State Operating Budget (SHB 1244, SSB 5600)

The Senate Ways & Means Committee passed its version of the budget out of committee on April 15. See the front page article for more information.

Local revenue flexibility (2SSB 5433)

AWC has worked extremely hard in an attempt to provide you flexibility with existing revenues and some limited new authority. Many of you have supported these efforts and contacted legislators seeking their support. It now appears very few changes are forthcoming.

2SSB 5433 as it passed the House on April 17 would:

0.3% public safety sales tax – Allow cities and counties to partially supplant existing funds until January 1, 2015 and expand the allowable uses to include fire protection;
0.1% mental health/chemical dependency sales tax – Allow counties to partially supplant existing funds until January 1, 2015;
Multi-year lid lifts – Allow counties and cities to supplant existing funds ( In King County, this would be allowed in 2009, 2010, and 2011 only);
Ferry district property tax rate – Limit the rate in King County to 7.5 cents per $1,000 of assessed value (current authority is 75 cents per $1,000 AV), and authorize a 7.5 cent levy per $1,000 AV in King County to fund transit projects; and
Transit – Allow public transportation systems, including city-owned systems, to assess a $20 voter-approved car tab fee for transit purposes.

The bill that passed does not include a clarification of “use” for the brokered natural gas use tax, authority for a utility tax on water/sewer districts in cities, greater flexibility with the real estate excise tax, and authority for a utility tax in unincorporated areas of a county. All of these were components of previous versions of this bill.

AWC is extremely disappointed with the lack of assistance this bill now provides cities and counties.

Please, we need you to contact your legislators and remind them that cities are also struggling in this economy. At a minimum we need maximum flexibility with existing revenue sources. Please look for an email on Monday providing specific direction.

Revenue flexibility in severe economic downturns (SB 6164)

SB 6164 was introduced on April 15 by Sen. Debbie Regala (D-Tacoma). The bill was referred to the Ways & Means Committee, but has not yet been scheduled for hearing.

The bill would provide local governments with additional flexibility for a number of different revenues through December 31, 2012. Specifically, the bill would:

Allow the first quarter real estate excise tax to be used for maintenance of capital facilities;
Allow the second quarter real estate excise tax to be used for park maintenance and operation expenditures, maintenance of capital facilities, and increase the type of eligible capital facilities;
Remove non-supplanting requirements for the 0.1% criminal justice sales tax and expand its allowable uses to include human services and services with ancillary benefits to the criminal justice system;
Expand uses of the gambling tax to general public safety; and
Allow the hotel-motel tax to be used for any purpose that maintains or enhances tourism, including public safety.

Although this bill was introduced late, we will “push” this bill over the final week of the legislative session.

Surcharges on fee-based activities related to public health (HB 2348)

This bill would create several new fees which would be deposited into the Public Health Services Account. All health care providers identified in RCW 18.130.040 would pay an annual fee of $7 (this would include emergency medical care and ambulance services professionals). Additionally, an $8 fee would be charged for each certified copy of birth and death certificates as well as an additional $10 fee for food establishment inspections. This bill was heard by the House Ways & Means Committee on April 14.

Concerning the annexation sales and use tax (ESSB 5321)

This bill passed the House on April 16, and will go to the Senate for review and concurrence. ESSB 5321 would allow cities in Snohomish, Pierce and King Counties to continue to qualify for the annexation sales and use tax credit. The bill also makes Seattle eligible, which was previously excluded. The city must commence annexation of an area greater than 10,000 in population prior to 2015 to qualify for the credit. The maximum credit would be 0.2% for annexations of 20,000 population and 0.3% under limited conditions.

As amended by the House the bill would also allow a city that prohibits house-banked social card games to allow such businesses to continue operating in the newly annexed area if income from the business would reduce the state sales tax annexation credit.

Changes to the city-county assistance account (SB 5511)

On April 17 the Governor is scheduled to sign SB 5511. This bill implements some of the recommendations of the Joint Legislative Audit and Review Committee regarding the account.

Changes that will be made as a result of this bill include:

Changing the formula so the sum of sales tax revenues and any funds received from streamlined sales tax mitigation would be used to determine eligibility; and
Changing the certification date from March to October, with the first distribution now taking place in January rather than April.

Digital goods (ESHB 2075)

ESHB 2075 passed the House on April 12 and was heard in the Senate Ways & Means Committee on April 16. This bill addresses most of the issues explored by the digital goods study committee that worked on this issue over the interim. The bill would provide a broad imposition of sales taxes on digital goods and digital automated services to help secure tax neutrality for sales of these items and their tangible equivalents, regardless of whether they were downloaded, streamed, or licensed. The bill would also provide amnesty for grey areas of past tax liability, address server farm taxation issues, and provide business input exemptions.

Passage of the bill is necessary this year to remain in compliance with the streamlined sales tax agreement (SSUTA). Beginning January 1, 2010, the SSUTA requires states to specifically impose sales taxes on digital goods that are separate from their tangible equivalents or they are not allowed to continue taxing them. The fiscal note shows a slight negative impact in the first years with revenue growth in the long-term.

AWC supports this legislation in an attempt to keep the tax structure on pace with technology.

Improving sales tax compliance (SB 6173)

This bill was heard in the Senate Ways & Means Committee on April 16. Its intent is to improve sales tax compliance by making changes in procedures for wholesale exemption qualifications, particularly in the construction industry which according to the Department of Revenue only have an 80% compliance rate.

Under current law, purchases of materials by contractors performing construction for consumers where the materials will become part of the completed project are purchases for resale or wholesale that are not subject to retail sales tax. Contractors may also purchase subcontractor services for resale. To document eligibility, businesses print out a resale certificate as proof of resale or wholesale status.

This bill would make the purchase of materials and subcontractor services for construction retail sales and require contractors and other construction businesses to pay retail sales tax after January 1, 2010. To avoid tax pyramiding, construction businesses would be allowed to claim a credit on their excise tax returns for the amount of retail sales or use taxes already paid on the purchase or use of materials or paid by subcontractors. The bill provides sales and use tax exemptions to maintain eligibility for construction projects under sales and use tax deferral certificates or specific exemptions.

The bill also eliminates the use of resale certificates to document wholesale purchases. Instead, seller's permits will be issued by the Department of Revenue only to those businesses that make wholesale purchases, such as retailers, wholesalers, and manufacturers. Businesses that do not make wholesale purchases, such as construction businesses, will not qualify for a seller's permit.

Audit charges and schedules

A number of changes to local audits have been proposed and discussed as part of the budget process. The House Ways and Means budget included two proposals that would assist cities with audit costs. A proviso added to the budget in committee would provide for audits every two years if the local government has under $10 million in revenues and clean audits for at least three years. Currently, the auditor’s office conducts annual audits of all cities with revenues over $2 million per year. Cities with revenues less than $2 million per year are audited on either biennial or triennial audit cycle.

Another proviso adopted by the House committee would reduce funding for the state auditor’s office local audits by five percent.

Some work is needed on both provisos and given they are in the budget these changes only last through the biennium. Regardless, AWC is working to refine and secure these amendments. We appreciate the help of Representatives Kelli Linville (D-Bellingham) and Ruth Kagi (D-Lake Forest Park).

Concerning environmental tax incentives (SB 6170)

This bill repeals the sales tax exemption for hybrid vehicles and imposes a number of targeted tax exemptions with environmental goals. The bill would:

Provide a sales and use tax exemption of 50 percent of the sales on machinery and equipment used to create energy from fuel cells, sun, wind, biomass energy, tidal and wave energy, geothermal resources, anaerobic digestion, and technology that converts otherwise lost energy from exhaust or landfill gas, and a full sales tax exemption for small solar energy generating equipment, expiring June 30, 2013.
Provide a sales tax exemption for “hog fuel” used to produce electricity, steam, heat, or biofuel. Hog fuel is wood waste and other wood residuals.
Provide a sales tax exemption and B&O credit through June 30, 2015, for harvesters of harvested green forest derived biomass sold or used for production of electricity, steam, heat or biofuel of $3 per ton as of July 1, 2010 and $5 per ton after July 1, 2013.
Provide a lower B&O tax rate for businesses that manufacture or sell at wholesale either: (1) solar energy systems using photovoltaic modules; or (2) solar grade silicon and an expanded list of materials to be used exclusively in the components solar systems or semiconductors.
Provide a sales tax exemption on gases and chemicals used in the production of solar energy equipment through December 1, 2018.
Expand eligibility and incentive payments for the cost-recovery incentive program for renewable energy systems and extends them through 2020.
Expand the services eligible for a reduced B&O tax rate for radioactive waste cleanup for providing support services within the scope of work under a cleanup contract with the United States Department of Energy, or which assists in the requirement of a cleanup subcontract.

SB 6170 was introduced on April 15 and heard in the Senate Ways & Means Committee on April 16. We remain concerned with tax exemption bills but have been told this bill is likely to be close to revenue neutral. The fiscal note has not yet been completed.

[ previous article ] [ return to top ] [ next article ]