Payment card processing/tax

AN ACT Relating to creating a business and occupation tax 1
deduction and increasing the rate for persons conducting payment card 2
processing activities; amending RCW 82.04.290 and 82.04.29004; 3
reenacting and amending RCW 82.04.299; adding a new section to 4
chapter 82.04 RCW; creating new sections; and providing an effective 5
date. 6
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:7
NEW SECTION. Sec. 1. The unique nature of payment system 8
arrangements distinguishes payment card processors from other 9
taxpayers. Due to the unique nature of processors' activities related 10
to interchange fees and network fees, the legislature intends to 11
address the business and occupation taxation of processors' 12
activities on a prospective basis through the deduction and rate 13
authorized in this act. The legislature does not intend for 14
inferences as to the taxability of prior periods to be drawn from the 15
passage of this act.16
NEW SECTION. Sec. 2. A new section is added to chapter 82.04 17
RCW to read as follows: 18
S-1742.1
SENATE BILL 5777
State of Washington 69th Legislature 2025 Regular Session
By Senators Robinson, Braun, and J. Wilson
Read first time 02/25/25. Referred to Committee on Ways & Means.
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(1) In computing the tax under RCW 82.04.290(4), a processor may 1
deduct from the measure of the tax amounts retained by persons other 2
than the processor in the following forms: 3
(a) Interchange fees; 4
(b) Network fees; and 5
(c) Portions of fees retained by other processors.6
(2) The definitions in this subsection apply throughout this 7
section unless the context clearly requires otherwise.8
(a) "Acquirer" means a person that contracts directly or 9
indirectly with a merchant to provide settlement for the merchant's 10
electronic transactions over a payment card network. "Acquirer" does 11
not include a person that acts only as a processor for the services 12
it provides to the merchant. 13
(b) "Interchange fee" means an amount received by an issuer with 14
respect to the interchange of a transaction conducted by a merchant.15
(c) "Issuer" means any person that authorizes the use of a card 16
to perform an electronic transaction. 17
(d) "Network fees" means fees received by payment networks 18
associated with the processing of a transaction or with the 19
acceptance of the payment network's brand. 20
(e) "Payment network" means an entity that directly or indirectly 21
provides the proprietary services, infrastructure, and software that 22
route information and data to an issuer from an acquirer to conduct 23
the authorization, clearance, and settlement of electronic 24
transactions; and a merchant uses in order to accept as a form of 25
payment a brand of card or other device that may be used to carry out 26
electronic transactions. 27
(f) "Processor" means a person, including an acquirer or issuer, 28
that processes or routes electronic transactions for issuers, 29
acquirers, or merchants. 30
Sec. 3. RCW 82.04.290 and 2020 c 2 s 3 are each amended to read 31
as follows: 32
(1) Upon every person engaging within this state in the business 33
of providing qualifying international investment management services, 34
as to such persons, the amount of tax with respect to such business 35
is equal to the gross income or gross proceeds of sales of the 36
business multiplied by a rate of 0.275 percent. 37
(2)(a) Upon every person engaging within this state in any 38
business activity other than or in addition to an activity taxed 39
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explicitly under ((another section in )) this chapter ((or subsection 1
(1) or (3) of this section)); as to such persons the amount of tax on 2
account of such activities is equal to the gross income of the 3
business multiplied by the rate of: 4
(i) 1.75 percent; or 5
(ii) 1.5 percent for: 6
(A) Any person subject to the surcharge imposed under RCW 7
82.04.299; 8
(B) Any person whose gross income of the business subject to the 9
tax imposed under this subsection (2), for the immediately preceding 10
calendar year, was less than ((one million dollars )) $1,000,000, 11
unless (I) the person is affiliated with one or more other persons, 12
and (II) the aggregate gross income of the business subject to the 13
tax imposed under this subsection (2) for all affiliated persons was 14
greater than or equal to ((one million dollars )) $1,000,000 for the 15
immediately preceding calendar year; and 16
(C) Hospitals as defined in RCW 70.41.020, including any hospital 17
that comes within the scope of chapter 71.12 RCW if the hospital is 18
also licensed under chapter 70.41 RCW. This subsection (2)(a)(ii)(C) 19
must not be construed as modifying RCW 82.04.260(10).20
(b) This subsection (2) includes, among others, and without 21
limiting the scope hereof (whether or not title to materials used in 22
the performance of such business passes to another by accession, 23
confusion or other than by outright sale), persons engaged in the 24
business of rendering any type of service which does not constitute a 25
"sale at retail" or a "sale at wholesale." The value of advertising, 26
demonstration, and promotional supplies and materials furnished to an 27
agent by his or her principal or supplier to be used for 28
informational, educational, and promotional purposes is not 29
considered a part of the agent's remuneration or commission and is 30
not subject to taxation under this section. 31
(c) 14.3 percent of the revenues collected under (a)(i) of this 32
subsection (2) must be deposited into the workforce education 33
investment account created in RCW 43.79.195. 34
(d)(i) To aid in the effective administration of this subsection 35
(2), the department may require a person claiming to be subject to 36
the 1.5 percent tax rate under (a)(ii)(B) of this subsection (2) to 37
identify all of the person's affiliates, including their department 38
tax registration number or unified business identifier number, as may 39
be applicable, or to certify that the person is not affiliated with 40
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any other person. Requests under this subsection (2)(d)(i) must be in 1
writing and may be made electronically. 2
(ii) If the department establishes, by clear, cogent, and 3
convincing evidence, that a person, with intent to evade the 4
additional taxes due under the 1.75 percent tax rate in (a)(i) of 5
this subsection (2), failed to provide the department with complete 6
and accurate information in response to a written request under 7
(d)(i) of this subsection (2) within ((thirty)) 30 days of such 8
request, the person is ineligible for the 1.5 percent tax rate in 9
(a)(ii) of this subsection (2) for the entire current calendar year 10
and the following four calendar years. However, the department must 11
waive the provisions of this subsection (2)(d)(ii) for any tax 12
reporting period that the person is otherwise eligible for the 1.5 13
percent tax rate in (a)(ii) of this subsection (2) if (A) the 14
department has not previously determined that the person failed to 15
fully comply with (d)(i) of this subsection (2), and (B) within 16
((thirty)) 30 days of the notice of additional tax due as a result of 17
the person's failure to fully comply with (d)(i) of this subsection 18
(2) the department determines that the person has come into full 19
compliance with (d)(i) of this subsection (2). This subsection (2)(d) 20
applies only with respect to persons claiming entitlement to the 1.5 21
percent tax rate solely by reason of (a)(ii)(B) of this subsection 22
(2). 23
(e) For the purposes of (a)(ii)(B) of this subsection (2), if a 24
taxpayer is subject to the reconciliation provisions of RCW 25
82.04.462(4), and calculates gross income of the business subject to 26
the tax imposed under this subsection (2) for the immediately 27
preceding calendar year, or aggregate gross income of the business 28
subject to the tax imposed under this subsection (2) for the 29
immediately preceding calendar year for all affiliated persons, based 30
on incomplete information, the taxpayer must correct the reporting 31
for the current calendar year when complete information for the 32
immediately preceding calendar year is available. 33
(f) For purposes of this subsection (2), the definitions in this 34
subsection (2)(f) apply: 35
(i) "Affiliate" means a person that directly or indirectly, 36
through one or more intermediaries, controls, is controlled by, or is 37
under common control with another person; and 38
(ii) "Control" means the possession, directly or indirectly, of 39
more than ((eighty)) 80 percent of the power to direct or cause the 40
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direction of the management and policies of a person, whether through 1
the ownership of voting shares, by contract, or otherwise.2
(3)(a) Until July 1, 2040, upon every person engaging within this 3
state in the business of performing aerospace product development for 4
others, as to such persons, the amount of tax with respect to such 5
business is equal to the gross income of the business multiplied by a 6
rate of 0.9 percent. 7
(b) A person reporting under the tax rate provided in this 8
subsection (3) must file a complete annual report with the department 9
under RCW 82.32.534. 10
(c) "Aerospace product development" has the meaning as provided 11
in RCW 82.04.4461. 12
(4)(a) Except as provided in (b) of this subsection (4), upon 13
every processor engaging within this state in payment card processing 14
activities, as to such persons, the amount of tax with respect to 15
such business is equal to the gross income of the business from such 16
payment card processing activities multiplied by the rate of 3.0 17
percent.18
(b)(i) This subsection (4) does not apply to payment card 19
processing activities involving credit, debit, or prepaid card 20
transactions in which:21
(A) The processor:22
(I) Also operates the payment network or is affiliated with the 23
operator of the payment network; and24
(II) Makes related payments to an affiliated financial 25
institution; or26
(B) The payment card processing company is also the issuer.27
(ii) Payment card processing activities excluded from this 28
subsection (4) are subject to tax under subsection (2) of this 29
section without any deduction under section 2 of this act.30
(c) For purposes of this subsection (4), the following 31
definitions apply:32
(i) "Affiliated" has the same meaning as in RCW 82.04.299.33
(ii) "Financial institution" has the same meaning as in RCW 34
82.04.080.35
(iii) "Issuer" has the same meaning as in section 2 of this act.36
(iv) "Payment card processing activities" means services related 37
to directly or indirectly acquiring, processing, or routing 38
electronic transactions for issuers, acquirers, payment networks, or 39
merchants. "Payment card processing activities" does not include:40
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(A) Issuing and authorizing the use of payment cards;1
(B) Authorization, clearance, and settlement of electronic 2
transactions by a payment network; or3
(C) Retail services or the retail sale of hardware or software.4
(v) "Payment network" has the same meaning as in section 2 of 5
this act.6
(vi) "Processor" has the same meaning as in section 2 of this 7
act.8
Sec. 4. RCW 82.04.29004 and 2019 c 420 s 2 are each amended to 9
read as follows: 10
(1) Beginning January 1, 2020, in addition to any other taxes 11
imposed under this chapter, an additional tax is imposed on specified 12
financial institutions. The additional tax is equal to the gross 13
income of the business taxable under RCW 82.04.290 (2) and (4) 14
multiplied by the rate of 1.2 percent. 15
(2) The definitions in this subsection apply throughout this 16
section unless the context clearly requires otherwise.17
(a) "Affiliated" means a person that directly or indirectly, 18
through one or more intermediaries, controls, is controlled by, or is 19
under common control with another person. For purposes of this 20
subsection (2)(a), "control" means the possession, directly or 21
indirectly, of more than ((fifty)) 50 percent of the power to direct 22
or cause the direction of the management and policies of a person, 23
whether through the ownership of voting shares, by contract, or 24
otherwise. 25
(b) "Consolidated financial institution group" means all 26
financial institutions that are affiliated with each other.27
(c) "Consolidated financial statement" means a consolidated 28
financial institution group's consolidated reports of condition and 29
income filed with the federal financial institutions examination 30
council, or successor agency. 31
(d) "Financial institution" means: 32
(i) Any corporation or other business entity chartered under 33
Titles 30A, 30B, 31, 32, and 33 RCW, or registered under the federal 34
bank holding company act of 1956, as amended, or registered as a 35
savings and loan holding company under the federal national housing 36
act, as amended; 37
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(ii) A national bank organized and existing as a national bank 1
association pursuant to the provisions of the national bank act, 12 2
U.S.C. Sec. 21 et seq.; 3
(iii) A savings association or federal savings bank as defined in 4
the federal deposit insurance act, 12 U.S.C. Sec. 1813(b)(1);5
(iv) Any bank or thrift institution incorporated or organized 6
under the laws of any state; 7
(v) Any corporation organized under the provisions of 12 U.S.C. 8
Sec. 611 through 631; 9
(vi) Any agency or branch of a foreign depository as defined in 10
12 U.S.C. Sec. 3101 that is not exempt under RCW 82.04.315;11
(vii) A production credit association organized under the federal 12
farm credit act of 1933, all of whose stock held by the federal 13
production credit corporation has been retired; 14
(viii) Any corporation or other business entity who receives 15
gross income taxable under RCW 82.04.290, and whose voting interests 16
are more than ((fifty)) 50 percent owned, directly or indirectly, by 17
any person or business entity described in (d)(i) through (vii) of 18
this subsection other than an insurance company liable for the 19
insurance premiums tax under RCW 48.14.020 or any other company 20
taxable under chapter 48.14 RCW; 21
(ix)(A) A corporation or other business entity that receives more 22
than ((fifty)) 50 percent of its total gross income for federal 23
income tax purposes from finance leases. For purposes of this 24
subsection, a "finance lease" means a lease that meets two 25
requirements: 26
(I) It is the type of lease permitted to be made by national 27
banks (see 12 U.S.C. Sec. 24 (7) and (10), comptroller of the currency 28
regulations, part 23, leasing (added by 56 C.F.R. Sec. 28314, June 29
20, 1991, effective July 22, 1991), and regulation Y of the federal 30
reserve system 12 C.F.R. Part 225.25, as amended); and31
(II) It is the economic equivalent of an extension of credit, 32
i.e., the lease is treated by the lessor as a loan for federal income 33
tax purposes. In no event does a lease qualify as an extension of 34
credit where the lessor takes depreciation on such property for 35
federal income tax purposes. 36
(B) For this classification to apply, the average of the gross 37
income in the current tax year and immediately preceding two tax 38
years must satisfy the more than ((fifty)) 50 percent requirement;39
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(x) Any other person or business entity, other than an insurance 1
general agent taxable under RCW 82.04.280(1)(e), an insurance 2
business exempt from the business and occupation tax under RCW 3
82.04.320, a real estate broker taxable under RCW 82.04.255, a 4
securities dealer or international investment management company 5
taxable under RCW 82.04.290(2), that receives more than ((fifty)) 50 6
percent of its gross receipts from activities that a person described 7
in (d)(ii) through (vii) and (ix) of this subsection is authorized to 8
transact. 9
(e)(i) "Specified financial institution" means a financial 10
institution that is a member of a consolidated financial institution 11
group that reported on its consolidated financial statement for the 12
previous calendar year annual net income of at least ((one billion 13
dollars)) $1,000,000,000, not including net income attributable to 14
noncontrolling interests, as the terms "net income" and 15
"noncontrolling interest" are used in the consolidated financial 16
statement. 17
(ii) If financial institutions are no longer required to file 18
consolidated financial statements, "specified financial institution" 19
means any person that was subject to the additional tax in this 20
section in at least two of the previous four calendar years.21
(3) The department must notify the fiscal committees of the 22
legislature if financial institutions are no longer required to file 23
consolidated financial statements. 24
(4) To aid in the effective administration of the additional tax 25
imposed in this section, the department may require a person believed 26
to be a specified financial institution to disclose whether it is a 27
member of a consolidated financial institution group and, if so, to 28
identify all other members of its consolidated financial institution 29
group. A person failing to comply with this subsection is deemed to 30
have intended to evade tax payable under this section and is subject 31
to the penalty in RCW 82.32.090(7) on any tax due under this section 32
by the person and any financial institution affiliated with the 33
person. 34
(5) Taxes collected under this section must be deposited into the 35
general fund. 36
Sec. 5. RCW 82.04.299 and 2022 c 170 s 1 and 2022 c 56 s 4 are 37
each reenacted and amended to read as follows: 38
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(1)(a) Beginning with business activities occurring on or after 1
April 1, 2020, in addition to the taxes imposed under RCW 82.04.290 2
(2) and (4), a workforce education investment surcharge is imposed on 3
select advanced computing businesses. The surcharge is equal to the 4
gross income of the business subject to the tax under RCW 82.04.290 5
(2) and (4), multiplied by the rate of 1.22 percent.6
(b) Except as provided in (e) of this subsection (1), in no case 7
will the combined surcharge imposed under this subsection (1) paid by 8
all members of an affiliated group be more than ((nine million 9
dollars)) $9,000,000 annually. 10
(c) For persons subject to the surcharge imposed under this 11
subsection (1) that report under one or more tax classifications, the 12
surcharge applies only to business activities taxed under RCW 13
82.04.290 (2) and (4). 14
(d) The surcharge imposed under this subsection (1) must be 15
reported and paid on a quarterly basis in a manner as required by the 16
department. Returns and amounts payable under this subsection (1) are 17
due by the last day of the month immediately following the end of the 18
reporting period covered by the return. All other taxes must be 19
reported and paid as required under RCW 82.32.045.20
(e)(i) To aid in the effective administration of the surcharge in 21
this subsection (1), the department may require persons believed to 22
be engaging in advanced computing or affiliated with a person 23
believed to be engaging in advanced computing to disclose whether 24
they are a member of an affiliated group and, if so, to identify all 25
other members of the affiliated group subject to the surcharge.26
(ii) If the department establishes, by clear, cogent, and 27
convincing evidence, that one or more members of an affiliated group, 28
with intent to evade the surcharge under this subsection (1), failed 29
to fully comply with this subsection (1)(e), the department must 30
assess against that person, or those persons collectively, a penalty 31
equal to ((fifty)) 50 percent of the amount of the total surcharge 32
payable by all members of that affiliated group for the calendar year 33
during which the person or persons failed to fully comply with this 34
subsection (1)(e). The penalty under this subsection (1)(e) is in 35
lieu of and not in addition to the evasion penalty under RCW 36
82.32.090(7). 37
(f) For the purposes of this subsection (1) the following 38
definitions apply: 39
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(i) "Advanced computing" means designing or developing computer 1
software or computer hardware, whether directly or contracting with 2
another person, including: Modifications to computer software or 3
computer hardware; cloud computing services; or operating as a 4
marketplace facilitator as defined by RCW 82.08.0531, an online 5
search engine, or online social networking platform;6
(ii) "Affiliate" and "affiliated" means a person that directly or 7
indirectly, through one or more intermediaries, controls, is 8
controlled by, or is under common control with another person;9
(iii) "Affiliated group" means a group of two or more persons 10
that are affiliated with each other; 11
(iv) "Cloud computing services" means on-demand delivery of 12
computing resources, such as networks, servers, storage, 13
applications, and services, over the internet; 14
(v) "Control" means the possession, directly or indirectly, of 15
more than ((fifty)) 50 percent of the power to direct or cause the 16
direction of the management and policies of a person, whether through 17
the ownership of voting shares, by contract, or otherwise; and18
(vi) "Select advanced computing business" means a person who is a 19
member of an affiliated group with at least one member of the 20
affiliated group engaging in the business of advanced computing, and 21
the affiliated group has worldwide gross revenue of more than 22
((twenty-five billion dollars )) $25,000,000,000 during the 23
immediately preceding calendar year. A person who is primarily 24
engaged within this state in the provision of commercial mobile 25
service, as that term is defined in 47 U.S.C. Sec. 332 (d)(1), shall 26
not be considered a select advanced computing business. A person who 27
is primarily engaged in this state in the operation and provision of 28
access to transmission facilities and infrastructure that the person 29
owns or leases for the transmission of voice, data, text, sound, and 30
video using wired telecommunications networks shall not be considered 31
a select advanced computing business. A person that is primarily 32
engaged in business as a "financial institution" as defined in RCW 33
82.04.29004, as that section existed on January 1, 2020, shall not be 34
considered a select advanced computing business. For purposes of this 35
subsection (1)(f)(vi), "primarily" is determined based on gross 36
income of the business. 37
(2)(a) The workforce education investment surcharge under this 38
section does not apply to: 39
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(i) Any hospital as defined in RCW 70.41.020, including any 1
hospital that comes within the scope of chapter 71.12 RCW if the 2
hospital is also licensed under chapter 70.41 RCW; or3
(ii) A provider clinic offering primary care, multispecialty and 4
surgical services, including behavioral health services, and any 5
affiliate of the provider clinic if the affiliate is an organization 6
that offers health care services or provides administrative support 7
for a provider clinic, or is an independent practice association or 8
accountable care organization. 9
(b) The exemptions under this subsection (2) do not apply to 10
amounts received by any member of an affiliated group other than the 11
businesses described in (a) of this subsection. 12
(c) For purposes of the exemption in (a)(ii) of this subsection:13
(i) "Health care services" means services offered by health care 14
providers relating to the prevention, cure, or treatment of illness, 15
injury, or disease. 16
(ii) "Primary care" means wellness and prevention services and 17
the diagnosis and treatment of health conditions. 18
(3) Revenues from the surcharge under this section must be 19
deposited directly into the workforce education investment account 20
established in RCW 43.79.195. 21
(4) The department has the authority to determine through an 22
audit or other investigation whether a person is subject to the 23
surcharge imposed in this section. 24
NEW SECTION. Sec. 6. RCW 82.32.805 and 82.32.808 do not apply 25
to this act.26
NEW SECTION. Sec. 7. This act takes effect January 1, 2026.27
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