This article was updated on August 26, 2021.
On February 19, 2021, Washington State Governor Jay Inslee signed House Bill (HB) 1095.
The law provides taxpayers an exemption from Washington business and occupation tax, retail sales tax, and public utility tax on qualifying grants received after February 29, 2020, and related to a national or state emergency proclamation.
This includes COVID-19-related government financial assistance. An overview of the exemption follows.
Financial Assistance Background
The federal government implemented several financial assistance programs with the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, including the Paycheck Protection Program (PPP) and Small Business Association Debt Relief program.
Additionally, Washington implemented state government financial assistance programs, such as the Working Washington Small Business Grants.
The Washington Department of Revenue (DOR) hadn’t provided official guidance regarding the taxability of such federal, state, and local financial assistance programs prior to the passage of HB 1095.
To Which Dates Does the HB 1095 Exemption Apply?
The exemption for qualifying grants received through governmental financial assistance programs—and not reported on an excise tax return—applies both prospectively and retroactively to February 29, 2020.
The DOR’s current position is that HB 1095 only applies to taxes that haven’t yet been paid. Accordingly, the DOR is disallowing both refund claims as well as amended returns filed to claim a refund for taxes paid on emergency financial-assistance grant income prior to February 19, 2021.
What Counts as a Qualifying Grant?
The bill defines a qualifying grant as an amount received, or relief from debt or other legal obligation received, under a government-funded program to address the impacts of conditions giving rise to an official proclamation of a state of emergency by the US president or the governor of Washington.
The exemption applies to qualifying grants received:
- Directly from a government entity
- Through a nongovernmental third-party entity authorized by the government to distribute the program funds
- From a private entity providing relief from debt or legal obligation to a person who, as a result, receives some form of direct financial benefit from a government entity
Government is defined to include any national, tribal, state, or local government.
When Will the HB 1095 Exemption Expire?
This exemption is set to automatically expire in 10 years, on February 19, 2031.
We’re Here to Help
If you have questions regarding how the passage of HB 1095 could impact your business, please contact your Moss Adams professional.
Special thanks to Cory Van Arnum, senior, State & Local Tax Services, for his contributions to this article.