Extras on Excise: B&O Tax Deduction for Chemical Dependency Services

Washington has taken steps to expand their mental health care coverage under government-funded programs to include chemical dependency services.

House Bill 1713, also known as ‘Ricky’s Law,’ was passed as part of a lobbying effort to help families dealing with addiction by former drug addict Ricky Garcia, according to King 5.   

Along with this new access to services comes an extension of the business and occupation tax deduction for health or social welfare organizations and behavioral health organizations who administer services for chemical dependency.

Previously, nonprofit health and welfare organizations were only allowed a deduction for business and occupation tax when the payments were coming straight from a government agency. However, this was changed with the implementation of Wash. Rev. Code §82.04.4277 via 2011 legislation, H.B. 1224

Under Wash. Rev. Code §82.04.4277, nonprofit health and welfare organizations are able to claim a deduction for mental health services rendered as long as they are being compensated by a government- funded program, and Regional Support Networks (RSNs) are able to claim a deduction for amounts received from a government agency for distribution to a deduction-eligible health or social welfare organization. However, the law did not afford a deduction to health and welfare organizations and behavioral health organizations (BHOs) that rendered or funded services for chemical dependency treatment.

H.B. 1713, not only expands the limitations on the types of health services eligible for the deduction, covered under Wash. Rev. Code §82.04.4277, but it also extends the life of the deduction through Jan. 1, 2020. 

The method used to monitor services and distribute funds to local mental health service providers, and now, chemical dependency service providers, is distinctly organized and includes involvement from different entities.

The Department of Social and Health Services (DSHS) contracts RSNs and BHOs to manage and monitor the implementation of mental health and chemical dependency health services. The RSNs and BHOs then administer the activity of services rendered and the distribution of funds to local contracted health and social welfare organizations who provide the necessary services.

Effective April 1, 2016, nonprofit health and social welfare organizations and BHOs who receive compensation for providing mental health services OR chemical dependency services under a government-funded program may be able to claim a business and occupation tax deduction. 

Eligible persons wishing to claim the deduction must do so by filing an annual tax incentive report electronically with the Washington Department of Revenue. The new filing deadline for reports due for 2016 and beyond is May 31 of the following year in which the person became eligible to claim the deduction.


Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should there be state deductions related to chemical dependency treatment services?

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