HOUSE BILL REPORT

HJM 4016

BYRepresentatives Wang, Holland, H. Sommers, Silver, Grant, Rust, May, Spanel, Anderson and Winsley

Petitioning Congress to enact legislation authorizing the collection of sales tax from out-of-state direct marketers.

House Committe on Revenue

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (13)

      Signed by Representatives Pruitt, Vice Chair; Holland, Ranking Republican Member; Horn, Assistant Ranking Republican Member; Basich, Brumsickle, Fraser, Fuhrman, Grant, Haugen, Morris, Phillips, Rust and H. Sommers.

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

AS REPORTED BY COMMITTEE ON REVENUE FEBRUARY 24, 1989

BACKGROUND:

In 1967, the United States Supreme Court ruled in National Bellas Hess v. Illinois Department of Revenue that a state may not collect retail sales taxes from an out-of-state mail order firm on merchandise sold within the state when the firm has no physical presence in the state.  Thus, if a firm's presence in a state is limited to catalogues and other advertising, the firm is not required to collect sales tax.  Firms that maintain retail outlets or some other type of physical presence are required to collect tax on mail order sales.

Subsequent court decisions have cast doubt on the continued validity and extent of the National Bellas Hess decision.  In 1986, legislation was enacted that requires the Department of Revenue to adopt rules specifying when out-of-state firms must collect sales tax.  These rules must be kept current with future court decisions and federal legislation.

Congress is considering legislation introduced by Congressman Brooks (called "the Brooks bill") that would require out-of-state mail order firms with an economic presence in a state to pay sales taxes.  Out-of-state mail order firms engaging in "regular and systematic" solicitation of sales in a state would be required to collect sales tax if the firm has annual national sales greater than $12.5 million and annual sales in-state of at least $500,000. 

Washington could potentially gain $70 million in additional state and local sales tax revenue annually if Congress passed the Brooks bill.

SUMMARY:

SUBSTITUTE BILL:  Congress is requested to pass the Brooks bill or similar federal legislation that would require many out- of-state mail order firms to collect sales tax.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The substitute bill makes various technical changes to the original language.

Fiscal Note:      Requested February 15, 1989.

House Committee ‑ Testified For:    Barney McClure, Department of Revenue; and Jan Gee, Washington Retail Association.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    The Department of Revenue supports the proposed memorial.  At stake are the state's right to taxation and the competitive disadvantage imposed on in-state merchants.  Washington state could gain about $70 million in additional retail sales tax if the federal legislation were to pass.

House Committee - Testimony Against:      None Presented.