Eyman files initiative relating to reducing the general fund and lowering property taxes

On Monday, January 5, 2009 Tim Eyman filed several versions of an initiative that seek to limit state, county and city general fund revenue growth and lower property taxes.

The proposed initiative would impact cities by:

Limiting general fund revenue growth to the annual rate of inflation (as determined by the implicit price deflator) and population growth. New voter-approved revenues would be excluded from this limit.
Requiring that revenues in excess of this limit be shifted to an account called the "Lower City Property Taxes Account" and used to reduce the subsequent year’s city property tax levy.

In order to qualify for the ballot in November 241,153 valid signatures must be collected by July 3, 2009. To ensure sufficient valid signatures nearly 300,000 signatures will need to be collected.

To view the initiative text, visit the AWC website at www.awcnet.org/initiatives.

Streamlined sales tax (SST) technical changes (HB 1089)

HB 1089, which makes technical changes to conform to the national streamlined sales tax agreement, was heard in the House Finance Committee on Tuesday, January 13. These changes include sourcing for printers engaged in direct mailing activities, clarifying that the local option parking tax is not subject to the uniform rate requirement under the streamlined agreement and specifying that ancillary telecommunication services are sourced to a customer's residential or business street address. AWC has no concerns with this bill.

Cities encouraged to review detailed SST mitigation payment information

In December, the Department of Revenue sent distributions to cities impacted by Streamlined Sales Tax since destination-based sourcing rules went into effect July 1, 2008. This information can be viewed on the DOR local government website http://localgovernment.dor.wa.gov (click "History of mitigation payments").

DOR also sent a secure email in December to one contact in every city with the confidential, detailed-taxpayer information for that jurisdiction that was used to determine mitigation payments. Cities are encouraged to review that information and report any unusual findings to the Department of Revenue in time to incorporate changes before the March distributions.

In particular, DOR is interested in learning if any businesses that do not deliver are included in the list of a city’s top sourcing impacts so that the data can be corrected and as accurate as possible during this first year of implementation. Several cities have noted that some fast-food restaurants and other businesses that do not deliver may have been included in the data due to store openings or closings or a change in sales tax reporting due to the education and outreach conducted by DOR.

If you have questions about the confidential taxpayer information data, format, or the details of the mitigation calculation, please contact Matthew Bryan at: matthewbr@dor.wa.gov or 360-570-6074.

For general questions about local sales tax, reporting of firms, or NAICS classifications, please contact Tiffany Johnson at: tiffanyj@dor.wa.gov or 360-902-7122.

Increasing the property tax limit for emergency medical care and services (SB 5143)

On Thursday, January 15, SB 5143 was introduced by Sen. Debbie Regala (D-Tacoma) that would increase the property tax limit for emergency medical care and services. Under this bill, a taxing district that imposes a permanent EMS levy would be able to increase property taxes to 6% or less annually, if approved by state voters.

If this bill passes the legislature it will be placed on the ballot during the next general election in November 2009. This bill has been referred to the Senate Ways & Means Committee.

Modifying local option taxes (HB 1147)

Rep. Sam Hunt (D-Olympia) has introduced HB 1147, which would provide greater fiscal flexibility for the way in which certain sales tax and property tax funds are spent.

Specifically the bill would:

Eliminate the requirement that the county one-tenth percent mental health sales tax be spent on "new or expanded" chemical dependency or mental health treatment programs as well as the requirement that money collected not supplant existing funding;
Eliminate non-supplanting language in statute for the countywide three-tenths percent public safety sales tax (40% of this tax is shared with cities within the county on a per capita basis); and
Eliminate non-supplanting requirements for levy lid lifts.

If passed, these changes would apply retroactively. HB 1147 was introduced on Wednesday, January 14 and has not yet been scheduled for hearing.

Brokered natural gas use tax bill underway

As reported in the last Bulletin AWC has been working with the City of Seattle, the Department of Revenue and the Attorney General’s Office on a bill to clarify the intent of the brokered natural gas use tax. In May of 2008 the Court of Appeals reversed an earlier trial court opinion requiring G-P Gypsum to pay a use tax for using natural gas within the City of Tacoma. The court’s ruling asserted that the natural gas is not "used" when it is burned in the city, if it had first been obtained outside of the city.

If not corrected, this decision will cost 46 cities around $11 million annually.

Rep. Steve Conway (D-Tacoma) has agreed to sponsor this AWC priority bill. It has not yet been formally introduced or scheduled for a hearing.

IRS seeks comments on withholdings proposal

Section 511 of the 2005 Tax Increase Prevention and Reconciliation Act – P.L. 109-222 (TIPRA), contains a provision which requires governments that spend more than $100 million per year on goods and services to withhold 3% of the payments made to vendors and contractors and remit that 3% to the federal government, similar to how payroll taxes are administered. The withholding requirement is set to begin in 2011.

There is concern that this provision constitutes an unfunded mandate on state and local governments. The Congressional Budget Office has estimated that the provision could cost $62 million per year. The Government Finance Officers Association is working with other state and local government organizations, including the National League of Cities and the National Association of State Auditors, Comptrollers and Treasurers, to support legislation that repeals this requirement.

This proposed IRS regulation is published in the December 5, 2008 Federal Register. Comments or requests for a public hearing may be made until March 5, 2009. More information can be found on the AWC website in the Fiscal Health section.

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