Major Corporations Seek B&O; Tax Refund

Major manufacturers such as General Motors have added $47 million to tax-refund claims they contend are due because the business and occupation tax illegally penalizes out-of-state companies that do business here.

The claims were filed in Thurston County Superior Court Dec. 30 and are an extension of earlier suits seeking $200 million in refunds on taxes paid by 217 companies in 1984 through 1987.

The older suit still is pending in Thurston County Superior Court although many of those claims have been dismissed for lack of action.

Among those filing the new claims were General Motors, Ford, Chrysler and Shell Oil.

They contend that locally based companies enjoy an unconstitutional tax advantage because they are given B&O tax credits for the manufacturing taxes they pay in the state. Outof-state manufacturers do not receive that credit for taxes they pay in other states, they say.

The refund issue dates back to 1987 when the U.S. Supreme Court overturned the state’s manufacturing tax. The tax was paid by Washingtonbased manufacturers who sold goods out of state and by out-of-state companies that sold their products in Washington.

The high court said the tax penalized companies selling across state lines and thus discriminated against interstate commerce.

The manufacturing tax made up part of the business-and-occupation tax, under which all businesses pay a flat rate on their gross income.

The federal court sent the case back to the state courts to determine whether the companies bringing suit were due refunds. But the U.S. Supreme Court also suggested the flaw might be remedied by a tax credit law.

The Legislature passed such a law.

Under the “double credit fix,” Washington manufacturers who sell goods out of state now may deduct the gross-receipts taxes they pay in other states from their Washington business-andoccupation taxes.

Also, out-of-state manufacturers are allowed to deduct gross-receipts taxes paid in other states from their tax obligation in Washington.

In upholding the credit fix, the state Supreme Court said the federal decision in the case established a new principle of law. Because of that, the state court held that refunds were not required for taxes paid before the principle was determined.

But Kim Risenmay, an attorney for those seeking refunds, contends the “double credit fix” is a sham and that most tax credits remain unavailable to interstate firms. He said a report showed instate firms receive 200 times more credit than other companies.

Trial dates on the cases have not yet been set.