Local revenue flexibility (2SSB 5433, SB 6164)

In last week’s Bulletin 2SSB 5433 and SB 6164 were written up in detail. These two bills were intended to provide cities and counties with flexibility in how current revenues are spent.

2SSB 5433, after significant changes when compared to the bill that left the House Finance Committee, passed the legislature on the last day. As noted in last week’s Bulletin this bill once contained flexibility tools and new revenue that would have significantly helped cities in this economic downturn. However, the final bill is not as generous.

This bill as approved by the Legislature contains:

Partial elimination of non-supplanting language for the public safety sales and use tax and expansion of the uses to include fire protection;
Elimination of non-supplant language for multi-year property tax lid lifts (in King County this is only for levies approved in 2009, 2010, and 2011);
Partial elimination of non-supplant language for the chemical dependency/mental health sales and use tax;
A reduction in the ferry district property tax rate in King County from 75 cents per $1000 of assessed value to 7.5 cents, and authorization for King County to impose an additional property tax of 7.5 cents per $1000 of assessed value for transit related purposes; and
Authorization for various local transit agencies, including cities, to impose a voter-approved $20 per vehicle congestion reduction tax (a credit must be provided for any city and metropolitan municipal corporation tax).

SB 6164 was introduced late in the process and would have provided additional flexibility with current resources. Our intent was to amend some of these provisions onto 2SSB 5433. However, we were unable to make that happen. SB 6164 died.

Brokered natural gas use tax

Clarifying the definition of use for the brokered natural gas use tax has been a priority for AWC throughout the legislative session. HB 1422 was the original bill introduced to achieve this fix, but died on the House calendar earlier in the legislative session.

Since that time we have worked to amend the "fix" onto other bills. Several weeks ago this issue was part of 2SSB 5433, but did not make it into the final bill. Last week we attempted to amend the "fix" onto SHB 1597, concerning the administration of state and local tax programs, but this bill failed to pass prior to sine die.

We are very disappointed that this clarification ultimately did not pass and we will pursue legislation during the special session if the legislature is "called". Thank you to all the cities currently levying this tax that made calls to Senators and Representatives asking them to support this issue. We will keep you posted on possible special session action and updates on action by the Supreme Court.

Improving sales tax compliance (SB 6173)

As noted in last week’s Bulletin, SB 6173 would make changes in procedures for wholesale exemption qualifications, particularly in the construction industry. The Senate concurred with House amendments on April 25 and the bill was sent to the Governor.

This bill would require custom contractors to pay sales tax on purchases of materials and services 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 purchases of materials for use or paid by the subcontractors.

The Department of Revenue estimates the changes in this bill would increase local government sales and use tax revenues by $3 million in 2010, increasing to $7.8 million in 2011.

Concerning environmental tax incentives (ESSB 6170)

ESSB 6170 passed the legislature on April 26 and has been delivered to the Governor. Last week’s Bulletin outlined the details of this bill, which would provide a number of sales and use tax exemptions and other tax incentives for certain industries, and repeal the exemption for hybrid vehicles.

AWC has some mild concerns about the fiscal impacts of this bill on cities. The final fiscal note has not yet been completed.

Concerning the annexation sales and use tax (ESSB 5321)

The Senate and House concurred on this bill late last week and sent it to the Governor.

ESSB 5321 would extend and modify the existing sales and use tax credit for cities in King, Snohomish and Pierce counties annexing large areas. The bill extends the sales and use tax credit for cities commencing a large annexation by 2015 and makes Seattle, which was previously excluded, eligible to receive a credit.

The credit is generally 0.1% for cities annexing a population of 10,000 to 20,000 and 0.2% for cities annexing a population greater than 20,000; although cities can qualify for a 0.3% credit under limited conditions and some exceptions to the rate and population threshold apply for specific areas.

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

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

On April 19 the Senate concurred in House amendments on SSB 5368. This bill would require that by 2014 all taxable real property is revalued annually and physically inspected every six years. The mandate is conditioned upon the Department of Revenue (DOR) providing guidance and financial assistance to those counties that are currently not on an annual revaluation cycle. The budget allocates $843,000 from the state general fund to DOR for SSB 5368.

An annual property revaluation grant account would be created within the State Treasurer’s Office. The account would be funded by the extension of a $5 fee on real estate transfers.

Digital goods (ESHB 2075)

ESHB 2075 passed the Legislature on April 21 and has been sent to the Governor. This bill is the result of work of the digital goods study committee over the interim. Passage of the bill was necessary this year to remain in compliance with the streamlined sales tax agreement (SSUTA). This bill, supported by AWC, will also help the tax structure keep pace with changes in technology and the marketplace.

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 how they are purchased. The bill would also provide amnesty for grey areas of past tax liability, address server farm taxation issues, and provide business input exemptions.

AWC participated in the workgroup and will encourage the Governor to sign the bill.

Streamlined Sales Tax technical changes (SSB 5566)

SSB 5566, harmonizing excise tax statutes with the streamlined sales and use tax agreement in regards to direct sellers, telecommunications ancillary services, commercial parking taxes and exemption certificates, passed the Senate on April 20 and was delivered to the Governor on April 22.

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