Rev. Rul. 75-444

Advice has been requested whether contributions made by employers and employees to a supplemental fund within the workmen's compensation plan of the State of Washington pursuant to title 51 of the Revised Code of Washington, as amended, are deductible as taxes under section 164 of the Internal Revenue Code of 1954.

The Washington workmen's compensation statute provides for certain additional monthly benefits for totally disabled employees whether permanently or temporarily, whose disability is the result of suffering an occupational accident or sickness, and for the surviving spouses of those employees who are killed on the job or who die during a period of total disability. Revised Code of Washington Annotated, Title 51, Section 51.32.070(1962).

Both employers and employees are required to make contributions to the supplemental fund that provides the additional compensation benefits. With respect to employee contributions, an employer is required to withhold the amount of such contributions from the employees' wages at the time the wages are paid. Revised Code of Washington Annotated, Title 51, Section 51.32.073(1962).

Section 164(a) of the Code provides, in addition to the taxes enumerated therein, that there shall be allowed as a deduction State and local and foreign taxes which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for the production of income).

The word "taxes" has been defined as an enforced contribution, exacted pursuant to legislative authority in the exercise of the taxing power, and imposed and collected for the purpose of raising revenue to be used for public or governmental purposes. See Rev. Rul. 71-49, 1971-1 C.B. 103.

Accordingly, amounts paid or accrued to the Washington supplemental fund by employers pursuant to title 51 of the Revised Code of Washington, as amended, are taxes deductible under section 164(a) of the Code.

In the case of employees, amounts withheld from their wages for contribution to the Washington supplemental fund pursuant to the Washington workmen's compensation law providing certain additional benefits due to total disability or death resulting from occupational accidents or illness are taxes paid or accrued by employees in carrying on a trade or business and, therefore, are deductible by the employees under section 164(a) of the Code. However, such amounts are deductible by employees only if their deductions are itemized in computing taxable income under section 63(a).