AWC Legislative Bulletin - Volume 32, Interim No. 1
July 31, 2009  (Plain Text Version)

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In this issue:
Initiative 1033, concerning city revenues and lowering property taxes, to be on November ballot
Changes at AWC
AWC prepares for 2010 Legislative session - how you can provide input
AWC 2010 legislative policy development process
Energy & telecommunications
Federal issues
General local government
Infrastructure, economic development and transportation
Law & justice
Municipal finance
Personnel and labor

Municipal finance

Brokered natural gas use tax case to be heard by State Supreme Court

Last year the Court of Appeals Division II issued a decision in G-P Gypsum v. Dept. of Revenue impacting the City of Tacoma’s brokered natural gas use tax, which has the potential to effectively eliminate the tax for cities. The court held that the "place of use" for purposes of the local option brokered natural gas tax is the place the customer first exercises dominion and control in the state, not the place of consumption. Since brokered natural gas customers can take delivery at the point of origin of the gas (outside the state), the place of first dominion and control in the state could be at the border.

The Department of Revenue’s petition asking the Supreme Court to review this decision has been accepted and the Supreme Court has scheduled arguments on November 17, 2009. If the Supreme Court upholds the Appeal Court decision, cities levying the brokered natural gas tax could face up to four years of refund requests. DOR has received several refund requests based on the Gypsum case, and it is holding action on those requests pending the outcome of the Supreme Court case.

AWC pursued legislation during the 2009 session clarifying the definition of use for the brokered natural gas use tax. HB 1422 and several other proposed amendments to bills were introduced to achieve this "fix," but did not pass before the end of the legislative session.

AWC will be putting together a conference call in the next few weeks with the impacted cities to discuss next steps in addressing this issue.

Continued implementation of streamlined sales tax – cities encouraged to review sourcing impact data

The SST mitigation advisory committee continues to meet this interim to discuss remaining implementation issues, including consideration of how to treat mistakes in mitigation data calculations. The next meeting will be Wednesday, August 26 from 10 am to 2 pm in Olympia. For more information see here.

Cities are encouraged to review the detailed information provided in the confidential data on local sourcing impacts by business and report to the Department of Revenue (DOR) businesses that were incorrectly included and which would have impacted mitigation calculations. While the deadline for changes to the data that will be incorporated into the September 2009 distributions was July 31, it will be important to have the data as accurate as possible for the December 2009 distributions and as DOR gets closer to calculating the full year’s data for determining the base year for future mitigation.

DOR has provided additional guidance on how cities should review and communicate with DOR regarding the confidential detailed- taxpayer files that were used to determine quarterly mitigation payments. For more information, see How to read the mitigation detail files.

Digital goods legislation takes effect (ESHB 2075)

ESHB 2075 was the result of work of the digital goods study committee last year. Passage of the bill was necessary this year to remain in compliance with the streamlined sales tax agreement (SSUTA) and will also help the tax structure keep pace with changes in technology and the marketplace.

The new law, which took effect July 26, provides 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. DOR has released new tax advisories and proposed rules regarding implementation of the legislation, particularly for those taxpayers who will for the first time be reporting sales tax under the new definition of digital automated services.

Digital products subject to sales or use tax include:

• Downloaded digital goods (music and movies, etc.)
• Streamed and accessed digital goods
• Digital automated services (DAS)
• Remote access software (e.g. application service providers)

For more information see here.

Resources to answer questions on property taxes for 2010

Due to the economic recession, the possibility that inflation may be below 1%, and declining property assessed valuation in many communities; questions regarding 2010 property tax calculations have surfaced.

The Department of Revenue has released a special notice answering questions about the impact of deflation (or negative "inflation") on local property taxes. For taxing districts with a population of 10,000 or less the limit factor is 101%. For taxing districts with a population of 10,000 or more the limit factor is the lesser of 101% or 100% plus inflation. However, with a finding of substantial need and supermajority council approval, larger taxing districts can adopt a limit factor up to a maximum of 101%. Read more here.

As property assessed valuation in many communities declines, there are also questions about how this may impact property tax collections. The Department of Revenue website provides questions and answers about how the property tax limit works in conjunction with property assessed valuation. Read more here.

Additional resources on property tax can be found on the Department of Revenue’s website for local governments (http://localgovernment.dor.wa.gov) or MRSC’s Budget Suggestions for 2010.