Did Washington's July 2022 B&O exemption for custom farming and related farm services apply retroactively to the 2021-to-June-2022 gap?

Plain-English summary

The Washington Department of Revenue held that the B&O-tax exemption in RCW 82.04.758 for custom farming, farm management, contract labor, and related services applied only from July 1, 2022 forward. It did not cover the gap from January 1, 2021 through June 30, 2022.

The taxpayer provided farm-management and contract-labor services to related Washington farmers. A prior exemption expired December 31, 2020, and the new statute did not take effect until July 1, 2022. The taxpayer agreed that neither statute expressly covered its income during the gap, but argued that the Department should apply the new exemption retroactively because of its importance to agriculture.

Washington law presumes a statute operates prospectively unless the Legislature says otherwise or the change is curative or remedial. RCW 82.04.758 contained no retroactive language, and a tax exemption changes a substantive right rather than merely procedure or remedy. The determination also noted that a 2023 bill expressly proposing retroactivity to December 31, 2020 did not pass. The Department therefore lacked authority to extend the exemption backward, and the petition was denied.

What this means for you

Farms and agricultural service companies

Eligibility under today's exemption does not erase tax from a period when no exemption was in force. Match service income to the statute effective during the exact reporting period.

Related farming businesses

RCW 82.04.758 can cover specified services between related parties when its ownership and service conditions are met, but this determination addresses timing only. The Department agreed the services otherwise would qualify under the new law.

Accountants and tax professionals

Do not infer retroactivity from policy goals or industry importance. Look for express effective-date language, a true clarification of ambiguous law, or a remedial procedural change. A new tax exemption is generally substantive.

Common questions

Q: What created the exemption gap?

A: The prior exemption expired on December 31, 2020, while RCW 82.04.758 did not take effect until July 1, 2022.

Q: Did the taxpayer's services otherwise fit the new exemption?

A: Yes. The determination says that point was not disputed; the only issue was whether the new statute reached earlier periods.

Q: Why was the new exemption not considered remedial?

A: A tax exemption creates a substantive right to exclude income from tax. It does not merely change procedure or provide a remedy for enforcing an existing right.

Q: Why did the failed 2023 bill matter?

A: House Bill 1604 would have expressly made RCW 82.04.758 retroactive and provided credits, but it did not pass. The determination treated that as additional evidence that the enacted statute was prospective only.

Citations and references

• RCW 82.04.220 (B&O tax)
• Former RCW 82.04.625 (exemption expired December 31, 2020)
• RCW 82.04.758; Laws of 2022, ch. 119, § 5 (new exemption effective July 1, 2022)
• Loeffelholz v. University of Washington, 175 Wn.2d 264, 285 P.3d 854 (2012)
• McGee Guest Home, Inc. v. Department of Social & Health Services, 142 Wn.2d 316, 12 P.3d 144 (2000)
• Det. No. 14-0237R, 34 WTD 515 (2015) (tax provisions and substantive rights)
• Det. No. 20-0211, 41 WTD 231 (2022) (express retroactive language)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 45WTD040.pdf
• Source archive: Volume 45 ZIP (member wtdvol45/45WTD040.pdf)

Original ruling text

Det. No. 23-0153, 45 WTD 040 (March 6, 2026)

40

Cite as Det. No. 23-0153, 45 WTD 040 (2026)
BEFORE THE ADMINISTRATIVE REVIEW AND HEARINGS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition for Correction of )
Assessment of
)
)
...
)
)
)

DETERMINATION
No. 23-0153
Registration No. . . .

RCW 82.04.758: B&O TAX – CUSTOM FARMING SERVICES –
RETROACTIVITY. RCW 82.04.758 applies prospectively only, not retroactively, because the Legislature did not include any explicit language stating that it had retroactive effect, the statute was not remedial, and a separate bill that would have given retroactive effect did not pass the Legislature. Headnotes are provided as a convenience for the reader and are not in any way a part of the decision or in any way to be used in construing or interpreting this Determination. Callahan, T.R.O. – A corporation that provides farm management and contract labor services to farmers protests the disallowed business and occupation (B&O) tax exemption for custom farming services taken between January 1, 2021, and June 30, 2022. The taxpayer argues the Department should retroactively apply the statute to the period that is not covered by the exemption because the agricultural industry is one of the largest employers in Washington[,] and the farm labor services B&O tax exemption is vital to the agriculture industry including the taxpayer. We deny the petition. 1 ISSUE Does the B&O tax exemption for custom farming services under RCW 82.04.758 apply retroactively? FINDINGS OF FACT
. . . (Taxpayer) provides farm management and contract labor services to farmers in Washington. Taxpayer opened for business as of May 1, 2015, but did not report any income as taxable to the Department until the beginning of 2021. This administrative review concerns the B&O tax exemption for providing custom farming services to related farmers. The Department’s Audit Division (Audit) audited Taxpayer for the period of January 1, 2019, to June 30, 2022 (Audit Period). On November 17, 2022, Audit issued Results of Your Recent Audit,
. . . for its findings. Audit found that Taxpayer took a B&O tax exemption for its gross income for 1

Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410.

Det. No. 23-0153, 45 WTD 040 (March 6, 2026)

41

farm labor services provided to related farmers during the Audit Period. Audit disallowed the exemption because the Audit Period is not covered by the exemption statute. The exemption under the prior statute, RCW 82.04.625, expired as of December 31, 2020. The exemption was restored under another statute, RCW 82.04.758, effective July 1, 2022. Thus, Taxpayer’s reported income during part of the Audit Period is not covered either under the prior statute or the current statute, and no such exemption was in effect in the interim period. As a result, Audit assessed service and other activities B&O tax on the income. On November 17, 2022, the Department issued a Notice of Balance Due, . . . , for $. . . , which consisted of service and other activities B&O tax of $. . . , a five percent assessment penalty of
$. . . , a late payment penalty of $. . . , and interest of $. . . . 2 Taxpayer did not pay the amount due on the Notice of Balance Due and petitioned the Department’s Administrative Review and Hearings Division for an administrative review of the assessment. On review, Taxpayer does not dispute that its reported income during the Audit Period is not covered under either the expired statute or the current statute for the farm service B&O tax exemption. However, Taxpayer argues that the Department should retroactively apply the current statute to the Audit Period because the agricultural industry is one of the largest employers in Washington[,] and the farm labor services B&O tax exemption is vital to the agriculture industry including Taxpayer. ANALYSIS Washington imposes B&O tax on every person with this state for the act or privilege of engaging in business activities in Washington. RCW 82.04.220. The tax is measured by applying particular rates against the value of products, gross proceeds of sales, or gross income of the business, as the case may be. RCW 82.04.220. RCW 82.04.758 establishes an exemption for custom farming services, and provides that the B&O tax does not apply to any: (a) Person performing custom farming services for a farmer, when the person performing the custom farming services is: (i) An eligible farmer; or (ii) at least 50 percent owned by an eligible farmer; or (b) Person performing farm management services, contract labor services, services provided with respect to animals that are agricultural products, or any combination of these services, for a farmer or for a person performing custom farming services, when the person performing the farm management services, contract labor services, services with respect to animals, or any combination of these services, and the farmer or person performing custom farming services are related. Taxpayer did not file or pay its January 2021 return. Audit assessed a 29 percent late payment penalty for the late payment. See Results of Your Audit. 2

Det. No. 23-0153, 45 WTD 040 (March 6, 2026)

42

The effective date of RCW 82.04.758 was July 1, 2022. Laws of 2022, ch. 119 § 5. Here, it is not in dispute that Taxpayer’s services would otherwise qualify for the B&O [tax] exemption under RCW 82.04.758. At issue is whether the statute applies retroactively to any periods prior to July 1, 2022. Washington courts “presume that a statute applies prospectively, unless the legislature intends otherwise, or unless the amendment is remedial in nature.” Loeffelholz v. Univ. of Wash., 175 Wn.2d 264, 271, 285 P.3d 854 (2012) (citing In re Pers. Restraint of Carrier, 173 Wn.2d 791, 809, 272 P.3d 209 (2012); Densley v. Dep’t of Ret. Sys., 162 Wn.2d 210, 223, 173 P.3d 885 (2007). 3 In Det. No. 20-0211, 41 WTD 231 (2022), we examined the retroactivity of the 2018 addition to RCW 82.45.010 found in Laws of 2018, ch. 221 §§ 2-3. 41 WTD at 233. We noted that the bill contained this provision addressing the timing of its application: This act applies with respect to transfers occurring before, on, or after the effective date of this section. However, this act may not be construed by the department of revenue, state board of tax appeals, or any court as authorizing the refund of any tax liability imposed or authorized under chapter 82.45 or 82.46 RCW and
[properly] paid before the effective date of section 1 of this act with respect to a transfer of qualified low-income housing as . . . defined in RCW 82.45.101(3)(s). Id. We stated: “Here, the retroactive meaning of Section 2 of the Act is plain on its face. There is no ambiguity when it states the ‘act applies with respect to transfers occurring before, on, or after the effective date of this section.’” Id. Due to the explicitly retroactive language of Laws of 2018, ch. 221 §§ 2-3, we held that the 2017 transfer at issue qualified for exclusion from tax because of the retroactive 2018 amendment. Id. at 234. In contrast, in Det. No. 14-0237R, 34 WTD 515 (2015), we examined the retroactivity of Laws of 2013, ch. 13 § 2. 34 WTD at 517. In analyzing the bill’s remedial nature, we stated: A remedial statute “relates to practice, procedures, and remedies” and “will generally be applied retroactively, unless it affects a substantive or vested right.” Densley v. Dep’t of Ret. Sys., 162 Wn.2d 210, 173 P.2d 885 (2007). A tax deduction 3

In considering whether to give statutory amendments retroactive effect, courts are guided by certain principles: A statutory amendment will be applied retroactively, if constitutionally permissible under the circumstances, when it is (1) intended by the Legislature to apply retroactively, (2) curative in that it clarifies or technically corrects ambiguous statutory language, or (3) remedial in nature. McGee Guest Home, Inc. v. Dep't of Soc. & Health Servs., 142 Wn.2d 316, 324–325, 12 P.3d 144 (2000) (citing State v. Cruz, 139 Wn.2d 186, 191, 985 P.2d 384 (1999)). The court may turn to the statute’s purpose and language, legislative history, and legislative bill reports to analyze retroactivity. . . .

Barstad v. Stewart Title Guar. Co., 145 Wn.2d 528, 536–37, 39 P.3d 984 (2002) (footnotes omitted). However, we do not have a statutory amendment at issue here, but instead have a new statute entirely.

Det. No. 23-0153, 45 WTD 040 (March 6, 2026)

43

affects a substantive right – it provides taxpayers the right to take a deduction under specified circumstances. Therefore, the remedial exemption to the usual presumption does not apply. Id. Since there was not any language in that bill indicating a retroactive effect, and the bill was not remedial, we held that Laws of 2013, ch. 13 § 2 was prospective only. Id. Like 34 WTD 515, and unlike 41 WTD 231, we have a new statute here that does not have any explicit language indicating that it is retroactive. Also, like 34 WTD 515, the legislation affects a substantive right--the right to exclude income from custom farming services, contract labor services, and other various services from B&O tax, and is therefore not remedial. We thus conclude that RCW 82.04.758 should be prospectively applied from July 1, 2022, only. In support of this conclusion, House Bill 1604 was introduced in the 2023 Regular Session, which aimed to retroactively apply RCW 82.04.758 to December 31, 2020. House Bill 1604, in relevant part, provided the following: 4 Sec. 1. RCW 82.04.758 and 2022 c 119 s 1 are each amended to read as follows: (2) This section applies retroactively to December 31, 2020, and prospectively. (3)(a) Persons who paid taxes after December 30, 2020, but before the effective date of this section who would otherwise have been eligible for the tax exemption authorized in this section are entitled to a credit for any taxes paid that would not have been owed had this exemption been authorized. The Legislature did not pass House Bill 1604 in the 2023 Regular Session, which indicates that the Legislature does not intend to retroactively apply RCW 82.04.758. The bill that passed was House Bill 1641. Laws of 2022, ch. 119, § 1. Taxpayer argues that the Department should retroactively apply RCW 82.04.758 to the Audit Period because the farm labor services B&O tax exemption is vital to the agriculture industry including Taxpayer. Taxpayer has not provided any legal basis to support its argument. Accordingly, we do not have any authority to retroactively apply RCW 82.04.758 to the Audit Period. We deny the petition. DECISION AND DISPOSITION We deny the petition. Dated this 16th day of August 2023. 4

https://lawfilesext.leg.wa.gov/biennium/2023-24/Pdf/Bills/House%20Bills/1604.pdf?q=20230414135358