HOUSE BILL REPORT

HB 1676

BYRepresentatives H. Sommers, Rust, Holland, Wang and Winsley

Altering the sales tax exemption for nonresidents to apply only to border counties.

House Committe on Revenue

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (11)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair; Appelwick, Basich, Fraser, Grant, Haugen, Morris, Phillips, Rust and H. Sommers.

Minority Report:  Do not pass.  (6)

      Signed by Representatives Holland, Ranking Republican Member; Horn, Assistant Ranking Republican Member; Brumsickle, Fuhrman, Silver and Van Luven.

House Staff:Robin Appleford and Bob Longman (786-7136)

AS REPORTED BY COMMITTEE ON REVENUE MARCH 1, 1989

BACKGROUND:

In 1965, the Legislature enacted an exemption from sales tax for nonresidents who purchase tangible personal property for use outside of this state.  Nonresidents were required to purchase permits for presentation to retailers at the time of sale.  The intent of the legislation was to assist Washington retailers in competing with retailers in states having no sales tax or a low sales tax rate.

The 1988 Legislature amended the statute, effective July 1, 1989, to allow presentation of a valid driver's license and one other piece of identification to qualify for the exemption.  The exemption is available to residents of states and provinces of Canada only if the resident's state or province does not impose a sales tax of 3 percent or more, or if imposing such a tax permits Washington residents an exemption by reason of their residence.

SUMMARY:

SUBSTITUTE BILL:  Residents of states or provinces of Canada are eligible for the nonresident sales tax exemption if their state or province is contiguous to the state of Washington and does not levy a retail sales or use tax of 3 percent or more, or if imposing such a tax, permits Washington residents an exemption by reason of their residence.  Currently, Oregon is the only contiguous state that does not levy a sales tax of 3 percent or more. Only natural persons (not corporations) are eligible for this exemption.

For the purposes of the nonresident sales tax exemption, "border county" is defined as a county contiguous to a state or province of Canada that does not impose a retail sales tax or use tax of 3 percent or more or, if imposing such a tax, permits Washington residents an exemption by reason of their residence.  Currently, only counties contiguous to Oregon are "border counties."

To qualify for the exemption in border counties, nonresidents must present a valid driver's license and one other piece of identification.  To qualify for the exemption in nonborder counties, nonresidents must present a valid driver's license, one other piece of identification, and a permit issued by the Department of Revenue.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The substitute restricts exemption eligibility to nonresidents from contiguous states or provinces.  The definition of "border counties" is expanded from including four counties on the Oregon border to include all counties contiguous to a state or province that does not levy a sales tax of 3 percent or more.  The original bill does not allow exempt purchases outside border counties.  The substitute allows exempt purchases outside border counties with photo ID and a permit issued by the Department of Revenue.

Revenue:    The bill has a revenue impact.

Fiscal Note:      Requested February 2, 1989.

House Committee ‑ Testified For:    None Presented.

House Committee - Testified Against:      Jan Gee, Washington Retail Association.

House Committee - Testimony For:    None Presented.

House Committee - Testimony Against:      The nonresident tax exemption bill last session made it easier for nonresidents to make tax-exempt purchases, and this bill is a reversal of that policy.  Tax-exempt purchases by nonresidents should be encouraged, since these purchases benefit Washington businesses.