Modifying local option taxes (HB 1147) – AWC Priority

HB 1147 was heard in the House Finance Committee on Tuesday, February 24 and is scheduled for executive session on Monday, March 2. This bill would provide greater fiscal flexibility on how certain sales tax and property tax funds are spent. It would eliminate the non-supplanting language in statute for the countywide 0.3% public safety sales tax (40% of this tax is shared with cities within the county on a per capita basis) as well as levy lid lifts.

Taxation of brokered natural and manufactured gas (HB 1422) – AWC Priority

This bill clarifies the definition of "use" for taxation of natural/manufactured gas. See the February 13 Bulletin for more details. HB 1422 is scheduled for executive session in the House Finance Committee on Monday, March 2.

Public health financing bills (HB 1985, SB 6074) – AWC Priority

These bills would provide resources for county public health operations.

HB 1985, which was written up in the February 6 Bulletin, would create an account called the public health improvement account through which all state funding for public health would be distributed. Jurisdictions would receive base level funding for core public health functions plus per capita distributions. This bill was heard in the House Ways & Means committee on Tuesday, February 24.

SB 6074 was heard in the Senate Health & Long-Term Care Committee on Monday, February 23 and passed out of Committee on the same day. This bill would allow counties to create a public health district in all or a portion of the county, including areas within cities, and authorize an independent taxing authority. Counties proposing to create a district must receive approval from the Governor and Legislature by November 1, 2009. The bill has been referred to the Ways & Means Committee.

Changes affecting the city-county assistance account (HB 1667/SB 5511) – AWC Priority

These bills would make changes to the distribution formula of the city-county assistance account, as well as the calendar year by which distributions are made (see the February 13 Bulletin for more details). HB 1667 is scheduled for executive session in the House Finance Committee on Monday, March 2 and SB 5511 continues to await action by the full Senate.

Modifying local government revenue options in counties of 1,500,000 or more (HB 2249)

HB 2249, sponsored by Rep. Ross Hunter (D-Bellevue), was heard by the House Finance Committee on Tuesday, February 24. This bill would provide incentives for cities to annex unincorporated areas and additional financing options for King County and the cities in King County.

The bill would currently:

Extend the dates cities can qualify for the annexation sales and use tax credit to January 1, 2012;
Authorize King County to impose a utility tax in the unincorporated areas of the county until January 1, 2012;
Authorize cities in King County to impose a utility tax on water-sewer districts if they have annexed all potential annexation areas;
Ease annexation processes; and
Authorize a county or city to impose a councilmanic 0.3% public safety sales tax (although this section is expected to be removed by the Finance Committee).

This bill remains a work in progress and is likely to include several amendments before passage by the Committee. There are a number of positive city measures in the bill. AWC continues to work with Rep. Hunter to refine the bill.

Authorizing cities and counties to levy and collect certain additional taxes (SB 5960)

This county-led bill was heard by the Senate Ways & Means Committee on Thursday, February 26. It would:

Allow a county to impose a utility tax in the unincorporated area of the county, not to exceed 6%, with 30% of the revenues targeted for criminal justice purposes;
Allow a county to impose the 0.3% sales and use tax without voter-approval after July 1, 2009;
Remove non-supplant requirements in the 0.3% public safety sales tax; and
Expand the uses of the 0.3% sales and use tax revenues to include fire protection and a more broad definition of criminal justice.

Cities and counties are in agreement that the non-supplant language should be removed from the 0.3% sales tax, and cities and counties should be able to expend these funds on fire protection and expanded criminal justice programs.

Additionally, cities do not oppose an unincorporated utility tax, although some work is needed on the bill’s details in this area. However, there is currently no agreement on how the 0.3% sales tax should be implemented, although the AWC Board is optimistic future negotiations will result in a proposal both cities and counties can support.

Property tax and fiscal flexibility bills (SB 5432, SB 5433)

SB 5432, adjusting the property tax levy lid limits for certain local services, would eliminate non-supplanting requirements for multi-year levy lid lifts, adjust certain property tax levies to the higher level of 101% or inflation (including EMS levies), and eliminate the 60% vote requirement for EMS levies.

This bill was scheduled for executive session Tuesday, February 24, but was then removed from the calendar. A number of legislators remain nervous about any changes to property tax statutes. AWC supports this bill but passage will remain difficult.

SB 5433, modifying provisions of local option taxes, would remove non-supplanting requirements from the 0.3% sales tax and multi-year lid lifts. This bill was heard by the Senate Ways & Means Committee on Thursday, February 26. We are also supportive of this bill and more optimistic about movement of the bill.

Concerning the taxation of electronic products (HB 2075)

This bill is the result of a workgroup convened by the Department of Revenue last year on the Taxation of Electronically Delivered Products to address the changing technology and marketplace. AWC was represented on the workgroup.

HB 2075 was heard in the House Finance Committee on Thursday, February 19. The bill seeks a general imposition of sales tax on digital goods, digital automated services, digital codes, and remote access software unless otherwise explicitly exempted by the Legislature. It seeks to treat the taxation of digital goods as a retail sale, regardless of whether the information is downloaded to a computer or device, streamed over a remote server, or accessible via a license.

Under current tax interpretation, some of these transactions are considered retail sales to which retail sales tax and retail B&O tax rates apply, while others are taxed as services. Exemptions are provided for digital codes used as promotional goods, such as the music download codes provided in soda bottle caps, TV and cable broadcasts, and online education programs from accredited schools.

The bill also repeals the exemption for standard financial information used by businesses and replaces it with a broader exemption for standard digital business information. Finally, the bill addresses nexus issues for taxation purposes for digital goods held on servers, since Washington State is the location of several "server farms."

Passage of this bill is necessary this year because, under the terms of the national streamlined sales tax agreement (SSUTA), participating states may no longer tax all digital goods as an equivalent to the tangible good, as Washington State currently does, after 2010 for certain goods and 2012 for others. States must specifically address the taxation of these goods and must comply with definitions provided in the agreement for three specific types of digital goods: digital audio-visual, digital audio and digital books by 2010. States must provide specific definitions and taxation provisions for other certain digital goods in order to tax them after 2012.

AWC is supportive of this bill and the general imposition of sales tax on digital goods. We understand the devil is in the detail and we have much more work to do.

For more information about the workgroup and the final report, see the Department of Revenue website: www.dor.wa.gov/Content/AboutUs/StatisticsAndReports/DigitalGoods/Default.aspx.

Concerning the annexation sales and use tax credit (HB 1710, SSB 5321)

These bills would make changes to the sales and use tax credit that most cities in King, Pierce and Snohomish counties are eligible for when they have a large annexation. See the February 13 Bulletin for more details.

HB 1710 is scheduled for executive session in the House Finance Committee on Monday, March 2. A substitute version of SB 5321 passed out of the Senate Committee on Ways & Means on Thursday, February 26.

Making provisions for counties to value property annually (SSB 5368)

This bill would require that by January 1, 2014 all property be revalued annually and physically inspected at least once each six years. The mandate is contingent upon the Department of Revenue providing guidance and financial assistance to counties not currently doing annual revaluations.

On Thursday, February 26 a substitute version of this bill moved out of the Senate Ways & Means Committee. AWC supports this bill.

Removing essential government services as a condition to exempt property belonging to tribes (HB 1526)

This bill would remove "essential government services" as a condition for exemption of property tax on property owned by a federally recognized Indian tribe, making those exempt properties subject to leasehold excise tax. HB 1526 passed out of the House State Government & Tribal Affairs Committee on February 17 and was heard in the House Finance Committee on Tuesday, February 24.

Modifying the senior citizen property tax provisions (HB 2050)

This bill would make changes to the existing senior citizen and disabled persons property tax exemption. It would change the income thresholds from a fixed income amount to an amount based on county median family income. It would have a negative fiscal impact on city property tax revenues, estimated at $1.4 million in fiscal year 2010 and growing to $10.7 million by 2015. This bill was heard in the House Finance Committee on Friday, February 13 and is scheduled for executive session Monday, March 2.

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