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AGO 1957 No. 101 - July 24, 1957
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John J. O'Connell | 1957-1968 | Attorney General of Washington


Persons who farm and who also engage in the business of doing custom farm work are liable for business and occupation tax upon the gross income of such custom work.

In the absence of fraud, the commission may assess taxes for all years subsequent to 1946 against taxpayers who should have, but failed to register as required under the revenue act.

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                                                                    July 24, 1957

Honorable D. R. Canfield
State Representative
15th District
Route 1
Granger, Washington                                                                                                              Cite as:  AGO 57-58 No. 101

Dear Sir:

            This is in reply to your recent request for our opinion on the following questions:

            1.         Is the State Tax Commission authorized to collect business and occupation taxes from bona fide farmers who do custom work regularly or incidentally?

            2.         Is the Tax Commission authorized to assess taxes for past years?

            It is our conclusion that one who farms and who also engages in the business of doing custom work for others is taxable with respect to his income on such custom work.  The Tax Commission is authorized to assess taxes for all tax years subsequent to 1946, against any person who should have, but failed, in the absence of fraud, to register under the Revenue Act with the commission.

             [[Orig. Op. Page 2]]


            The business and occupation tax is imposed in the following language:

            "There is levied and shall be collected from every person a tax for the act or privilege of engaging in business activities.  * * *"  RCW 82.04.220

            "Business" is defined to include:

            "* * * all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly."  RCW 82.04.140

            Under these provisions all types of farming activities resulting in gross income would be taxable were it not for the express exemption accorded by RCW 82.04.330.  That section exempts from the tax persons who grow agricultural products for sale upon their own land.  The section provides:

            "This chapter shall not apply to any person in respect to the business of growing or producing for sale upon his own lands or upon land in which he has a present right of possession, any agricultural or horticultural produce or crop, including the raising for sale of any animal, bird, or insect, or the milk, eggs, wool, fur, meat, honey, or other substance obtained therefrom, or in respect to the sale of such products at wholesale by such grower, producer, or raiser thereof.  * * *"

            The exemption clearly extends only to the business of growing or producing agricultural and horticultural products.  Since exemptions from tax must be strictly construed in favor of the tax and against extension of the exemption,Yakima Fruit Growers Ass'n v. Henneford, 187 Wash. 252, the business of doing custom farm work is clearly outside the scope of the agricultural exemption.  The gross income of such business is consequently subject to the business and occupation tax since it is manifestly pursued with the object of "gain, benefit or advantage."

            The statutory authority under which the commission assesses back taxes is found in RCW 82.32.050 and 82.32.100.  Sections 20 and 24 of chapter 228, Laws of 1949, respectively, amended those sections by providing that no assessment  [[Orig. Op. Page 3]] or correction of an assessment could be made by the commission more than four years after the close of the tax year.  However, since the enactment of §§ 5 and 10, chapter 9, Laws of 1951, further amending RCW 82.32.050 and 82.32.100, respectively, the four-year statutory limitation has not been applicable against a taxpayer who has not registered with the tax commission as required by the act.  We wish to point out, however, that although there is no statutory limitation as to the years for which back taxes may be assessed against such a taxpayer, assessments prior to 1947 were already barred in 1951 at the time of the enactment of chapter 9, Laws of 1951,supra.  In view of the constitutional objections to the removal of the bar as to the collection of such taxes by subsequent legislation, the commission cannot collect back taxes from such taxpayers prior to 1947.  Seattle v. DeWolfe, 17 Wash. 349; Lane v. Dept. of Labor & Industries, 21 Wn. (2d) 420.

            Furthermore, § 15, chapter 9, Laws of 1951 (1st Ex. Sess.), provides as follows:

            "Section one of this act shall have retrospective effect to August 1, 1950, as well as have prospective effect."

            Under the general rule of statutory construction that a statute will be construed as having a prospective operation only unless it clearly indicates that a retroactive construction is to be given by its express terms, it is our opinion that all provisions of the act with the exception of § 1 are to be given prospective effect only.  In re Fotheringham's Estate, 183 Wash. 579; City of Seattle v. King County, 3 Wn. (2d) 26; Layton v. Home Indemnity Co., 9 Wn. (2d) 25.  Consequently, assessments for all tax years subsequent to 1946 may be made against taxpayers who have failed to register as required by the act, unless fraud or misrepresentation is shown, in which case there is no limitation.  We understand that the tax commission administers the act in accordance with these conclusions.

            We enclose for your information a copy of the tax commission rule 209 pertaining to farming operations performed for hire.  This rule was first adopted in 1937 and revised May 1, 1943.

Very truly yours,

Attorney General

Assistant Attorney General

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