State budget update

The U.S. House, recalled to the Capitol from the campaign trail for a special sitting August 9, approved and sent to President Obama a $26 billion budget bailout for the states. For Washington, it means a temporary reprieve, avoiding a special session or immediate across-the-board cuts to state spending.

The vote was party line in the Washington delegation: 6 Democrats aye and 3 Republicans nay. While the federal funding provides a reprieve, the state still faces an estimated $3 billion budget deficit in the upcoming biennium.

The measure includes $338 million for Medicaid services in Washington, an amount already presumed in the budget adopted last spring, based on assurances from the White House and congressional leaders that it was coming. The aid package also includes an estimated $205 million for K-12 education.

Supreme Court reverses Court of Appeals decision in brokered natural gas use case

Currently cities can levy a use tax on brokered natural gas of up to six percent (RCW 82.14.230). Natural gas that is taxed under a city’s utility tax is exempt from this use tax. The tax was imposed in 1989 after the deregulation of the natural gas industry, which allowed industries to purchase natural gas directly through the wholesalers and send it through pipelines provided by the utilities, instead of purchasing from the local utility provider. This direct purchase meant that the gas was not subject to the locally imposed utility tax.

On July 29, 2010, the Supreme Court reversed a 2008 Court of Appeals decision that would have impacted the City of Tacoma’s brokered natural gas use tax and which had the potential to effectively eliminate the tax for other local jurisdictions (G-P Gypsum Corp. v. Dep’t of Revenue).

Earlier this year, the state Legislature passed ESHB 3179 to clarify that the local BNG use tax is imposed where a taxpayer burns or stores gas. The law went into effect June 10, 2010, and applies to the use of natural gas on or after that date. The department has issued a Special notice on the effects of this law.

The Supreme Court decision concluded the Legislature expressed its clear purpose to authorize municipalities to tax entities for the use of natural gas within city limits, not the place where the customer first exercised dominion and control in the state, as the Court of Appeals had determined. The court’s decision applies to the use of gas before June 10, 2010.

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