's tackle and then transported to a foreign country. ABC
Trucking may take a deduction for the amounts received for
transporting the logs from the woods to the log storage area. The movement of the logs within the log storage area is not
considered to be "intervening transportation," but is part of
the stevedoring activity.
(iii) ABC Trucking hauls logs from the woods to a
"staging area" where the logs are sorted. After sorting, XY
Hauling will transport some of the logs from the staging area
to local mills for lumber manufacturing and other logs to the
dock which is located approximately five miles from the
staging area where the logs immediately are loaded on a vessel
for shipment to Japan. The dock and staging area are not
within the corporate city limits of the same city. ABC
Trucking may not take a deduction for amounts received for
hauling logs to the staging area. Even though some of these
logs ultimately will be exported, ABC Trucking is not
delivering the logs directly to the dock where the logs will
be loaded on a vessel.
However, XY Hauling may take a deduction for the income
from hauls to the dock. Its haul was the final transportation
prior to the logs being placed on the vessel for shipment to
Japan. The logs remained in their original form with no
additional processing. The haul also did not originate or
terminate within the corporate city limits of the same city or
town. All the conditions were met for XY Hauling to claim the
deduction.
(g) Amounts derived from the distribution of water by a
nonprofit water association which are used for capital
improvements by that association.
(h) Amounts received from sales of power which is
delivered by the seller out-of-state. A deduction may also be
taken for the sale of power to a person who will resell the
power outside Washington where the power is delivered in
Washington. These sales of power are also not subject to the
manufacturing B&O tax.
(i) Amounts received for providing commuter share riding
or ride sharing for the elderly and the handicapped in
accordance with RCW 46.74.010.
(j) Amounts expended to improve consumers' efficiency of
energy end use or to otherwise reduce the use of electrical
energy or gas by the consumer. (For details see WAC 458-20-17901.)
(k) Income from transporting persons or property by air,
rail, water, or by motor transportation equipment where either
the origin or destination of the haul is outside the state of
Washington.
(10) Other deductions. In addition to the deductions
discussed above there also may be deducted from the reported
gross income (if included within the gross), the following:
(a) The amount of cash discount actually taken by the
purchaser or customer.
(b) The amount of credit losses actually sustained.
(c) Amounts received from insurance companies in payment
of losses.
(d) Amounts received from individuals and others in
payment of damages caused by them to the utility's plant or
equipment.
(11) Exchanges by light and power businesses. There is
no specific exemption which applies to an "exchange" of
electrical energy or the rights thereto. However, exchanges
of electrical energy between light and power businesses do
qualify for deduction in computing the public utility tax as
being sales of power to another light and power business for
resale. An exchange is a transaction which is considered to
be a sale and involves a delivery or transfer of energy or the
rights thereto by one party to another for which the second
party agrees, subject to the terms and conditions of the
agreement, to deliver electrical energy at the same or another
time. Examples of deductible exchange transactions include,
but are not limited to, the following:
(a) The exchange of electric power for electric power
between one light and power business and another light and
power business;
(b) The transmission or transfer of electric power by one
light and power business to another light and power business
pursuant to the agreement for coordination of operations among
power systems of the pacific northwest executed as of
September 15, 1964;
(c) The Bonneville Power Administration's acquisition of
electric power for resale to its Washington customers in the
light and power business;
(d) The residential exchange of electric power entered
into between a light and power business and the administrator
of the Bonneville Power Administration (BPA) pursuant to the
Pacific Northwest Electric Power Planning and Conservation
Act, P.L. 96-501, Sec. 5(c), 16 U.S.C. 839(c) (Supp. 1982). In some cases, power is not physically transferred, but the
purpose of the residential exchange is for BPA to pay a
"subsidy" to the exchanging utilities. For public utility
tax reporting purposes, these subsidies will be treated as a
nontaxable adjustment (rebate or discount) for purchases of
power from BPA.
(12) Customer billing information. RCW 82.16.090
requires that customer billings issued by light or power
businesses or gas distribution businesses serving more than
twenty thousand customers shall include the following
information:
(a) The rates and amounts of taxes paid directly by the
customer upon products or services rendered by such
businesses; and
(b) The rate, origin and approximate amount of each tax
levied upon the revenue of such businesses which has been
added as a component of the amount charged to the customer. This does not include taxes levied by the federal government
or taxes levied under chapters 54.28, 80.24, or 82.04 RCW.
(13) Motor or urban transportation. For specific rules
pertaining to the classifications of "urban transportation"
and "motor transportation," see WAC 458-20-180.