Feasibility Study for State Administration of City B&O Taxes (HB 2965)

The 38 cities with local business & occupation taxes just implemented the changes required by legislation approved in 2003 to go into effect January 1, 2008 requiring cities to adopt allocation and apportionment provisions. Since 2003, cities have been involved in a number of projects related to the impact of the 2003 legislation and these provisions: studies comparing the provisions of the city model ordinance to state law; a study documenting the estimated $30 million loss to the B&O tax cities; and discussions regarding mitigation of the impacts.

On Friday, February 1, at 8 am, the House Finance Committee will hear HB 2965, which would require the Department of Revenue to complete a feasibility study by December 1, 2008 outlining state administration and collection of B&O taxes. AWC has significant concerns about this legislation given the potential loss of control over this important revenue source for these 38 cities. The study parameters for the uniform system include assumptions about uniformity with state tax definitions, state administration of tax interpretations, and transfer of audit functions to the state. The study of the uniform system would assume that local jurisdictions would be allowed to set their own rates.

The study would also include the following:

A method for standardizing local tax reporting thresholds;
A mitigation plan to maintain revenue neutrality;
A review of whether state-applied penalties and interest for the administration and collection of unpaid or delinquent taxes should be deposited in the state general fund;
A review, in conjunction with the cities and towns, of conforming local business and occupation tax classifications to state classifications; and
A determination of a deadline for compliance with a state-administered system.

We also have significant concerns regarding the potential impact to DOR resources to complete the study and its potential impact on the successful implementation of mitigation associated with streamlined sales tax on July 1, 2008.

For a list of the 38 cities with local B&O taxes, copies of the 2004 Sourcing Study, and the B&O tax model ordinance changes implemented over the last year, see www.awncet.org/B&O.

Increasing Assistance to Cities and Counties (SB 6798)

SB 6798, sponsored by Sen. James Hargrove (D-Hoquiam), was introduced on January 24. This bill would provide additional assistance to low tax-base cities and counties. The bill would:

Transfer $10 million from the state general fund into the city-county assistance account, which is currently solely funded by a portion of the real estate excise tax.
Modify the formula by which cities receive assistance so cities at 70 percent of the statewide average per capita sales and use tax revenues or less qualify for assistance (currently the formula is 55 percent of the statewide average or less for cities with a population of less than 5,000 and 50 percent for cities with a population more than 5,000).
Increase the maximum allowable distribution to qualifying cities from $100,000 to $175,000 (plus inflation).

Similar legislation was introduced in the House last year, HB 2022. This bill was heard but not advanced by the House Appropriations Committee.

SB 6798 has not yet been scheduled for a hearing, but aligns with AWC’s priority, as does HB 2022, to provide additional state assistance to cities and towns with an insufficient tax base.

Lodging Tax Economic Impact Report (HB 3206/SB 6796)

During the 2007 legislative session SB 5647 passed which allowed cities some additional uses of lodging tax revenues and adopted economic impact reporting requirements. Companion bills, HB 3206/SB 6796, modify the current economic impact reporting requirements. HB 3206 is scheduled for a public hearing in the House Committee on Community & Economic Development & Trade on Wednesday, January 30 at 8 am.

These bills would modify the current law by requiring 1) local jurisdictions that expend lodging tax revenues on their own tourism-related facilities to complete the economic impact report and 2) eliminate the reporting requirement of the estimated increase in sales and use tax revenues attributable to the special event, festival or tourism-related facility. Finally, the bills would clarify that reporting would begin with calendar year 2008.

Affordable Housing Financing (HB 2849)

HB 2849 was heard by the House Committee on Housing on January 24. This bill would create a Housing Everyone Financing Tool (HEFT) program within the Department of Community, Trade and Economic Development. The program would provide grants to local governments to finance affordable housing within specific designated areas. Funding for the program would come from additional locally imposed sales and use taxes to capture a portion of the anticipated growth in state revenues that is expected to occur within the designated area.

Activities eligible for assistance would include: new construction of affordable housing, acquisition of existing housing units for resale or rent, and acquisition of land that will be used for affordable housing.

AWC supports this bill.

Property Tax Work Session

The legislature continues to examine the property tax system this session. The House Finance Committee will host a work session on property taxes and possible alternative structures on Tuesday, January 29 at 10 am.

Voter-Approved Increases in Property Tax Levy Limitations (SB 6641/HB 2545, HB 2554, HB 2627)

SB 6641, companion bill to HB 2545 (heard January 18), will be heard by the Senate Ways & Means Committee on Tuesday, January 29 at 3:30 pm. These bills provide a fix to ESB 5498, which passed in 2007 and inadvertently changed how temporary voter-approved levy lid lifts are computed at the conclusion of the levy. These bills would clarify that voter-approved six-year levy lid lifts do not permanently increase a taxing district’s levy base, unless it is explicitly stated in the ballot title.

HB 2554 and HB 2627 are two additional bills that were heard by the House Finance Committee on January 25 that also fix ESB 5498 in a similar fashion.

For more information see the Municipal Finance section of last week’s Bulletin.

Streamlined Sales Tax – Florist Exception (SB 6799/HB 2543)

On Tuesday, January 29, at 3:30 pm, the Senate Ways & Means Committee will hear SB 6799, the companion bill to HB 2543, which was heard this week in the House. These bills were brought at the request of DOR to implement a national agreement amendment approved in July 2007 extending an exemption from compliance for florist wire-transfer flower deliveries until January 1, 2010 and to continue current practice in the industry.

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