HOUSE BILL REPORT

ESHB 404

BYHouse Committee on Ways & Means (originally sponsored by Representatives Appelwick, Taylor, Grimm and Holland; by request of Governor Gardner)

Revising excise taxes.

House Committe on Ways & Means

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (20)

      Signed by Representatives Grimm, Chair; Bristow, Vice Chair; Allen, Appelwick, Basich, Braddock, Brekke, Ebersole, Hine, Locke, Madsen, McMullen, Niemi, Peery, Rust, Sayan, H. Sommers, Sprenkle, Valle and Winsley.

Minority Report:  Do not pass.  (8)

      Signed by Representatives Belcher, Fuhrman, Holland, Nealey, Schoon, Silver, L. Smith and B. Williams.

House Staff:Bill Freund (786-7093)

AS PASSED HOUSE APRIL 10, 1987

BACKGROUND:

The Governor has proposed several new programs in the areas of K-12 education, higher education and economic development.  To fund the proposed education programs, additional state revenues may be necessary.  The economic development proposals consist of granting business and consumer tax relief.

Most services performed for businesses and individuals (e.g., accounting, engineering, medical, legal, services, etc.) are not subject to the sales tax.  Many services rendered to real and tangible personal property (e.g., auto repair, laundry, carpentry, painting, etc.) are currently subject to sales tax.

Through a recent court decision Group Health secured a Business & Occupation (B&O) tax exemption for amounts received from state and local governments for health insurance premiums.

The Department of Revenue interprets current law as allowing an exemption from tax for wholesale sales of power from a public utility district to a private company which in turn sells the power to a subsidiary.

A county sales tax equalization program provides a guaranteed revenue floor from sales tax receipts for counties of $182,000 for calendar year 1987.  In addition there is a program to supplement revenues for counties which receive less than 70 percent of the per capita state average of county sales tax revenues.

Audit activity by the Department of Revenue determined that adult family homes are not paying B&O tax and that fruit packing companies are not paying saves tax on containers and supplies.  Without clarification the tax status of these may change.

SUMMARY:

The sales tax is extended to the following services:  computer/data processing; consulting and public relations; barbers and beauty shops; miscellaneous personal services (e.g., spas, massage parlors, steam baths, escort services); and cable television.

An additional 10 percent Business and Occupation (B&O) tax surcharge is levied on manufacturers, extractors, wholesalers, retailers and services.

Amounts received by social and health welfare organizations like Group Health from state and local governments for health insurance for their employees are made subject to B&O tax.

The Public Utility Privilege tax is extended to include purchases of electricity for resale which are not subject to tax under the Public Utility Tax.

The distressed area sales tax deferral program is extended from 1991 to 1994.  The distressed area B&O tax credit program is extended from 1988 to 1991.

The tax status for the following is clarified:  miniwarehouses are subject to B&O tax; adult family homes are exempt from B&O tax; and materials and supplies used for fruit packing are exempt from sales tax.

Revenue:    The bill has a revenue impact.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    Testimony was given in favor of this bill.  A copy of signature sheets may be obtained from committee staff.

House Committee - Testified Against:      Many people testified in opposition to this bill.  A copy of signature sheets may be obtained from committee staff.

House Committee - Testimony For:    Broadening the sales tax base is desirable because it makes revenues more stable and minimizes the increases necessary on those already being taxed.  Since the tax reform climate is not favorable at this time, base expansion is the best alternative left.  Many counties and cities are having revenue problems due to loss of federal revenue sharing and a depressed economy.  They need additional tax capacity in order to continue providing essential services.  More funds should be provided for education and any measure providing sufficient funds to meet this objective is a desirable measure.

House Committee - Testimony Against:      The service sector should not be picked on.  Taxing services is full of complications not dealt with in this measure.  Increasing utility taxes is regressive.  Washington has one of the highest business taxes in the nation, so there should not be any further increases in such taxes.  Education and local governments do not need more funds, but if that need exists it can be met within existing revenues.