Background: Transportation funding in Washington is supported by a variety of taxes and fees. The majority of statewide transportation revenue comes from a $0.375 per gallon tax on motor vehicle and special fuel. The 18th Amendment to the Washington State Constitution requires that the proceeds of these taxes be deposited in the Motor Vehicle Fund, which is restricted to highway purposes.

Prior to 1999, taxes on motor vehicle fuel and special fuel were collected by the Department of Licensing (DOL) from fuel distributors. At that time, there were approximately 740 licensed fuel distributors in Washington. In addition, approximately 27,000 individuals held licenses that allowed them to purchase fuel without paying taxes at the time of purchase. In 1998, the imposition of fuel taxes was modified so that it occurred at the time of removal of such fuel from the terminal rack. There are currently 24 terminal racks in the state of Washington. The taxes imposed at the terminal rack are remitted to DOL.

The taxes on motor vehicle fuel, special fuel, and aviation fuel are each imposed pursuant to separate RCW chapters. These different chapters were separately amended over time, and thus differ in a variety of ways.

Summary of Bill (Recommended Amendments): The statutory definitions are amended to reflect the consolidation of the motor vehicle and special fuel tax (fuel tax) statutes. The imposition of the fuel taxes is modified for the same purpose, and is amended in order to reflect a simplified license structure, which is also implemented throughout the consolidated statutes, as is the imposition of the fuel tax when fuel enters the state outside the bulk transfer system. The establishment of liability for the fuel taxes is also consolidated in a single section, and DOL is granted the authority to calculate tax rates related to international fuel tax agreements.

The transactions where the purchaser is exempt from the payments of fuel taxes are consolidated into a single section. The information and investigations related to applications for licenses for fuel distribution are consolidated, and the requirement that applicants for fuel tax licenses submit fingerprint cards and financial statements to DOL is removed. The ability of DOL to suspend, revoke, or deny a license is also included in a single section. The exemptions from fuel taxes are placed in a single section, along with certain items that were previously refunds.

Stocks of raw gasoline, gasoline stock, diesel oil, kerosene, kerosene distillates, casing head gasoline, and other petroleum products that may be used in the compounding, blending, or manufacturing of fuel are added to the record requirements imposed on persons importing, manufacturing, refining, transporting, blending, or storing fuel.

In general, the penalty rate structure is maintained at roughly the same level, except for failure to file a tax return and failure to pay taxes in a timely manner, which are equalized at the higher level currently in place for special fuel and aircraft fuel taxes. A licensee who was assessed a penalty for nonpayment of taxes is granted the ability to request a hearing regarding the assessment. The processes for investigation of tax obligations, obtaining liens, providing notifications regarding delinquencies, and seizures and sales for delinquencies are simplified and consolidated. The unlawful acts and penalties related to fuel taxes are also consolidated in a single section.

New statutory sections related to fuel taxes are created, including ones that involve the following areas:

bonding requirements for licensees;
notifications regarding business status;
penalties for use violations of dyed special fuel;
handling loss deductions;
refunds to the aeronautics account; and
payment of taxes by a nonlicensee.

The statutes governing the imposition and collection of aviation fuel taxes are created and modified in a variety of ways in order to make the statutes more consistent with the fuel tax statutes, including the following:

related definitions are consolidated in a single section;
tax exemptions are consolidated in a single section;
licensing requirements are modified so that the requirements are more consistent with the fuel tax requirements;
DOL is granted authority similar to the authority it has for fuel taxes as related to administration and enforcement, assessments, penalties and interest, delinquency, and the denial, suspension, or revocation of licenses;
bonding requirements are established for licensees;
standards regarding the computation, payment, collection, and refunding of taxes are established;
notifications regarding business status are mandated; and
standards and requirements are established for monthly reporting by licensees of fuel inventory, receipts, and distributions.

The RCW chapter governing the collection of motor vehicle fuel tax is repealed.

A variety of statutes containing references to the fuel taxes are modified to reflect the consolidation of the fuel tax statutes.

Staff Summary of Public Testimony on Substitute House Bill: PRO: This bill consolidates the fuel tax statutes for both ease of administration and ease of understanding on the part of the licensees. It would also remove the current fingerprint requirements, which were never used, and reduces the number of license types from 15 to six, which should also simplify administration.

This bill does two separate things. First of all, it simplifies and updates statutes that were adopted piecemeal over time. Second, it makes some policy changes in the form of removing the current fingerprint requirements, limiting the license types, eliminating certain fuel tax credits, and requiring inventory reporting to the state that is already required by the federal government.

DOL worked with industry members to put together this bill, and it would help the adoption of new computer systems for fuel tax collection.