The Washington Department of Revenue is proposing amendments to WAC 458-20-241 (Rule 241) which deals with radio and television broadcasters. The Joint Legislative Audit and Review Committee (JLARC) previously reviewed Rule 241 and recommended that the rule be amended to comply with the provisions of RCW 82.04.280. The contemplated amendment of Rule 241 would likely eliminate the current practice of the Washington Department of Revenue allowing a flat 62% deduction from advertising gross receipts, in lieu of an actual itemization of advertising gross receipts from national and regional advertising.
Washington’s original attempt to tax radio broadcasters in the 1930s was found by the courts to be an unconstitutional burden upon interstate commerce. Recognizing evolving commerce clause interpretations, Washington enacted a B&O tax on advertising income of radio and television broadcasters in 1967.
Under the new law, an exclusion was provided for national and regional advertising. The exclusion, currently found at RCW 82.04.280(1)(f), could be computed as a standard deduction based on the national average of network, national and regional advertising as reported by the Federal Communications Commission (FCC). Alternatively, the deduction could be computed by an individual broadcasting station excluding the itemized portion of revenues represented by itemized network, national and regional broadcasting plus a portion of local advertising determined to have been earned from out of state broadcasting. The portion of local advertising earned out of state is determined by the ratio of the station’s out-of-state audience compared with the station’s total audience.
The FCC stopped collecting and reporting data on network, national and regional broadcasting in 1980. Subsequently, the Department of Revenue created in Rule 241 an additional method to compute the deduction for national and regional advertising, allowing the broadcast industry to annually provide figures to the Department of Revenue. National figures for such advertising were not ever provided to the Department of Revenue by industry, but a default method allowing for a standard deduction equal to 62% of broadcasting revenue was adopted in practice.
The July 23, 2013 preproposal statement of inquiry indicates that the Washington Department of Revenue is considering amending Rule 241 to comply with the JLARC recommendations. It is not entirely clear what portions of Rule 241 would be revised. It appears likely that the 62% standard deduction will be eliminated as it was specifically addressed by the JLARC recommendation. However, there is also a provision within Rule 241 allowing a deduction for agency fees paid by the broadcasting industry to advertising agencies. Based on recent actions of the Washington Department of Revenue this “agency fees” deduction could also be eliminated