AN ACT Relating to excise taxation; amending RCW 82.04.050, 82.04.190, 82.08.020, 82.08.0281, 82.08.0283, 82.08.0293, 82.08.100, 82.12.020, 82.14.020, 82.14.030, 82.14.036, 82.14.040, 35.21.710, 35A.82.050, 48.14.080, 82.02.020, 82.04.470, 82.04.480, 82.08.080, 82.08.090, 82.12.0252, 82.12.0253, 82.12.0254, 82.12.0255, 82.12.0259, 82.12.0279, 82.12.035, 82.12.060, 82.12.0275, 82.12.0277, 82.12.0293, 82.04.080, 82.04.310, 82.04.320, 82.04.330, 82.04.335, 82.04.355, 82.04.360, 82.04.365, 82.04.370, 82.04.380, 82.04.385, 82.04.390, 82.04.405, 82.04.408, 82.04.410, 82.04.415, 82.04.417, 82.04.418, 82.04.419, 82.04.423, 82.04.4271, 82.04.4281, 82.04.4282, 82.04.4283, 82.04.4285, 82.04.4286, 82.04.4287, 82.04.4288, 82.04.4289, 82.04.4291, 82.04.4297, 82.04.4298, 82.04.432, 82.04.4322, 82.04.4326, 82.04.4327, 82.04.433, 82.04.600, 82.04.220, 82.04.300, 82.04.4284, 82.04.4292, 82.04.4293, 82.04.4294 82.32.045, 83.100.020, 83.100.030, and 83.100.040; reenacting and amending RCW 82.12.010 and 82.14.045; adding new sections to chapter 82.04 RCW; adding new sections to chapter 82.08 RCW; adding new sections to chapter 82.12 RCW; adding a new section to chapter 82.32 RCW; adding new sections to chapter 83.100 RCW; creating new sections; repealing RCW 82.04.230, 82.04.240, 82.04.250, 82.04.255, 82.04.260, 82.04.270, 82.04.280, 82.04.290, 82.04.2901, 82.04.2904, 82.04.315, 82.04.325, 82.04.340, 82.04.350, 82.04.395, 82.04.397, 82.04.425, 82.04.4295, 82.04.4296, 82.04.4324, 82.04.435, 82.04.440, 82.04.444, 82.04.445, 82.04.450, 82.04.460, and 82.08.0253; recodifying RCW 82.08.100; making an appropriation; providing an effective date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

PART 1

SALES TAX MODIFICATIONS

Sec. 101. Section 1, chapter 8, Laws of 1970 ex. sess. as last amended by section 1, chapter 231, Laws of 1986 and RCW 82.04.050 are each amended to read as follows:

(1) "Sale at retail" or "retail sale" means every sale of tangible personal property (including articles produced, fabricated, or imprinted) to ((all persons irrespective of the nature of their business and including, among others, without limiting the scope hereof, persons who install, repair, clean, alter, improve, construct, or decorate real or personal property of or for consumers other than a sale to a person who (a) purchases for the purpose of resale as tangible personal property in the regular course of business without intervening use by such person, or (b) installs, repairs, cleans, alters, imprints, improves, constructs, or decorates real or personal property of or for consumers, if such tangible personal property becomes an ingredient or component of such real or personal property without intervening use by such person, or (c) purchases for the purpose of consuming the property purchased in producing for sale a new article of tangible personal property or substance, of which such property becomes an ingredient or component or is a chemical used in processing, when the primary purpose of such chemical is to create a chemical reaction directly through contact with an ingredient of a new article being produced for sale, or !se (d) purchases for the purpose of consuming the property purchased in producing ferrosilicon which is subsequently used in producing magnesium for sale, if the primary purpose of such property is to create a chemical reaction directly through contact with an ingredient of ferrosilicon, or (e) purchases for the purpose of providing the property to consumers as part of competitive telephone service, as defined in RCW 82.04.065)) consumers. The term shall include every sale of tangible personal property which is used or consumed in whole or in part or to be used or consumed in whole or in part by such persons in the performance of any activity classified as a "sale at retail" or "retail sale" even though such property is resold or utilized ((~~as provided in (a), (b), (c), (d), or (e) above~~)) following such use. ((~~The term also means every sale of tangible personal property to persons engaged in any business which is taxable under RCW 82.04.280, subsections (2) and (7) and RCW 82.04.290.~~

(2) The term "sale at retail" or "retail sale" shall include the sale of or charge made for tangible personal property consumed and/or for labor and services rendered in respect to the following: (a) The installing, repairing, cleaning, altering, imprinting, or improving of tangible personal property of or for consumers, including charges made for the mere use of facilities in respect thereto, but excluding charges made for the use of coin operated laundry facilities when such facilities are situated in an apartment house, hotel, motel, rooming house, trailer camp or tourist camp for the exclusive use of the tenants thereof, and also excluding sales of laundry service to members by nonprofit associations composed exclusively of nonprofit hospitals, and excluding services rendered in respect to live animals, birds and insects; (b) the constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property of or for consumers, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation, and shall also include the sale of services or charges made for the clearing of land and the moving of earth excepting the mere leveling of land used in commercial farming or agriculture; (c) the sale of or charge made for labor and services rendered in respect to the cleaning, fumigating, razing or moving of existing buildings or structures, but shall not include the charge made for janitorial services; and for purposes of this section the term "janitorial services" shall mean those cleaning and caretaking services ordinarily performed by commercial janitor service businesses including, but not limited to, wall and window washing, floor cleaning and waxing, and the cleaning in place of rugs, drapes and upholstery. The term "janitorial services" does not include painting, papering, repairing, furnace or septic tank cleaning, snow removal or sandblasting; (d) the sale of or charge made for labor and services rendered in respect to automobile towing and similar automotive transportation services, but not in respect to those required to report and pay taxes under chapter 82.16 RCW; (e) the sale of and charge made for the furnishing of lodging and all other services by a hotel, rooming house, tourist court, motel, trailer camp, and the granting of any similar license to use real property, as distinguished from the renting or leasing of real property, and it shall be presumed that the occupancy of real property for a continuous period of one month or more constitutes a rental or lease of real property and not a mere license to use or enjoy the same; (f) the sale of or charge made for tangible personal property, labor and services to persons taxable under (a), (b), (c), (d), and (e) above when such sales or charges are for property, labor and services which are used or consumed in whole or in part by such persons in the performance of any activity defined as a "sale at retail" or "retail sale" even though such property, labor and services may be resold after such use or consumption. Nothing contained in this paragraph shall be construed to modify the first paragraph of this section and nothing contained in the first paragraph of this section shall be construed to modify this paragraph.

(3) The term "sale at retail" or "retail sale" shall include the sale of or charge made for personal business or professional services including amounts designated as interest, rents, fees, admission, and other service emoluments however designated, received by persons engaging in the following business activities: (a) Amusement and recreation businesses including but not limited to golf, pool, billiards, skating, bowling, ski lifts and tows and others; (b) abstract, title insurance and escrow businesses; (c) credit bureau businesses; (d) automobile parking and storage garage businesses.

~~(4)~~)) (2) The term shall also include the renting or leasing of tangible personal property to consumers.

(3) The term "sale at retail" or "retail sale" shall include the sale of or charge made for all labor and services rendered to consumers, including amounts designated as interest, rents, fees, admission, commissions and other service emoluments however designated, unless specifically excluded in this section.

(4) The term shall not include the sale of or charge made for the renting or leasing of real property, as distinguished from the sale of and charge made for the furnishing of lodging and all other services by a hotel, rooming house, tourist court, motel, trailer camp, or the granting of any similar license to use real property. It shall be presumed that the occupancy of real property for a continuous period of one month or more constitutes a rental or lease of real property and not a mere license to use or enjoy the same.

(5) The term shall ((~~also include the providing of telephone service, as defined in RCW 82.04.065, to consumers~~)) not include the mere leveling of land used in commercial farming or agriculture.

(6) The term shall not include the sale of or charge made for labor and services rendered in respect to the building, repairing, or improving of any street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle which is owned by a municipal corporation or political subdivision of the state or by the United States and which is used or to be used primarily for foot or vehicular traffic including mass transportation vehicles of any kind, nor shall it include sales of feed, seed, fertilizer, and spray materials to persons for the purpose of producing for sale any agricultural product whatsoever, including milk, eggs, wool, fur, meat, honey, or other substances obtained from animals, birds, or insects but only when such production and subsequent sale are exempt from tax under RCW 82.04.330, nor shall it include sales of chemical sprays or washes to persons for the purpose of post-harvest treatment of fruit for the prevention of scald, fungus, mold, or decay.

(7) The term shall not include the sale of or charge made for labor and services rendered in respect to the constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing, or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation. Nor shall the term include the sale of services or charges made for the clearing of land and the moving of earth of or for the United States, any instrumentality thereof, or a county or city housing authority.

(8) The term shall not include the sale of or charge made for any service if the gross receipts derived from the service are subject to tax under RCW 82.04.230, 82.04.240, 82.04.260(1) through (5), 82.04.260(7), 82.04.260(9), 82.04.260(11) through (14), 82.04.280(2) through (5), or 82.04.280 (7).

(9) The term shall not include the sale of or charge made for a service if the gross receipts derived from rendering the service are exempt from tax under this chapter. For the purpose of this subsection, amounts are exempt from tax if they are deductible from the measure of tax or are derived from a business activity which is exempt from tax.

(10) The term shall not include the sale of or charge made for services rendered by any hospital or nursing home to a person while admitted to such hospital or nursing home as an inpatient.

(11)(a) The term shall not include the sale of or charge made for loans or other credit.

(b) The following are excluded under this subsection (11), whether compensated directly or through the retention of any portion of a periodic payment:

(i) Interest or discount income;

(ii) Income from originating or facilitating loans or other credit;

(iii) Servicing fees, collection fees, and other amounts, if the fees or amounts are (A) charged by or paid to a person engaging in any financial, investment, insurance, or real estate activity, and (B) directly related to the business of granting, extending, originating, or facilitating loans or credit;

(iv) Fees or discounts charged for the provision or use of credit or debit cards; and

(v) Fees or discounts charged to any vendor for credit or debit card charging services.

(i) Selling fees, finders fees, or commissions, however computed;

(ii) Charges made for the purchase of negotiable instruments (other than discounts);

(iii) Application fees or annual charges for credit or debit cards, fees for safe deposits, fees for checking and similar deposit accounts, and fees for similar services;

(iv) Fees or charges made by collection agencies as defined by RCW 19.16.100; or

(v) Escrow fees.

(12) The term shall not include the sale of or charge made for management or administration of any employee benefit plan or trust. For purposes of this subsection, the term "employee benefit plan or trust" means any plan, trust, or custodial arrangement that is subject to the provisions of the employee retirement income security act of 1974, as amended, 29 U.S.C. Sections 1001 through 1461 or that is described in sections 125, 401(a), 403, 408, 409 (as in effect prior to January 1, 1984), 419, 457, 501(c)(9) or (17) through (23) of the internal revenue code of 1986, as amended; or similar plans maintained by state or local governments; or plans, trusts, or custodial arrangements established to self-insure benefits required by federal, state, or local law.

(13) The term shall not include the sale of or charge made for care services licensed under chapter 74.15 RCW; nor for providing chore services or any other services provided at the residence of or for the benefit of any persons entitled to such services under programs administered by the state department of social and health services.

(14) The term shall not include the sale of or charge made for collection, delivery, storage, treatment, removal from storage, or disposal of refuse or sewage.

(15) The term shall not include the sale of or charge made for licensed services rendered by an insurance agent, insurance broker, or insurance solicitor licensed under chapter 48.17 RCW, if:

(a) Compensation for the licensed services is received as commissions under a insurance contract entered into before June 1, 1987; and

(b) The commissions are derived from premiums which cannot be renegotiated or modified for any purpose under the terms of the insurance contract.

NEW SECTION. Sec. 102. A new section is added to chapter 82.04 RCW to be codified between RCW 82.04.020 and 82.04.212 and to read as follows:

"Gross receipts" means the value of products, gross proceeds of sales, or gross income of the business, as the case may be.

NEW SECTION. Sec. 103. A new section is added to chapter 82.04 RCW to be codified between RCW 82.04.020 and 82.04.212, to read as follows:

(1) "Property service" includes:

(a) The installing, repairing, cleaning, altering, imprinting, or improving of tangible personal property, including charges made for the mere use of facilities in respect thereto;

(b) The constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation;

(d) The cleaning, fumigating, razing, or moving of existing buildings or structures; and

(e) The furnishing of lodging and all other services by a hotel, rooming house, tourist court, motel, trailer camp, and the granting of any similar license to use real property.

(2) "Nonproperty service" includes every service of a type which is expressly defined as a retail sale when rendered to or for consumers, other than a property service.

Sec. 104. Section 82.04.190, chapter 15, Laws of 1961 as last amended by section 2, chapter 231, Laws of 1986 and RCW 82.04.190 are each amended to read as follows:

"Consumer" means the following:

(1) Any person who purchases, acquires, owns, holds, or uses any article of tangible personal property irrespective of the nature of the person's business and including, among others, without limiting the scope hereof, persons who install, repair, clean, alter, improve, construct, or decorate real or personal property of or for consumers other than for the purpose (a) of resale as tangible personal property in the regular course of business or (b) of incorporating, without intervening use by such person, such property as an ingredient or component of real or personal property when installing, repairing, cleaning, altering, imprinting, improving, constructing, or decorating such real or personal property of or for consumers or (c) of consuming such property in producing for sale a new article of tangible personal property or a new substance, of which such property becomes an ingredient or component or as a chemical used in processing, when the primary purpose of such chemical is to create a chemical reaction directly through contact with an ingredient of a new article being produced for sale or (d) purchases for the purpose of consuming the property purchased in producing ferrosilicon which is subsequently used in producing magnesium for sale, if the primary purpose of such property is to create a chemical reaction directly through contact with an ingredient of ferrosilicon or (e) purchases for the purpose of providing the property to consumers as part of competitive telephone service, as defined in RCW 82.04.065;

(2) Any person engaged in any business activity taxable under RCW 82.04.290 ((~~and any person who purchases, acquires, or uses any telephone service as defined in RCW 82.04.065, other than for resale in the regular course of business~~));

(3) Any person engaged in the business of contracting for the building, repairing or improving of any street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle which is owned by a municipal corporation or political subdivision of the state of Washington or by the United States and which is used or to be used primarily for foot or vehicular traffic including mass transportation vehicles of any kind as defined in RCW 82.04.280, in respect to tangible personal property when such person incorporates such property as an ingredient or component of such publicly owned street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle by installing, placing or spreading the property in or upon the right of way of such street, place, road, highway, easement, bridge, tunnel, or trestle or in or upon the site of such mass public transportation terminal or parking facility;

(4) Any person who is an owner, lessee or has the right of possession to or an easement in real property which is being constructed, repaired, decorated, improved, or otherwise altered by a person engaged in business, excluding only (a) municipal corporations or political subdivisions of the state in respect to labor and services rendered to their real property which is used or held for public road purposes, and (b) the United States, instrumentalities thereof, and county and city housing authorities created pursuant to chapter 35.82 RCW in respect to labor and services rendered to their real property. Nothing contained in this or any other subsection of this definition shall be construed to modify any other definition of "consumer";

(5) Any person who is an owner, lessee, or has the right of possession to personal property which is being constructed, repaired, improved, cleaned, imprinted, or otherwise altered by a person engaged in business;

(6) Any person engaged in the business of constructing, repairing, decorating, or improving new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation; also, any person engaged in the business of clearing land and moving earth of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW. Any such person shall be a consumer within the meaning of this subsection in respect to services used and tangible personal property incorporated into, installed in, or attached to such building or other structure by such person;

(7) Any person who purchases, acquires, or uses any service, unless the person can demonstrate with regularly kept books and records, or by other methods approved by rules of the department, that the service was purchased for resale in the regular course of business without intervening use by the person.

Sec. 105. Section 1, chapter 32, Laws of 1985 and RCW 82.08.020 are each amended to read as follows:

(1) There is levied and there shall be collected a tax on each retail sale in this state equal to ((~~six~~)) four and five-tenths percent of the selling price.

(2) The tax imposed under this chapter shall apply to successive retail sales of the same property or services.

(3) The rate provided in this section applies to taxes imposed under chapter 82.12 RCW as provided in RCW 82.12.020.

NEW SECTION. Sec. 106. A new section is added to chapter 82.08 RCW to read as follows:

The tax imposed under this chapter, as it relates to the services purchased in selling insurance, annuities, and similar vehicles such as performance or surety bonds where an agency relationship exists, shall be reported and paid to the department of revenue by the insurance company consuming such services. The consumer shall file and report at least annually or more frequently as the department may provide by rule, and remit the tax due, all as provided under chapter 82.32 RCW.

NEW SECTION. Sec. 107. A new section is added to chapter 82.08 RCW to read as follows:

The tax levied by RCW 82.08.020 shall not apply to sales of medical care or medical treatment compensated or reimbursed by federal funds.

NEW SECTION. Sec. 108. A new section is added to chapter 82.12 RCW to read as follows:

The tax levied by RCW 82.12.020 shall not apply to the use of medical care or medical treatment compensated or reimbursed by federal funds.

NEW SECTION. Sec. 109. A new section is added to chapter 82.08 RCW to read as follows:

(1) As used in this chapter and chapter 82.12 RCW, "low-income person" means a person who has applied for and received from the department of social and health services a permit certifying (a) that the person is a bona fide resident of the state of Washington, and (b) that the person is part of a household with income equal to or less than the federal official poverty line, as established and revised under 42 U.S.C Sec. 9902.

(2) Any person claiming an exemption from retail sales tax as a low- income person under this chapter must display a low-income permit as provided in this section. Any vendor making a sale to a low-income person without collecting the tax must examine such permit, identify the purchaser as the person to whom the permit was issued, and maintain records showing the permit number attributable to each nontaxable sale. (3) Permits shall be personal and nontransferable, shall be renewable annually, and shall be issued by the department of social and health services through its community services offices.

(4) Any person making fraudulent statements in order to secure a permit shall be guilty of perjury. Any person making tax exempt purchases by displaying a permit not the person's own, or a counterfeit permit, with intent to violate the provisions of this section shall be guilty of a misdemeanor and, in addition, may be subject to a penalty not to exceed the amount of the tax due on such purchases. Any vendor who makes sales without collecting the tax to a person who does not hold a valid permit, and any vendor who fails to maintain records of permit numbers as provided in this section shall be personally liable for the amount of tax due.

Sec. 110. Section 46, chapter 37, Laws of 1980 and RCW 82.08.0281 are each amended to read as follows:

The tax levied by RCW 82.08.020 shall not apply to sales of prescription drugs to low-income persons, including sales to the state or a political subdivision or municipal corporation thereof of drugs to be dispensed to patients by prescription without charge. The term "prescription drugs" shall include any medicine, drug, prescription lens, or other substance other than food for use in the diagnosis, cure, mitigation, treatment, or prevention of disease or other ailment in humans ordered by (1) the written prescription to a pharmacist by a practitioner authorized by law of this state or laws of another jurisdiction to issue prescriptions, or (2) upon an oral prescription of such practitioner which is reduced promptly to writing and filed by a duly licensed pharmacist, or (3) by refilling any such written or oral prescription if such refilling is authorized by the prescriber either in the original prescription or by oral order which is reduced promptly to writing and filed by the pharmacist, or (4) physicians or optometrists by way of written directions and specifications for the preparation, grinding, and fabrication of lenses intended to aid or correct visual defects or anomalies of humans.

Sec. 111. Section 48, chapter 37, Laws of 1980 as last amended by section 1, chapter 255, Laws of 1986 and RCW 82.08.0283 are each amended to read as follows:

The tax levied by RCW 82.08.020 shall not apply to sales to low-income persons of: (1) Insulin; (2) prosthetic and orthotic devices prescribed ((~~for an individual~~)) by a person licensed under chapters 18.25, 18.57, or 18.71 RCW or dispensed or fitted by a person licensed under chapter 18.35 RCW; (3) ostomic items; and (4) medically prescribed oxygen.

Sec. 112. Section 33, chapter 35, Laws of 1982 1st ex. sess. as last amended by section 1, chapter 182, Laws of 1986 and RCW 82.08.0293 are each amended to read as follows:

(1) The tax levied by RCW 82.08.020 shall not apply to sales to low-income persons of food products for human consumption.

"Food products" include cereals and cereal products, oleomargarine, meat and meat products including livestock sold for personal consumption, fish and fish products, eggs and egg products, vegetables and vegetable products, fruit and fruit products, spices and salt, sugar and sugar products, coffee and coffee substitutes, tea, cocoa and cocoa products.

"Food products" include milk and milk products, milk shakes, malted milks, and any other similar type beverages which are composed at least in part of milk or a milk product and which require the use of milk or a milk product in their preparation.

"Food products" include all fruit juices, vegetable juices, and other beverages except bottled water, spirituous, malt or vinous liquors or carbonated beverages, whether liquid or frozen.

"Food products" do not include medicines and preparations in liquid, powdered, granular, tablet, capsule, lozenge, and pill form sold as dietary supplements or adjuncts.

The exemption of "food products" provided for in this subsection shall not apply: (a) When the food products are furnished, prepared, or served for consumption at tables, chairs, or counters or from trays, glasses, dishes, or other tableware whether provided by the retailer or by a person with whom the retailer contracts to furnish, prepare, or serve food products to others, except for food products furnished as meals (i) under a state administered nutrition program for the aged as provided for in the Older Americans Act (P.L. 95-478 Title III) and RCW 74.38.040(6) or (ii) which are provided to senior citizens, disabled persons, or low-income persons by a not-for-profit organization organized under chapter 24.03 or 24.12 RCW, or (b) when the food products are ordinarily sold for immediate consumption on or near a location at which parking facilities are provided primarily for the use of patrons in consuming the products purchased at the location, even though such products are sold on a "takeout" or "to go" order and are actually packaged or wrapped and taken from the premises of the retailer, or (c) when the food products are sold for consumption within a place, the entrance to which is subject to an admission charge, except for national and state parks and monuments.

(2) Subsection (1) of this section notwithstanding, the retail sale of food products is subject to sales tax under RCW 82.08.020 if the food products are sold through a vending machine((~~, and in this case the selling price for purposes of RCW 82.08.020 is fifty-seven percent of the gross receipts.~~

~~This subsection does not apply to hot prepared food products, other than food products which are heated after they have been dispensed from the vending machine~~)).

For tax collected under this subsection, the requirements that the tax be collected from the buyer and that the amount of tax be stated as a separate item are waived.

NEW SECTION. Sec. 113. A new section is added to chapter 82.08 RCW to read as follows:

(1) The tax levied by RCW 82.08.020 shall not apply to the sale of nonproperty services purchased for use outside this state. As used in this section, "use outside this state" includes use outside this state in whole or in part.

(2) Unless a seller has taken from the buyer an out-of-state use certificate signed by the buyer, or unless the nature of the transaction is clearly shown as a sale for use outside this state by the books and records of the taxpayer in such other manner as the department of revenue shall by rule provide, the burden of proving that a sale of a service was for use outside this state shall be upon the person who made it. Each out-of-state use certificate shall include the name and address of the buyer, the registration number (if any) of the buyer, the name and address of the buyer's purchasing agent (if any), and other information as required by rules of the department.

Sec. 114. Section 82.08.100, chapter 15, Laws of 1961 as last amended by section 37, chapter 35, Laws of 1982 1st ex. sess. and RCW 82.08.100 are each amended to read as follows:

(1) The department of revenue, by general regulation, shall provide that a taxpayer whose regular books of account are kept on a cash receipts basis may file returns based upon his or her cash receipts for each reporting period and pay the tax herein provided upon such basis in lieu of reporting and paying the tax on all sales made during such period. A taxpayer filing returns on a cash receipts basis is not required to pay such tax on debts which are deductible as worthless for federal income tax purposes. Absent regular books and records to substantiate the accounting method chosen, returns shall be reported in the same manner as reported for federal income tax purposes.

(2) The accounting method for taxes administered under this section shall be uniform for all excise taxes unless a combined method is first approved by the department.

(3) A taxpayer may convert its reporting method to a different method which has prior approval by the department if the conversion satisfies the requirement in the rules adopted by the department pertaining to adjustments necessary to account for all income. The department shall not withhold its approval unless the taxpayer cannot, for whatever reason, make the necessary adjustments to account for all income. The department may permit adjustments which cause an increase in the income to be amortized over a period not to exceed twelve consecutive months.

NEW SECTION. Sec. 115. RCW 82.08.100 , as amended by this act, is recodified as a new section in chapter 82.32 RCW.

Sec. 116. Section 82.12.010, chapter 15, Laws of 1961 as last amended by section 1, chapter 132, Laws of 1985 and by section 1, chapter 222, Laws of 1985 and RCW 82.12.010 are each reenacted and amended to read as follows:

For the purposes of this chapter:

(1) "Value of the article used" shall mean the consideration, whether money, credit, rights, or other property except trade-in property of like kind, expressed in terms of money, paid or given or contracted to be paid or given by the purchaser to the seller for the article of tangible personal property, the use of which is taxable under this chapter. The term includes, in addition to the consideration paid or given or contracted to be paid or given, the amount of any tariff or duty paid with respect to the importation of the article used. In case the article used is acquired by lease or by gift or is extracted, produced, or manufactured by the person using the same or is sold under conditions wherein the purchase price does not represent the true value thereof, the value of the article used shall be determined as nearly as possible according to the retail selling price at place of use of similar products of like quality and character under such rules and regulations as the department of revenue may prescribe.

In case the articles used are acquired by bailment, the value of the use of the articles so used shall be in an amount representing a reasonable rental for the use of the articles so bailed, determined as nearly as possible according to the value of such use at the places of use of similar products of like quality and character under such rules and regulations as the department of revenue may prescribe: PROVIDED, That in case any such articles of tangible personal property are used in respect to the construction, repairing, decorating, or improving of, and which become or are to become an ingredient or component of, new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing or attaching of any such articles therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation, then the value of the use of such articles so used shall be determined according to the retail selling price of such articles, or in the absence of such a selling price, as nearly as possible according to the retail selling price at place of use of similar products of like quality and character or, in the absence of either of these selling price measures, such value may be determined upon a cost basis, in any event under such rules and regulations as the department of revenue may prescribe.

In the case of articles owned by a user engaged in business outside the state which are brought into the state for no more than ninety days in any period of three hundred sixty-five consecutive days and which are temporarily used for business purposes by the person in this state, the value of the article used shall be an amount representing a reasonable rental for the use of the articles, unless the person has paid tax under this chapter or chapter 82.08 RCW upon the full value of the article used, as defined in the first paragraph of this subsection.

In the case of articles manufactured or produced by the user and used in the manufacture or production of products sold or to be sold to the department of defense of the United States, the value of the articles used shall be determined according to the value of the ingredients of such articles.

In the case of an article manufactured or produced for purposes of serving as a prototype for the development of a new or improved product, the value of the article used shall be determined by: (a) The retail selling price of such new or improved product when first offered for sale; or (b) the value of materials incorporated into the prototype in cases in which the new or improved product is not offered for sale.

(2) "Value of the service used" shall mean the consideration, whether money, credit, rights, or other property, expressed in terms of money, paid or given or contracted to be paid or given by the purchaser to the seller for the service, the use of which is taxable under this chapter. If the service is received by gift or under conditions wherein the purchase price does not represent the true value of the service, the value of the services used shall be determined as nearly as possible according to the retail selling price at the place of use of similar services of like quality and character under rules prescribed by the department of revenue;

(3) "Use," "used," "using," or "put to use" shall have their ordinary meaning, and shall mean:

(a) With respect to personal property, the first act within this state by which the taxpayer takes or assumes dominion or control over the article of tangible personal property (as a consumer), and include installation, storage, withdrawal from storage, or any other act preparatory to subsequent actual use or consumption within this state; and

(b) With respect to a service, the first utilization in this state by the taxpayer of any part of the benefit afforded by the service;

(4) "Service" means a service of a type which is expressly defined as a retail sale by RCW 82.04.050 when rendered to or for consumers;

((~~(3)~~)) (5) "Taxpayer" and "purchaser" include all persons included within the meaning of the word "buyer" and the word "consumer" as defined in chapters 82.04 and 82.08 RCW;

((~~(4)~~)) (6) "Retailer" means every seller as defined in RCW 82.08.010 and every person engaged in the business of selling tangible personal property or services at retail and every person required to collect from purchasers the tax imposed under this chapter;

((~~(5)~~)) (7) The meaning ascribed to words and phrases in chapters 82.04 and 82.08 RCW, insofar as applicable, shall have full force and effect with respect to taxes imposed under the provisions of this chapter. "Consumer," in addition to the meaning ascribed to it in chapters 82.04 and 82.08 RCW insofar as applicable, shall also mean any person who distributes or displays, or causes to be distributed or displayed, any article of tangible personal property, except newspapers, the primary purpose of which is to promote the sale of products or services.

Sec. 117. Section 82.12.020, chapter 15, Laws of 1961 as last amended by section 7, chapter 7, Laws of 1983 and RCW 82.12.020 are each amended to read as follows:

(1) There is hereby levied and there shall be collected from every person in this state a tax or excise for the privilege of using within this state as a consumer any article of tangible personal property or service purchased at retail, or acquired by lease, gift, repossession, or bailment, or extracted or produced or manufactured by the person so using the same, or otherwise furnished to a person engaged in any business taxable under RCW 82.04.280, subsections (2) or (7).

(2) This tax will not apply with respect to the use of any article of tangible personal property purchased, extracted, produced or manufactured outside this state until the transportation of such article has finally ended or until such article has become commingled with the general mass of property in this state. This tax shall apply to the use of every article of tangible personal property, including property acquired at a casual or isolated sale, and including byproducts used by the manufacturer thereof, except as hereinafter provided, irrespective of whether the article or similar articles are manufactured or are available for purchase within this state.

(3) Except as provided in RCW 82.12.0252, payment by one purchaser or user of tangible personal property or service of the tax imposed by chapter 82.08 or 82.12 RCW shall not have the effect of exempting any other purchaser or user of the same property or service from the taxes imposed by such chapters.

(4) The tax shall be levied and collected in an amount equal to the value of the article used by the taxpayer multiplied by the rate in effect for the retail sales tax on sales of tangible personal property under RCW 82.08.020((~~, as now or hereafter amended, in the county in which the article is used~~)) and in an amount equal to the value of the service used by the taxpayer multiplied by the rate in effect for the retail sales tax on sales of services under RCW 82.08.020.

NEW SECTION. Sec. 118. A new section is added to chapter 82.12 RCW to read as follows:

(1) As used in this section, "financial organization" and "public utility" have the meanings given in RCW 82.56.010.

(2) Each taxpayer who uses a property service in this state shall allocate the full value of the service used to this state.

(3) Each taxpayer who uses a nonproperty service both within this state and outside this state, other than a financial organization or public utility, shall apportion the value of the service used to this state by multiplying that value by a fraction. The numerator of the fraction is the taxpayer's property factor plus the taxpayer's payroll factor plus the taxpayer's sales factor. The denominator of the fraction is three. The taxpayer's factors shall be calculated as provided in RCW 82.56.010.

(4) Financial organizations and public utilities which use nonproperty services both within this state and outside this state shall apportion the value of services used to this state according to rules adopted by the department. The rules shall be consistent with this section, as far as the department deems practicable. In developing the rules, the department shall also give appropriate consideration to the rules of other states in which the sale or use of services are also taxable. (5) If the apportionment provisions of this section do not fairly represent the extent of the taxpayer's use of a service in this state, the taxpayer may petition for, or the department may require, in respect to all or any part of the taxpayer's use of services, if reasonable:

(a) Separate accounting;

(b) The exclusion of any one or more of the factors;

(c) The inclusion of one or more additional factors which will fairly represent the taxpayer's use of services in this state; or

(d) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's use of services.

Sec. 119. Section 3, chapter 94, Laws of 1970 ex. sess. as last amended by section 31, chapter 3, Laws of 1983 2nd ex. sess. and RCW 82.14.020 are each amended to read as follows:

For purposes of this chapter:

(1) A retail sale consisting solely of the sale of tangible personal property shall be deemed to have occurred at the retail outlet at or from which delivery is made to the consumer;

(2) A retail sale consisting essentially of the performance of ((~~personal business or professional~~)) services shall be deemed to have occurred at the place at which such services were primarily performed, except as provided in subsection (5) of this section;

(3) A retail sale consisting of the rental of tangible personal property shall be deemed to have occurred (a) in the case of a rental involving periodic rental payments, at the primary place of use by the lessee during the period covered by each payment, or (b) in all other cases, at the place of first use by the lessee;

(4) A retail sale within the scope of the second paragraph of RCW 82.04.050, and a retail sale of taxable personal property to be installed by the seller shall be deemed to have occurred at the place where the labor and services involved were primarily performed;

(5) A retail sale consisting of the providing to a consumer of telephone service, as defined in RCW 82.04.065, other than a sale of tangible personal property under subsection (1) of this section or a rental of tangible personal property under subsection (3) of this section, shall be deemed to have occurred at the situs of the telephone or other instrument through which the telephone service is rendered;

(6) "City" means a city or town;

(7) The meaning ascribed to words and phrases in chapters 82.04, 82.08 and 82.12 RCW, as now or hereafter amended, insofar as applicable, shall have full force and effect with respect to taxes imposed under authority of this chapter;

(8) "Taxable event" shall mean any retail sale, or any use of an article of tangible personal property or service, upon which a state tax is imposed pursuant to chapter 82.08 or 82.12 RCW, as they now exist or may hereafter be amended: PROVIDED, HOWEVER, That the term shall not include a retail sale taxable pursuant to RCW 82.08.150, as now or hereafter amended;

(9) "Treasurer or other legal depository" shall mean the treasurer or legal depository of a county or city.

Sec. 120. Section 4, chapter 94, Laws of 1970 ex. sess. as amended by section 17, chapter 49, Laws of 1982 1st ex. sess. and RCW 82.14.030 are each amended to read as follows:

(1) The governing body of any county or city while not required by legislative mandate to do so, may, by resolution or ordinance for the purposes authorized by this chapter, fix and impose a sales and use tax in accordance with the terms of this chapter. Such tax shall be collected from those persons who are taxable by the state pursuant to chapters 82.08 and 82.12 RCW, upon the occurrence of any taxable event within the county or city as the case may be. The rate of such tax imposed by a county shall be five-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). The rate of such tax imposed by a city shall not exceed five-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax): PROVIDED, HOWEVER, That in the event a county shall impose a sales and use tax under this subsection, the rate of such tax imposed under this subsection by any city therein shall not exceed four hundred and twenty-five one-thousandths of one percent.

(2) ((~~Subject to the enactment into law of the 1982 amendment to RCW 82.02.020 by section 5, chapter 49, Laws of 1982 1st ex. sess.,~~)) In addition to the tax authorized in subsection (1) of this section, the governing body of any county or city may by resolution or ordinance impose an additional sales and use tax in accordance with the terms of this chapter. Such additional tax shall be collected upon the same taxable events upon which the tax imposed under subsection (1) of this section is levied. The rate of such additional tax imposed by a county shall be up to ((~~five-tenths~~)) three-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). The rate of such additional tax imposed by a city shall be up to ((~~five-tenths~~)) three-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax): PROVIDED HOWEVER, That in the event a county shall impose a sales and use tax under this subsection at a rate equal to or greater than the rate imposed under this subsection by a city within the county, the county shall receive fifteen percent of the city tax: PROVIDED FURTHER, That in the event that the county shall impose a sales and use tax under this subsection at a rate which is less than the rate imposed under this subsection by a city within the county, the county shall receive that amount of revenues from the city tax equal to fifteen percent of the rate of tax imposed by the county under this subsection. The authority to impose a tax under this subsection is intended in part to compensate local government for any losses from the phase-out of the property tax on business inventories.

(3) In addition to the taxes authorized in subsections (1) and (2) of this section, the governing body of any county or city may by resolution or ordinance adopted after the effective date of this 1987 section impose an additional sales and use tax in accordance with the terms of this chapter. Such additional tax shall be collected upon the same taxable events upon which the tax imposed under subsection (1) of this section is levied. The rate of such additional tax imposed by a county shall be up to two-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). The rate of such additional tax imposed by a city shall be up to two-tenths of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax): PROVIDED HOWEVER, That in the event a county shall impose a sales and use tax under this subsection at a rate equal to or greater than the rate imposed under this subsection by a city within the county, the county shall receive fifteen percent of the city tax: PROVIDED FURTHER, That in the event that the county shall impose a sales and use tax under this subsection at a rate which is less than the rate imposed under this subsection by a city within the county, the county shall receive that amount of revenues from the city tax equal to fifteen percent of the rate of tax imposed by the county under this subsection.

Sec. 121. Section 2, chapter 99, Laws of 1983 and RCW 82.14.036 are each amended to read as follows:

Any referendum petition to repeal a county or city ordinance imposing a tax or altering the rate of the tax authorized under RCW 82.14.030((~~(2)~~)) (3) shall be filed with a filing officer, as identified in the ordinance, within seven days of passage of the ordinance. Within ten days, the filing officer shall confer with the petitioner concerning form and style of the petition, issue an identification number for the petition, and write a ballot title for the measure. The ballot title shall be posed as a question so that an affirmative answer to the question and an affirmative vote on the measure results in the tax or tax rate increase being imposed and a negative answer to the question and a negative vote on the measure results in the tax or tax rate increase not being imposed. The petitioner shall be notified of the identification number and ballot title within this ten-day period.

After this notification, the petitioner shall have thirty days in which to secure on petition forms the signatures of not less than fifteen percent of the registered voters of the county for county measures, or not less than fifteen percent of the registered voters of the city for city measures, and to file the signed petitions with the filing officer. Each petition form shall contain the ballot title and the full text of the measure to be referred. The filing officer shall verify the sufficiency of the signatures on the petitions. If sufficient valid signatures are properly submitted, the filing officer shall submit the referendum measure to the county or city voters at a general or special election held on one of the dates provided in RCW 29.13.010 as determined by the county legislative authority or city council, which election shall not take place later than one hundred twenty days after the signed petition has been filed with the filing officer.

((~~After April 22, 1983,~~)) The referendum procedure provided in this section shall be the exclusive method for subjecting any county or city ordinance imposing a tax or altering the rate under RCW 82.14.030((~~(2)~~)) (3) to a referendum vote.

((~~Any county or city tax authorized under RCW 82.14.030(2) that has been imposed prior to April 22, 1983, is not subject to the referendum procedure provided for in this section.~~))

Sec. 122. Section 5, chapter 94, Laws of 1970 ex. sess. as amended by section 18, chapter 49, Laws of 1982 1st ex. sess. and RCW 82.14.040 are each amended to read as follows:

(1) Any county ordinance adopted under RCW 82.14.030(1) shall contain, in addition to all other provisions required to conform to this chapter, a provision allowing a credit against the county tax imposed under RCW 82.14.030(1) for the full amount of any city sales or use tax imposed under RCW 82.14.030(1) upon the same taxable event.

(2) Any county ordinance adopted under RCW 82.14.030(2) shall contain, in addition to all other provisions required to conform to this chapter, a provision allowing a credit against the county tax imposed under RCW 82.14.030(2) for the full amount of any city sales or use tax imposed under RCW 82.14.030(2) upon the same taxable event up to the additional tax imposed by the county under RCW 82.14.030(2).

(3) Any county ordinance adopted under RCW 82.14.030(3) shall contain, in addition to all other provisions required to conform to this chapter, a provision allowing a credit against the county tax imposed under RCW 82.14.030(3) for the full amount of any city sales or use tax imposed under RCW 82.14.030(3) upon the same taxable event up to the additional tax imposed by the county under RCW 82.14.030(3).

Sec. 123. Section 2, chapter 296, Laws of 1971 ex. sess. as last amended by section 216, chapter 3, Laws of 1983 and by section 1, chapter 112, Laws of 1984 and RCW 82.14.045 are each reenacted and amended to read as follows:

(1) The legislative body of any city pursuant to RCW 35.92.060, of any county which has created an unincorporated transportation benefit area pursuant to RCW 36.57.100 and 36.57.110, of any public transportation benefit area pursuant to RCW 36.57A.080 and 36.57A.090, of any county transportation authority established pursuant to chapter 36.57 RCW, and of any metropolitan municipal corporation within a class AA county pursuant to chapter 35.58 RCW, may, by resolution or ordinance for the sole purpose of providing funds for the operation, maintenance, or capital needs of public transportation systems and in lieu of the excise taxes authorized by RCW 35.95.040, submit an authorizing proposition to the voters or include such authorization in a proposition to perform the function of public transportation and if approved by a majority of persons voting thereon, fix and impose a sales and use tax in accordance with the terms of this chapter: PROVIDED, That no such legislative body shall impose such a sales and use tax without submitting such an authorizing proposition to the voters and obtaining the approval of a majority of persons voting thereon: PROVIDED FURTHER, That where such a proposition is submitted by a county on behalf of an unincorporated transportation benefit area, it shall be voted upon by the voters residing within the boundaries of such unincorporated transportation benefit area and, if approved, the sales and use tax shall be imposed only within such area. Notwithstanding any provisions of this section to the contrary, any county in which a county public transportation plan has been adopted pursuant to RCW 36.57.070 and the voters of such county have authorized the imposition of a sales and use tax pursuant to the provisions of section 10, chapter 167, Laws of 1974 ex. sess., prior to July 1, 1975, shall be authorized to fix and impose a sales and use tax as provided in this section at not to exceed the rate so authorized without additional approval of the voters of such county as otherwise required by this section.

The tax authorized pursuant to this section shall be in addition to the tax authorized by RCW 82.14.030 and shall be collected from those persons who are taxable by the state pursuant to chapters 82.08 and 82.12 RCW upon the occurrence of any taxable event within such city, public transportation benefit area, county, or metropolitan municipal corporation as the case may be. The rate of such tax shall be one-tenth, two-tenths, three-tenths, or four-tenths((~~, five-tenths, or six-tenths~~)) of one percent of the selling price (in the case of a sales tax) or value of the article used (in the case of a use tax). The rate of such tax shall not exceed the rate authorized by the voters unless such increase shall be similarly approved.

(2) (a) In the event a metropolitan municipal corporation shall impose a sales and use tax pursuant to this chapter no city, county which has created an unincorporated transportation benefit area, public transportation benefit area authority, or county transportation authority wholly within such metropolitan municipal corporation shall be empowered to levy and/or collect taxes pursuant to RCW 35.58.273, 35.95.040, and/or 82.14.045, but nothing herein shall prevent such city or county from imposing sales and use taxes pursuant to any other authorization.

(b) In the event a county transportation authority shall impose a sales and use tax pursuant to this section, no city, county which has created an unincorporated transportation benefit area, public transportation benefit area, or metropolitan municipal corporation, located within the territory of the authority, shall be empowered to levy or collect taxes pursuant to RCW 35.58.273, 35.95.040, or 82.14.045.

(c) In the event a public transportation benefit area shall impose a sales and use tax pursuant to this section, no city, county which has created an unincorporated transportation benefit area, or metropolitan municipal corporation, located wholly or partly within the territory of the public transportation benefit area, shall be empowered to levy or collect taxes pursuant to RCW 35.58.273, 35.95.040, or 82.14.045.

(3) Any local sales and use tax revenue collected pursuant to this section by any city or by any county for transportation purposes pursuant to RCW 36.57.100 and 36.57.110 shall not be counted as locally generated tax revenues for the purposes of apportionment and distribution, in the manner prescribed by chapter 82.44 RCW, of the proceeds of the motor vehicle excise tax authorized pursuant to RCW 35.58.273.

Sec. 124. Section 6, chapter 134, Laws of 1972 ex. sess. as last amended by section 33, chapter 3, Laws of 1983 2nd ex. sess. and RCW 35.21.710 are each amended to read as follows:

Any city which imposes a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property or services which are measured by gross receipts or gross income from such sales, shall impose such tax at a single uniform rate upon all such business activities. The taxing authority granted to cities for taxes upon business activities measured by gross receipts or gross income from sales shall not exceed a rate of .0020; except that any city with an adopted ordinance at a higher rate, as of January 1, 1982 shall be limited to a maximum increase of ten percent of the January 1982 rate, not to exceed an annual incremental increase of two percent of current rate: PROVIDED, That any adopted ordinance which classifies according to different types of business or services shall be subject to both the ten percent and the two percent annual incremental increase limitation on each tax rate: PROVIDED FURTHER, That all surtaxes on business and occupation classifications in effect as of January 1, 1982, shall expire no later than December 31, 1982, or by expiration date established by local ordinance. Cities which impose a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property or services which are measured by gross receipts or gross income from such sales shall be required to submit an annual report to the state auditor identifying the rate established and the revenues received from each fee or tax. This section shall not apply to any business activities subject to the tax imposed by chapter 82.16 RCW. ((~~For purposes of this section, the providing to consumers of competitive telephone service, as defined in RCW 82.04.065, shall be deemed to be the retail sale of tangible personal property.~~))

Sec. 125. Section 7, chapter 134, Laws of 1972 ex. sess. as last amended by section 34, chapter 3, Laws of 1983 2nd ex. sess. and RCW 35A.82.050 are each amended to read as follows:

Any code city which imposes a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property or services which are measured by gross receipts or gross income from such sales, shall impose such tax at a single uniform rate upon all such business activities. This section shall not apply to any business activities subject to the tax imposed by chapter 82.16 RCW. ((~~For purposes of this section, the providing to consumers of competitive telephone service, as defined in RCW 82.04.065, shall be deemed to be the retail sale of tangible personal property.~~))

Sec. 126. Section 21, chapter 190, Laws of 1949 and RCW 48.14.080 are each amended to read as follows:

As to insurers other than title insurers, the taxes imposed by this title shall be in lieu of all other taxes, except taxes on real and tangible personal property and excise taxes on the sale, purchase or use of such property and services.

Sec. 127. Section 82.02.020, chapter 15, Laws of 1961 as last amended by section 5, chapter 49, Laws of 1982 1st ex. sess. and RCW 82.02.020 are each amended to read as follows:

Except only as expressly provided in RCW 67.28.180 and 67.28.190 and the provisions of chapter 82.14 RCW, the state preempts the field of imposing taxes upon retail sales of tangible personal property and services, the use of tangible personal property and services, parimutuel wagering authorized pursuant to RCW 67.16.060, conveyances, and cigarettes, and no county, town, or other municipal subdivision shall have the right to impose taxes of that nature. No county, city, town, or other municipal corporation shall impose any tax, fee, or charge, either direct or indirect, on the construction or reconstruction of residential buildings, commercial buildings, industrial buildings, or on any other building or building space or appurtenance thereto, or on the development, subdivision, classification, or reclassification of land. However, this section does not preclude dedications of land or easements pursuant to RCW 58.17.110 within the proposed development or plat which the county, city, town, or other municipal corporation can demonstrate are reasonably necessary as a direct result of the proposed development or plat to which the dedication of land or easement is to apply.

This section does not prohibit voluntary agreements with counties, cities, towns, or other municipal corporations that allow a payment in lieu of a dedication of land or to mitigate a direct impact that has been identified as a consequence of a proposed development, subdivision, or plat: PROVIDED, That any such voluntary agreement shall be subject to the following provisions:

(1) The payment shall be held in a reserve account and may only be expended to fund a capital improvement agreed upon by the parties to mitigate the identified, direct impact;

(2) The payment shall be expended in all cases within five years of collection; and

(3) Any payment not so expended shall be refunded with interest at the rate applied to judgments to the property owners of record at the time of the refund; however, if the payment is not expended within five years due to delay attributable to the developer, the payment shall be refunded without interest.

No county, city, town, or other municipal corporation shall require any payment as part of such a voluntary agreement which the county, city, town, or other municipal corporation cannot establish is reasonably necessary as a direct result of the proposed development or plat.

Nothing in this section prohibits cities, towns, counties, or other municipal corporations from collecting reasonable fees from an applicant for a permit or other governmental approval to cover the cost to the city, town, county, or other municipal corporation of processing applications, inspecting and reviewing plans, or preparing detailed statements required by chapter 43.21C RCW.

This section does not limit the existing authority of any county, city, town, or other municipal corporation to impose special assessments on property specifically benefitted thereby in the manner prescribed by law.

Nothing in this section prohibits counties, cities, or towns from imposing or permits counties, cities, or towns to impose water, sewer, natural gas, drainage utility, and drainage system charges: PROVIDED, That no such charge shall exceed the proportionate share of such utility or system's capital costs which the county, city, or town can demonstrate are attributable to the property being charged: PROVIDED FURTHER, That these provisions shall not be interpreted to expand or contract any existing authority of counties, cities, or towns to impose such charges.

This section does not apply to special purpose districts formed and acting pursuant to Titles 54, 56, 57, or 87 RCW, nor is the authority conferred by these titles affected.

Sec. 128. Section 82.04.470, chapter 15, Laws of 1961 as last amended by section 29, chapter 3, Laws of 1983 2nd ex. sess. and RCW 82.04.470 are each amended to read as follows:

Unless a seller has taken from the purchaser a resale certificate signed by, and bearing the name and address and registration number of the purchaser to the effect that the property or service was purchased for resale, or unless the nature of the transaction is clearly shown as a sale ((~~at wholesale~~)) for resale by the books and records of the taxpayer in such other manner as the department of revenue shall by regulation provide, the burden of proving that a sale of tangible personal property, or of ((~~telephone service as defined in RCW 82.04.065~~)) a service expressly defined as a retail sale by RCW 82.04.050 when rendered to or for consumers, was not a sale at retail shall be upon the person who made it.

Sec. 129. Section 82.04.480, chapter 15, Laws of 1961 as amended by section 44, chapter 278, Laws of 1975 1st ex. sess. and RCW 82.04.480 are each amended to read as follows:

Every consignee, bailee, factor, or auctioneer having either actual or constructive possession of tangible personal property, or having possession of the documents of title thereto, with power to sell such tangible personal property in his or its own name and actually so selling, and every agent with power to sell services in the agent's own name and actually so selling, shall be deemed the seller of such tangible personal property or services within the meaning of this chapter; and further, the consignor, bailor, principal, or owner shall be deemed a seller of such property or services to the consignee, bailee, factor, ((or)) auctioneer, or agent.

The burden shall be upon the taxpayer in every case to establish the fact that he is not engaged in the business of selling tangible personal property or services but is acting merely as broker or agent in promoting sales for a principal. Such claim will be allowed only when the taxpayer's accounting records are kept in such manner as the department of revenue shall by general regulation provide.

Sec. 130. Section 82.08.080, chapter 15, Laws of 1961 as last amended by section 2, chapter 36, Laws of 1986 and RCW 82.08.080 are each amended to read as follows:

The department of revenue may authorize a seller to pay the tax levied under this chapter upon retail sales of tangible personal property or services made under conditions of business such as to render impracticable the collection of the tax as a separate item and waive collection of the tax from the customer. Where sales are made by receipt of a coin or coins dropped into a receptacle that results in delivery of the merchandise in single purchases of smaller value than the minimum sale upon which a one cent tax may be collected from the purchaser, according to the schedule provided by the department under authority of RCW 82.08.060, and where the design of the sales device is such that multiple sales of items are not possible or cannot be detected so as practically to assess a tax, in such a case the selling price for the purposes of the tax imposed under RCW 82.08.020 shall be sixty percent of the gross receipts of the vending machine through which such sales are made. No such authority shall be granted except upon application to the department and unless the department, after hearing, finds that the conditions of the applicant's business are such as to render impracticable the collection of the tax in the manner otherwise provided. The department, by regulation, may provide that the applicant, under this section, furnish a proper bond sufficient to secure the payment of the tax.

Sec. 131. Section 82.08.090, chapter 15, Laws of 1961 as amended by section 49, chapter 278, Laws of 1975 1st ex. sess. and RCW 82.08.090 are each amended to read as follows:

In the case of installment sales and leases of personal property or services, the department of revenue, by regulation, may provide for the collection of taxes upon the installments of the purchase price, or amount of rental, as of the time the same fall due.

Sec. 132. Section 52, chapter 37, Laws of 1980 and RCW 82.12.0252 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of any article of tangible personal property or service purchased at retail or acquired by lease, gift or bailment if the sale thereof to, or the use thereof by, the present user or ((~~his~~)) the user's bailor or donor has already been subjected to the tax under chapter 82.08 or 82.12 RCW and such tax has been paid by the present user or by ((~~his~~)) the user's bailor or donor; or in respect to the use of property acquired by bailment and such tax has once been paid based on reasonable rental as determined by RCW 82.12.060 measured by the value of the article at time of first use multiplied by the tax rate imposed by chapter 82.08 or 82.12 RCW as of the time of first use; or in respect to the use of any article of tangible personal property acquired by bailment, if the property was acquired by a previous bailee from the same bailor for use in the same general activity and such original bailment was prior to June 9, 1961.

Sec. 133. Section 53, chapter 37, Laws of 1980 and RCW 82.12.0253 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of any article of tangible personal property or service the sale of which is specifically taxable under chapter 82.16 RCW.

Sec. 134. Section 54, chapter 37, Laws of 1980 and RCW 82.12.0254 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of any airplane, locomotive, railroad car, or watercraft used primarily in conducting interstate or foreign commerce by transporting therein or therewith property and persons for hire or used primarily in commercial deep sea fishing operations outside the territorial waters of the state, and in respect to use of tangible personal property which becomes a component part of any such airplane, locomotive, railroad car, or watercraft, and any labor or services rendered in installing such part, and in respect to the use by a nonresident of this state of any motor vehicle or trailer used exclusively in transporting persons or property across the boundaries of this state and in intrastate operations incidental thereto when such motor vehicle or trailer is registered and licensed in a foreign state and in respect to the use by a nonresident of this state of any motor vehicle or trailer so registered and licensed and used within this state for a period not exceeding fifteen consecutive days under such rules as the department of revenue shall adopt: PROVIDED, That under circumstances determined to be justifiable by the department of revenue a second fifteen day period may be authorized consecutive with the first fifteen day period; and for the purposes of this exemption the term "nonresident" as used herein, shall include a user who has one or more places of business in this state as well as in one or more other states, but the exemption for nonresidents shall apply only to those vehicles which are most frequently dispatched, garaged, serviced, maintained, and operated from the user's place of business in another state; and in respect to the use by the holder of a carrier permit issued by the Interstate Commerce Commission of any motor vehicle or trailer whether owned by or leased with or without driver to the permit holder and used in substantial part in the normal and ordinary course of the user's business for transporting therein persons or property for hire across the boundaries of this state if the first use of which within this state is actual use in conducting interstate or foreign commerce; and in respect to the use of any motor vehicle or trailer while being operated under the authority of a one-transit permit issued by the director of licensing pursuant to RCW 46.16.160 and moving upon the highways from the point of delivery in this state to a point outside this state; and in respect to the use of tangible personal property which becomes a component part of any motor vehicle or trailer, and any labor or services rendered in installing such part, used by the holder of a carrier permit issued by the Interstate Commerce Commission authorizing transportation by motor vehicle across the boundaries of this state whether such motor vehicle or trailer is owned by or leased with or without driver to the permit holder.

Sec. 135. Section 55, chapter 37, Laws of 1980 and RCW 82.12.0255 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of any article of tangible personal property or any service which the state is prohibited from taxing under the Constitution of the state or under the Constitution or laws of the United States.

Sec. 136. Section 59, chapter 37, Laws of 1980 and RCW 82.12.0259 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of tangible personal property or services by corporations which have been incorporated under any act of the congress of the United States and whose principal purposes are to furnish volunteer aid to members of the armed forces of the United States and also to carry on a system of national and international relief and to apply the same in mitigating the sufferings caused by pestilence, famine, fire, flood, and other national calamities and to devise and carry on measures for preventing the same.

Sec. 137. Section 77, chapter 37, Laws of 1980 and RCW 82.12.0279 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of ferry vessels of the state of Washington or of local governmental units in the state of Washington in transporting pedestrian or vehicular traffic within and outside the territorial waters of the state and in respect to the use of tangible personal property which becomes a component part of any such ferry vessel and the use of any service in installing such part.

Sec. 138. Section 5, chapter 89, Laws of 1967 ex. sess. and RCW 82.12.035 are each amended to read as follows:

A credit shall be allowed against the taxes imposed by this chapter upon the use of tangible personal property or services in this state in the amount that the present user thereof or ((~~his~~)) the user's bailor or donor has paid a retail sales or use tax with respect to such property or services to any other state, political subdivision thereof, or the District of Columbia, prior to the use of such property or services in this state.

Sec. 139. Section 82.12.060, chapter 15, Laws of 1961 as last amended by section 54, chapter 278, Laws of 1975 1st ex. sess. and RCW 82.12.060 are each amended to read as follows:

(1) In the case of installment sales and leases of personal property or services, the department, by regulation, may provide for the collection of taxes upon the installments of the purchase price, or amount of rental, as of the time the same fall due.

(2) In the case of property acquired by bailment, the department, by regulation, may provide for payment of the tax due in installments based on the reasonable rental for the property as determined under RCW 82.12.010(1).

Sec. 140. Section 73, chapter 37, Laws of 1980 and RCW 82.12.0275 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use by low-income persons of prescription drugs, including the use by the state or a political subdivision or municipal corporation thereof of drugs to be dispensed to patients by prescription without charge. The term "prescription drugs" shall include any medicine, drug, prescription lens, or other substance other than food for use in the diagnosis, cure, mitigation, treatment, or prevention of disease or other ailment in humans ordered by (1) the written prescription to a pharmacist by a practitioner authorized by law of this state or laws of another jurisdiction to issue prescriptions, or (2) upon an oral prescription of such practitioner which is reduced promptly to writing and filed by a duly licensed pharmacist, or (3) by refilling any such written or oral prescription if such refilling is authorized by the prescriber either in the original prescription or by oral order which is reduced promptly to writing and filed by the pharmacist, or (4) physicians or optometrists by way of written directions and specifications for the preparation, grinding, and fabrication of lenses intended to aid or correct visual defects or anomalies of humans.

Sec. 141. Section 75, chapter 37, Laws of 1980 as last amended by section 2, chapter 255, Laws of 1986 and RCW 82.12.0277 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use by low-income persons of: (1) Insulin; (2) prosthetic and orthotic devices prescribed ((~~for an individual~~)) by a person licensed under chapters 18.25, 18.57, or 18.71 RCW or dispensed or fitted by a person licensed under chapter 18.35 RCW; (3) ostomic items; and (4) medically prescribed oxygen.

Sec. 142. Section 34, chapter 35, Laws of 1982 1st ex. sess. as last amended by section 2, chapter 182, Laws of 1986 and RCW 82.12.0293 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use by low-income persons of food products for human consumption.

"Food products" include all fruit juices, vegetable juices, and other beverages except bottled water, spirituous, malt or vinous liquors or carbonated beverages, whether liquid or frozen.

"Food products" do not include medicines and preparations in liquid, powdered, granular, tablet, capsule, lozenge, and pill form sold as dietary supplements or adjuncts.

The exemption of "food products" provided for in this paragraph shall not apply: (a) When the food products are furnished, prepared, or served for consumption at tables, chairs, or counters or from trays, glasses, dishes, or other tableware whether provided by the retailer or by a person with whom the retailer contracts to furnish, prepare, or serve food products to others, except for food products furnished as meals (i) under a state administered nutrition program for the aged as provided for in the Older Americans Act (P.L. 95-478 Title III) and RCW 74.38.040(6) or (ii) which are provided to senior citizens, disabled persons, or low-income persons by a not-for-profit organization organized under chapter 24.03 or 24.12 RCW, or (b) when the food products are ordinarily sold for immediate consumption on or near a location at which parking facilities are provided primarily for the use of patrons in consuming the products purchased at the location, even though such products are sold on a "takeout" or "to go" order and are actually packaged or wrapped and taken from the premises of the retailer, or (c) when the food products are sold for consumption within a place, the entrance to which is subject to an admission charge, except for national and state parks and monuments.

PART 2

BUSINESS TAX--DEFINITIONS

NEW SECTION. Sec. 201. Unless the context clearly requires otherwise, the definitions in this part apply throughout this chapter.

NEW SECTION. Sec. 202. "Capital asset" means a tangible asset of a type which is eligible for depreciation, amortization, or accelerated capital cost recovery under the federal internal revenue code, as in effect on January 1, 1987.

NEW SECTION. Sec. 203. "Dividend income" means those dividends taxable for federal income tax purposes without regard to any federal dividend exclusion or deduction.

NEW SECTION. Sec. 204. "Financial business" includes:

(1) All investment activities engaged in by corporations;

(2) All investment activities related to the regular course of the taxpayer's trade or business; and

(3) All investment activities generating dividend income; interest income; or gains realized from trading in stocks, bonds, or other evidences of indebtedness; regardless of whether the investment activity is related to the regular course of the taxpayer's trade or business.

Sec. 205. Section 82.04.080, chapter 15, Laws of 1961 and RCW 82.04.080 are each amended to read as follows:

"Gross income of the business" or "gross income" means the value proceeding or accruing by reason of the transaction of the business engaged in and includes gross proceeds of sales, compensation for the rendition of services, gains realized from trading in stocks, bonds, or other evidences of indebtedness, interest, discount, rents from real and personal property, royalties, fees, commissions, dividends, and other emoluments however designated, all without any deduction on account of the cost of tangible property sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense whatsoever paid or accrued, other than as specifically allowed in this chapter, and without any deduction on account of losses. "Gross income of the business" or "gross income" also includes the gross proceeds of sales and dispositions of capital assets, as provided in section 409 of this 1987 act.

NEW SECTION. Sec. 206. "Interest income" includes:

(1) Any interest income taxable for federal income tax purposes, except any interest income with respect to which taxation under this chapter is prohibited by federal law; and

(2) Any interest income from obligations issued by or on behalf of any state, state agency or political subdivision, public instrumentality, state or local authority, agency, district, or similar public entity created under state law.

NEW SECTION. Sec. 207. "Investment activity" means any activity involving the investment or use of money as such, including but not limited to holding, investing in, or trading mortgages, notes, accounts, certificates of deposit, bonds, shares, stocks, and other securities.

NEW SECTION. Sec. 208. "Modified gross income" is calculated under section 402 or 502 of this act.

NEW SECTION. Sec. 209. "Paid" includes incurred for taxpayers permitted to use accrual basis accounting under rules adopted by the department.

NEW SECTION. Sec. 210. "Taxable gross income" is calculated under section 402 or 502 of this act. PART 3

BUSINESS TAX--GENERAL EXEMPTIONS

Sec. 301. Section 82.04.310, chapter 15, Laws of 1961 and RCW 82.04.310 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to any person in respect to a business activity with respect to which tax liability is specifically imposed under the provisions of chapter 82.16 RCW.

Sec. 302. Section 82.04.320, chapter 15, Laws of 1961 and RCW 82.04.320 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to any person in respect to insurance business upon which a tax based on gross premiums is paid to the state: PROVIDED, That the provisions of this section shall not exempt any person engaging in the business of representing any insurance company, whether as general or local agent, or acting as broker for such companies: PROVIDED FURTHER, That the provisions of this section shall not exempt any bonding company from tax with respect to gross income derived from the completion of any contract as to which it is a surety, or as to any liability as successor to the liability of the defaulting contractor.

Sec. 303. Section 82.04.330, chapter 15, Laws of 1961 as last amended by section 1, chapter 148, Laws of 1985 and by section 10, chapter 414, Laws of 1985 and RCW 82.04.330 are each reenacted and amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to any person in respect to the business of growing or producing for sale upon the person's own lands or upon land in which the person has a present right of possession, any agricultural or horticultural produce or crop, or of raising upon the person's own lands or upon land in which the person has a present right of possession, any animal, bird, fish, or insect, or the milk, eggs, wool, fur, meat, honey, or other substance obtained therefrom, or in respect to the sale of such products at wholesale by such grower, producer, or raiser thereof. This exemption shall not apply to any person selling such products at retail or using such products as ingredients in a manufacturing process; nor to the sale of any animal or substance obtained therefrom by a person in connection with the person's business of operating a stockyard or a slaughter or packing house; nor to any person in respect to the business of taking, cultivating, or raising Christmas trees or timber; nor to any association of persons whatever, whether mutual, cooperative or otherwise, engaging in any business activity with respect to which tax liability is imposed under the provisions of this chapter. As used in this section, "fish" means fish which are cultivated or raised entirely within confined rearing areas on the person's own land or on land in which the person has a present right of possession.

Sec. 304. Section 1, chapter 145, Laws of 1965 ex. sess. and RCW 82.04.335 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to any business of any bona fide agricultural fair, if no part of the net earnings therefrom inures to the benefit of any stockholder or member of the association conducting the same: PROVIDED, That any amount paid for admission to any exhibit, grandstand, entertainment, or other feature conducted within the fair grounds by others shall be taxable under the provisions of this chapter, except as otherwise provided by law.

Sec. 305. Section 17, chapter 111, Laws of 1979 and RCW 82.04.355 are each amended to read as follows:

The taxes imposed in this chapter ((~~does~~)) do not apply to any funds received in the course of commuter ride sharing or ride sharing for the elderly and the handicapped in accordance with RCW 46.74.010.

Sec. 306. Section 82.04.360, chapter 15, Laws of 1961 and RCW 82.04.360 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to any person in respect to his or her employment in the capacity of an employee or servant as distinguished from that of an independent contractor.

Sec. 307. Section 7, chapter 196, Laws of 1979 ex. sess. and RCW 82.04.365 are each amended to read as follows:

(1) The taxes imposed in this chapter ((~~does~~)) do not apply to amounts derived by a nonprofit organization as a result of conducting or participating in a bazaar or rummage sale if:

(a) The organization does not conduct or participate in more than two bazaars or rummage sales per year; and

(b) Each bazaar or rummage sale does not extend over a period of more than two days; and

(c) The gross income received by each organization from each bazaar or rummage sale does not exceed one thousand dollars.

(2) For purposes of this section, "nonprofit organization" means an organization that meets all of the following criteria:

(a) The members, stockholders, officers, directors, or trustees of the organization do not receive any part of the organization's gross income, except as payment for services rendered;

(b) The compensation received by any person for services rendered to the organization does not exceed an amount reasonable under the circumstances; and

(c) The activities of the organization do not include a substantial amount of political activity, including but not limited to influencing legislation and participation in any campaign on behalf of any candidate for political office.

Sec. 308. Section 82.04.370, chapter 15, Laws of 1961 as amended by section 4, chapter 293, Laws of 1961 and RCW 82.04.370 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to fraternal benefit societies or fraternal fire insurance associations, as described in Title 48 RCW; nor to beneficiary corporations or societies organized under and existing by virtue of Title 24 RCW, if such beneficiary corporations or societies provide in their bylaws for the payment of death benefits. Exemption is limited, however, to gross income from premiums, fees, assessments, dues or other charges directly attributable to the insurance or death benefits provided by such societies, associations, or corporations.

Sec. 309. Section 82.04.380, chapter 15, Laws of 1961 and RCW 82.04.380 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to the gross sales or the gross income received by corporations which have been incorporated under any act of the congress of the United States of America and whose principal purposes are to furnish volunteer aid to members of the armed forces of the United States and also to carry on a system of national and international relief and to apply the same in mitigating the sufferings caused by pestilence, famine, fire, floods, and other national calamities and to devise and carry on measures for preventing the same.

Sec. 310. Section 3, chapter 81, Laws of 1970 ex. sess. as amended by section 1, chapter 134, Laws of 1972 ex. sess. and RCW 82.04.385 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to income received from the department of social and health services for the cost of care, maintenance, support, and training of mentally retarded persons at nonprofit group training homes as defined by RCW 72.33.800(2) or to the gross sales or gross income received by nonprofit organizations from the operation of "sheltered workshops". For the purposes of this section, "sheltered workshops" means rehabilitation facilities, or that part of rehabilitation facilities, where any manufacture or handiwork is carried on and which is operated for the primary purpose of (1) providing gainful employment or rehabilitation services to the handicapped as an interim step in the rehabilitation process for those who cannot be readily absorbed in the competitive labor market or during such time as employment opportunities for them in the competitive labor market do not exist; or (2) providing evaluation and work adjustment services for handicapped individuals.

Sec. 311. Section 82.04.390, chapter 15, Laws of 1961 and RCW 82.04.390 are each amended to read as follows:

(1) Except as provided in subsection (2) of this section, the taxes imposed in this chapter ((~~shall~~)) do not apply to gross ((~~proceeds~~)) income derived from the sale of real estate. ((~~This however, shall not be construed to allow a deduction of~~))

(2) The following are not exempt under this section:

(a) Amounts received as commissions from the sale of real estate, nor as fees, handling charges, discounts, interest or similar financial charges resulting from, or relating to, real estate transactions;

(b) Amounts received from the rental, leasing, or licensing for use of real estate; and

Sec. 312. Section 3, chapter 101, Laws of 1970 ex. sess. and RCW 82.04.405 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to the gross income of credit unions organized under the laws of this state or the United States.

Sec. 313. Section 25, chapter 161, Laws of 1983 and RCW 82.04.408 are each amended to read as follows:

The taxes imposed in this chapter ((~~does~~)) do not apply to income received by the state housing finance commission under chapter 43.180 RCW.

Sec. 314. Section 82.04.410, chapter 15, Laws of 1961 as amended by section 15, chapter 149, Laws of 1967 ex. sess. and RCW 82.04.410 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to amounts derived by persons engaged in the production and sale of hatching eggs or poultry for use in the production for sale of poultry or poultry products.

Sec. 315. Section 10, chapter 173, Laws of 1965 ex. sess. and RCW 82.04.415 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to:

(1) The cost of or charges made for labor and services performed in respect to the mining, sorting, crushing, screening, washing, hauling, and stockpiling of sand, gravel, and rock, when such sand, gravel, or rock is taken from a pit or quarry which is owned by or leased to a county or city and such sand, gravel, or rock is either stockpiled in said pit or quarry for placement or is placed on the street, road, place, or highway of the county or city by the county or city itself; or

(2) The cost of or charges for such labor and services if any such sand, gravel, or rock is sold by the county or city to a county, or a city at actual cost for placement on a publicly owned street, road, place, or highway.

The exemption provided for in this section shall not apply to the cost of or charges for such labor and services if the sand, gravel, or rock is used for other than public road purposes or is sold otherwise than as provided for in this section.

Sec. 316. Section 1, chapter 156, Laws of 1969 ex. sess. and RCW 82.04.417 are each amended to read as follows:

The taxes imposed ((~~by chapters 82.04 and~~)) in this chapter and chapter 82.16 RCW ((~~shall~~)) do not apply ((~~or be deemed to apply~~)) to amounts or value paid or contributed to any county, city, town, political subdivision, or municipal or quasi municipal corporation of the state of Washington representing payments of special assessments or installments thereof and interests and penalties thereon, charges in lieu of assessments, or any other charges, payments or contributions representing a share of the cost of capital facilities constructed or to be constructed or for the retirement of obligations and payment of interest thereon issued for capital purposes.

Service charges shall not be included in this exemption even though used wholly or in part for capital purposes.

Sec. 317. Section 2, chapter 66, Laws of 1983 1st ex. sess. and RCW 82.04.418 are each amended to read as follows:

The ((~~provisions of~~)) taxes imposed in this chapter ((~~shall~~)) do not apply to grants received from the state or the United States government by municipal corporations or political subdivisions of the state of Washington.

Sec. 318. Section 3, chapter 66, Laws of 1983 1st ex. sess. and RCW 82.04.419 are each amended to read as follows:

The taxes imposed in this chapter ((~~shall~~)) do not apply to any county, city, town, school district, or fire district activity, regardless of how financed, other than a utility or enterprise activity as defined by the state auditor pursuant to RCW 35.33.111 and 36.40.220 and upon which the tax imposed pursuant to this chapter had previously applied. Nothing contained in this section shall limit the authority of the legislature to authorize the imposition of such tax prospectively upon such activities as the legislature shall specifically designate.

Sec. 319. Section 5, chapter 66, Laws of 1983 1st ex. sess. and RCW 82.04.423 are each amended to read as follows:

(1) The taxes imposed in this chapter ((~~shall~~)) do not apply to any person in respect to gross income derived from the business of making sales at wholesale or retail if such person:

(a) Does not own or lease real property within this state; and

(b) Does not regularly maintain a stock of tangible personal property in this state for sale in the ordinary course of business; and

(d) Makes sales in this state exclusively to or through a direct seller's representative.

(2) For purposes of this section, the term "direct seller's representative" means a person who buys consumer products on a buy-sell basis or a deposit-commission basis for resale, by the buyer or any other person, in the home or otherwise than in a permanent retail establishment, or who sells, or solicits the sale of, consumer products in the home or otherwise than in a permanent retail establishment; and

(a) Substantially all of the remuneration paid to such person, whether or not paid in cash, for the performance of services described in this subsection is directly related to sales or other output, including the performance of services, rather than the number of hours worked; and

(b) The services performed by the person are performed pursuant to a written contract between such person and the person for whom the services are performed and such contract provides that the person will not be treated as an employee with respect to such purposes for federal tax purposes.

(3) Nothing in this section shall be construed to imply that a person exempt from tax under this section was engaged in a business activity taxable under this chapter prior to the enactment of this section.

Sec. 320. Section 1, chapter 74, Laws of 1981 and RCW 82.04.4271 are each amended to read as follows:

((~~In computing tax due under this chapter, there may be deducted from the measure of tax all~~)) The taxes imposed in this chapter do not apply to amounts received by a nonprofit youth organization:

(1) As membership fees or dues, irrespective of the fact that the payment of the membership fees or dues to the organization may entitle its members, in addition to other rights or privileges, to receive services from the organization or to use the organization's facilities; or

(2) From members of the organization for camping and recreational services provided by the organization or for the use of the organization's camping and recreational facilities.

For purposes of this section: "Nonprofit youth organization" means a nonprofit organization engaged in character building of youth which is exempt from property tax under RCW 84.36.030.

Sec. 321. Section 2, chapter 37, Laws of 1980 and RCW 82.04.4281 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts derived by persons, other than those engaging in banking, loan, security, or other financial businesses, from investments or the use of money as such, and also amounts derived as dividends by a parent from its subsidiary corporations.

Sec. 322. Section 3, chapter 37, Laws of 1980 and RCW 82.04.4282 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts derived from bona fide initiation fees, dues, contributions, donations, tuition fees, charges made for operation of privately operated kindergartens, and endowment funds. This paragraph shall not be construed to exempt any person, association, or society from tax liability upon selling tangible personal property or upon providing facilities or services for which a special charge is made to members or others. If dues are in exchange for any significant amount of goods or services rendered by the recipient thereof to members without any additional charge to the member, or if the dues are graduated upon the amount of goods or services rendered, the value of such goods or services shall not be considered as a deduction hereunder.

Sec. 323. Section 4, chapter 37, Laws of 1980 and RCW 82.04.4283 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to the amount of cash discount actually taken by the purchaser. ((This deduction is not allowed in arriving at the taxable amount under the extractive or manufacturing classifications with respect to articles produced or manufactured, the reported values of which, for the purposes of this tax, have been computed according to the provisions of RCW 82.04.450.))

Sec. 324. Section 6, chapter 37, Laws of 1980 and RCW 82.04.4285 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to so much of the sale price of motor vehicle fuel as constitutes the amount of tax imposed by the state or the United States government upon the sale thereof.

Sec. 325. Section 7, chapter 37, Laws of 1980 and RCW 82.04.4286 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts derived from business which the state is prohibited from taxing under the Constitution of this state or the Constitution or laws of the United States.

Sec. 326. Section 8, chapter 37, Laws of 1980 and RCW 82.04.4287 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts derived by any person as compensation for the receiving, washing, sorting, and packing of fresh perishable horticultural products and the material and supplies used therein when performed for the person exempted in RCW 82.04.330, either as agent or as independent contractor.

Sec. 327. Section 9, chapter 37, Laws of 1980 and RCW 82.04.4288 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts derived as compensation for services rendered or to be rendered to patients or from sales of prescription drugs as defined in RCW 82.08.0281 furnished as an integral part of services rendered to patients by a hospital, as defined in chapter 70.41 RCW, devoted to the care of human beings with respect to the prevention or treatment of disease, sickness, or suffering, when such hospital is operated by the United States or any of its instrumentalities, or by the state, or any of its political subdivisions.

Sec. 328. Section 10, chapter 37, Laws of 1980 as amended by section 2, chapter 178, Laws of 1981 and RCW 82.04.4289 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts derived as compensation for services rendered to patients or from sales of prescription drugs as defined in RCW 82.08.0281 furnished as an integral part of services rendered to patients by a hospital, as defined in chapter 70.41 RCW, which is operated as a nonprofit corporation, a kidney dialysis facility operated as a nonprofit corporation, whether or not operated in connection with a hospital, nursing homes and homes for unwed mothers operated as religious or charitable organizations, but only if no part of the net earnings received by such an institution inures directly or indirectly, to any person other than the institution entitled to deduction hereunder. In no event shall any such deduction be allowed, unless the hospital building is entitled to exemption from taxation under the property tax laws of this state.

Sec. 329. Section 11, chapter 37, Laws of 1980 and RCW 82.04.4291 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts derived by a political subdivision of the state of Washington from another political subdivision of the state of Washington as compensation for services which are within the purview of RCW 82.04.290.

Sec. 330. Section 17, chapter 37, Laws of 1980 and RCW 82.04.4297 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts received from the United States or any instrumentality thereof or from the state of Washington or any municipal corporation or political subdivision thereof as compensation for, or to support, health or social welfare services rendered by a health or social welfare organization or by a municipal corporation or political subdivision.

Sec. 331. Section 18, chapter 37, Laws of 1980 and RCW 82.04.4298 are each amended to read as follows:

(1) ((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts used solely for repair, maintenance, replacement, management, or improvement of the residential structures and commonly held property, but excluding property where fees or charges are made for use by the public who are not guests accompanied by a member, which are derived by:

(a) A cooperative housing association, corporation, or partnership from a person who resides in a structure owned by the cooperative housing association, corporation, or partnership;

(b) An association of owners of property as defined in RCW 64.32.010, as now or hereafter amended, from a person who is an apartment owner as defined in RCW 64.32.010; or

(c) An association of owners of residential property from a person who is a member of the association. "Association of owners of residential property" means any organization of all the owners of residential property in a defined area who all hold the same property in common within the area.

(2) For the purposes of this section "commonly held property" includes areas required for common access such as reception areas, halls, stairways, parking, etc., and may include recreation rooms, swimming pools and small parks or recreation areas; but is not intended to include more grounds than are normally required in a residential area, or to include such extensive areas as required for golf courses, campgrounds, hiking and riding areas, boating areas, etc.

(3) To qualify for the deductions under this section:

(a) The salary or compensation paid to officers, managers, or employees must be only for actual services rendered and at levels comparable to the salary or compensation of like positions within the county wherein the property is located;

(b) Dues, fees, or assessments in excess of amounts needed for the purposes for which the deduction is allowed must be rebated to the members of the association;

(c) Assets of the association or organization must be distributable to all members and must not inure to the benefit of any single member or group of members.

Sec. 332. Section 17, chapter 149, Laws of 1967 ex. sess. and RCW 82.04.432 are each amended to read as follows:

((In computing the tax imposed by this chapter, municipal sewerage utilities and other public corporations imposing and collecting fees or charges for sewer service may deduct from the measure of the tax,)) The taxes imposed in this chapter do not apply to amounts paid by municipal sewerage utilities and other public corporations imposing and collecting fees or charges for sewer service if such amounts are paid to another municipal corporation or governmental agency for sewerage interception, treatment or disposal.

Sec. 333. Section 1, chapter 140, Laws of 1981 and RCW 82.04.4322 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts received from the United States or any instrumentality thereof or from the state of Washington or any municipal corporation or subdivision thereof as compensation for, or to support, artistic or cultural exhibitions, performances, or programs provided by an artistic or cultural organization for attendance or viewing by the general public.

Sec. 334. Section 3, chapter 140, Laws of 1981 and RCW 82.04.4326 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts received by artistic or cultural organizations as tuition charges collected for the privilege of attending artistic or cultural education programs.

Sec. 335. Section 6, chapter 471, Laws of 1985 and RCW 82.04.4327 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to those amounts received by artistic or cultural organizations which represent income derived from business activities conducted by the organization.

Sec. 336. Section 16, chapter 471, Laws of 1985 and RCW 82.04.433 are each amended to read as follows:

(1) ((~~In computing tax there may be deducted from the measure of tax~~)) The taxes imposed in this chapter do not apply to amounts derived from sales of fuel for consumption outside the territorial waters of the United States, by vessels used primarily in foreign commerce.

(2) Nothing in this section shall be construed to imply that amounts which may be deducted under this section were taxable under Title 82 RCW prior to the enactment of this section.

Sec. 337. Section 8, chapter 266, Laws of 1979 ex. sess. and RCW 82.04.600 are each amended to read as follows:

((~~This chapter does~~)) The taxes imposed in this chapter do not apply to any county as defined in Title 36 RCW, any city or town as defined in Title 35 RCW, any school district or educational service district as defined in Title 28A RCW, or any library or library district as defined in Title 27 RCW, in respect to materials printed in the county, city, town, school district, educational district, library or library district facilities when the materials are used solely for county, city, town, school district, educational district, library, or library district purposes. PART 4

BUSINESS TAX--NONFINANCIAL BUSINESSES

Sec. 401. Section 82.04.220, chapter 15, Laws of 1961 and RCW 82.04.220 are each amended to read as follows:

There is levied and shall be collected from every person a tax for the act or privilege of engaging in business activities. Such tax shall be measured by the application of ((~~rates~~)) the rate of one and nine-tenths percent against ((~~value of products, gross proceeds of sales, or~~)) the taxable gross income of the business((~~, as the case may be~~)) calculated as provided in section 402 of this 1987 act.

NEW SECTION. Sec. 402. For the purposes of the tax imposed in RCW 82.04.220, taxable gross income is calculated as follows:

(1) From gross income, subtract amounts subject to exemption under part 3 of this chapter and this part.

(2) From the amount calculated under subsection (1) of this section, subtract amounts allowed as deductions under this part, except the deduction allowed under section 408 of this act. The result is modified gross income. Modified gross income shall never be less than zero.

(3) Allocate and apportion modified gross income as provided in part 6 of this chapter.

(4) From the amount allocated and apportioned to this state under subsection (3) of this section, subtract the deduction allowed in section 408 of this act. The result is taxable gross income. Taxable gross income shall never be less than zero.

Sec. 403. Section 82.04.300, chapter 15, Laws of 1961 as last amended by section 213, chapter 3, Laws of 1983 and RCW 82.04.300 are each amended to read as follows:

((~~This chapter shall~~)) (1) The tax imposed in RCW 82.04.220 does not apply to any person ((~~engaging in any business activity taxable under RCW 82.04.230, 82.04.240, 82.04.250, 82.04.260, 82.04.270, 82.04.280 and 82.04.290 other than those whose value of products, gross proceeds of sales, or~~)) whose gross income of the business is less than ((~~one~~)) twelve thousand dollars per ((~~month~~)) tax year: PROVIDED, That where one person engages in more than one business activity and the combined ((~~measures of the tax~~)) gross income applicable to such businesses equals or ((~~exceed one~~)) exceeds twelve thousand dollars per ((~~month~~)) tax year, no exemption or deduction from the amount of tax is allowed by this section.

(2) Any person claiming exemption under the provisions of this section may be required to file returns even though no tax may be due((: PROVIDED, FURTHER, That the department of revenue may allow exemptions, by general rule or regulation, in those instances in which quarterly, semiannual, or annual returns are permitted. Exemptions for such periods shall be equivalent in amount to the total of exemptions for each month of a reporting period)).

NEW SECTION. Sec. 404. The tax imposed in RCW 82.04.220 does not apply to amounts derived from investment activities.

Sec. 405. Section 5, chapter 37, Laws of 1980 and RCW 82.04.4284 are each amended to read as follows:

In computing the tax imposed in RCW 82.04.220, there may be deducted from the measure of tax the amount of credit losses actually sustained by taxpayers whose regular books of account are kept upon an accrual basis.

NEW SECTION. Sec. 406. (1) In computing the tax imposed in RCW 82.04.220, deductions from gross income are allowed equal to amounts paid by the taxpayer during the tax year for the acquisition or use of property, services, privileges, or facilities, other than items excluded in subsection (2) of this section. Deductions allowed under this section include, but are not limited to, the costs of:

(a) Inventory, stock in trade, and other property held by the taxpayer primarily for sale to customers in the ordinary course of business.

(b) Freight and postage.

(d) Advertising.

(e) Insurance, including but not limited to amounts paid for worker's compensation and unemployment compensation insurance.

(f) Travel expenses.

(g) Repairs.

(h) Dues and payments to business associations.

(i) Legal, accounting, and other professional services.

(j) Rents, royalties, lease payments, and other payments for the privilege of using or extracting any property to which the taxpayer does not have legal or equitable title.

(k) Miscellaneous supplies.

(l) Interest.

(2) The following are not allowed as deductions under this section, notwithstanding inclusion in subsection (1) of this section:

(a) Direct or indirect compensation of employees, including but not limited to, wages, salaries, commissions, bonuses, and any form of remuneration paid to employees for personal services.

(b) Payments on behalf of employees, including but not limited to payments for pensions, retirement annuities, profit-sharing plans, stock bonus plans, insurance (other than worker's compensation and unemployment insurance), and employees' taxes.

(d) Amounts paid by the taxpayer to itself or to an affiliated corporation included in a combined report with the taxpayer under section 603 of this act.

NEW SECTION. Sec. 407. In computing the tax imposed in RCW 82.04.220, a deduction is allowed for taxes paid by the taxpayer during the tax year, except:

(1) Taxes on or measured by income.

(2) Taxes for any purpose not related to the taxpayer's trade or business.

(3) The tax imposed in RCW 82.04.220.

NEW SECTION. Sec. 408. (1) In computing the tax imposed in RCW 82.04.220, a deduction is allowed equal to the cost, including fabrication and installation, paid during the tax year of capital assets physically located in Washington.

(2) Any portion of the deduction allowed in this section which cannot be deducted in a tax year without reducing taxable gross income below zero may be carried forward and deducted in the next tax year. This carry forward may be applied in successive tax years until the deduction is exhausted.

NEW SECTION. Sec. 409. (1) Gross income includes the gross proceeds of sales or dispositions of capital assets in respect to which a deduction was claimed under section 408 of this act, regardless of whether the sale or disposition was made in the course of business. If the gross proceeds received by the taxpayer at the time of the sale or disposition under this section do not represent the true value of the capital asset, or if taxpayer does not receive any gross proceeds, the amount included in gross income shall be determined as nearly as possible according to the fair market value of property of like quality and character under rules adopted by the department.

(2) As used in this section, "disposition" includes the use of the capital asset by the taxpayer or any other person in an activity the gross income of which is exempt from the tax imposed in RCW 82.04.220, as determined under rules adopted by the department.

NEW SECTION. Sec. 410. (1) The deductions allowed in this chapter are limited to amounts paid in respect to gross income or business activities of the taxpayer which are not exempt from the tax imposed in RCW 82.04.220, as determined under rules adopted by the department.

(2) Deductions which would have the effect of duplicating an amount already subtracted from gross income are not allowed under this chapter. PART 5

BUSINESS TAX--FINANCIAL BUSINESS

NEW SECTION. Sec. 501. There is levied and shall be collected from every person a tax for the act or privilege of engaging in banking, loan, security, or other financial businesses. The tax shall be measured by the application of the rate of one and one-half percent against the taxable gross income of the business, all without any deduction on account of any expense whatsoever paid or accrued and without any deduction on account of losses.

NEW SECTION. Sec. 502. For the purposes of the tax imposed in section 501 of this act, taxable gross income is calculated as follows:

(1) From gross income, subtract amounts subject to exemption under part 3 of this chapter and this part. The result is modified gross income.

(2) Allocate and apportion modified gross income as provided in part 6 of this chapter. The result is taxable gross income. Taxable gross income shall never be less than zero.

NEW SECTION. Sec. 503. The tax imposed in section 501 of this act does not apply to any person whose gross income is less than fifty thousand dollars per tax year: PROVIDED, That where one person engages in more than one business activity taxable under section 501 of this act and the combined measures of the tax applicable to such businesses equal or exceed fifty thousand dollars per tax year, no exemption or deduction from the amount of tax is allowed by this section.

Any person claiming exemption under the provisions of this section may be required to file returns even though no tax may be due.

NEW SECTION. Sec. 504. The tax imposed in section 501 of this act does not apply to amounts in respect to which tax has been paid by the taxpayer under RCW 82.04.220.

NEW SECTION. Sec. 505. The tax imposed in section 501 of this act does not apply to amounts derived as dividends by a parent from its subsidiary corporations.

NEW SECTION. Sec. 506. The tax imposed in section 501 of this act does not apply to amounts derived by S corporations from investment activities. However, shareholders of S corporations are not allowed a deduction under this section. As used in this section, "S corporation" means an S corporation as defined in section 1361 of the federal internal revenue code, as in effect on January 1, 1987.

Sec. 507. Section 12, chapter 37, Laws of 1980 and RCW 82.04.4292 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax by those engaged in banking, loan, security or other financial businesses,~~)) The tax imposed in RCW 82.04.220 does not apply to amounts derived from interest received on investments or loans primarily secured by first mortgages or trust deeds on nontransient residential properties.

Sec. 508. Section 13, chapter 37, Laws of 1980 and RCW 82.04.4293 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax by those engaged in banking, loan, security or other financial businesses,~~)) The tax imposed in RCW 82.04.220 does not apply to amounts derived from interest paid on all obligations of the state of Washington, its political subdivisions, and municipal corporations organized pursuant to the laws thereof.

Sec. 509. Section 14, chapter 37, Laws of 1980 and RCW 82.04.4294 are each amended to read as follows:

((~~In computing tax there may be deducted from the measure of tax~~)) The tax imposed in RCW 82.04.220 does not apply to amounts derived as interest on loans to bona fide farmers and ranchers, producers or harvesters of aquatic products, or their cooperatives by a lending institution which is owned exclusively by its borrowers or members and which is engaged solely in the business of making loans and providing finance-related services to bona fide farmers and ranchers, producers or harvesters of aquatic products, their cooperatives, rural residents for housing, or persons engaged in furnishing farm-related or aquatic-related services to these individuals or entities. PART 6

BUSINESS TAX‑-ALLOCATION AND APPORTIONMENT

NEW SECTION. Sec. 601. (1) Each taxpayer having modified gross income from business activity which is taxable both within and without this state shall allocate and apportion modified gross income in accordance with rules adopted by the department. The rules shall, as far as the department deems practicable, be consistent with this chapter and RCW 82.56.010. In developing the rules, the department shall also give appropriate consideration to any uniform rules adopted by the multistate tax commission under Article VII of the multistate tax compact, and to the rules of other states in which taxpayers are also taxable.

NEW SECTION. Sec. 602. If the allocation and apportionment requirements of the department's rules do not result in a fair representation of the extent of the taxpayer's business activity in this state, the taxpayer may petition for or the department may require, in respect to all or any part of the taxpayer's business activity, if reasonable:

(1) Separate accounting;

(2) The exclusion of any one or more of the factors;

(3) The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this state; or

(4) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.

NEW SECTION. Sec. 603. (1) The department may permit or require an affiliated corporation that is subject to taxation under this chapter and that is a part of a unitary group of affiliated corporations to file a combined report covering the unitary operation of the group. The report shall contain such information as shall be designated in rules adopted by the department. If the department permits, requires, or prohibits the filing of a combined report for one or more corporations, it is not thereby bound to permit, require, or prohibit the filing of a combined report for any other corporation or group of corporations.

(2) As used in this section, "affiliated corporation" means a corporation that is a member of a group of two or more corporations with a common owner or owners, either corporate or noncorporate, when more than fifty percent of the voting stock of each member corporation is directly or indirectly owned by the common owner or owners or by one or more of the member corporations. "Affiliated corporation" does not include a corporation organized under the laws of a foreign country, or a corporation organized under the laws of any state or the United States which is domiciled in a foreign country.

(3) An affiliated corporation is a part of a unitary group when it is engaged in business activities which are integrated with, dependent upon, or which contribute to the business activities of the group as a whole, and the business activities of the group are carried on and are taxable in more than one state.

(4) The income attributable to the Washington activities of an affiliated corporation which is a part of a unitary group of affiliated corporations shall be determined by the apportionment of the entire business income of the unitary group and the allocation of nonbusiness income of the corporation, using the factors and methods in this part and the rules of the department. PART 7

BUSINESS TAX--ADMINISTRATIVE PROVISIONS

Sec. 701. Section 1, chapter 7, Laws of 1981 as last amended by section 63, chapter 3, Laws of 1983 2nd ex. sess. and RCW 82.32.045 are each amended to read as follows:

(1) Except as otherwise provided in this chapter, payments of the taxes imposed under chapters 82.04, 82.08, 82.12, 82.14, and 82.16 RCW, along with reports and returns on forms prescribed by the department, are due monthly within twenty-five days after the end of the month in which the taxable activities occur.

(2) The department of revenue may relieve any taxpayer or class of taxpayers from the obligation of remitting monthly and may require the return to cover other longer reporting periods, but in no event may returns be filed for a period greater than one year. For these taxpayers, tax payments are due on or before the last day of the month next succeeding the end of the period covered by the return.

(3) The department of revenue may also require verified annual returns from any taxpayer, setting forth such additional information as it may deem necessary to correctly determine tax liability.

(4) Payments of tax imposed under chapter 82.04 RCW, along with reports and returns on forms prescribed by the department, are due on the last day of the fourth month after the end of the taxpayer's tax year. Each taxpayer who reasonably expects to receive gross income taxable under chapter 82.04 RCW in excess of five hundred thousand dollars during the tax year shall file estimated returns and pay estimated tax for each month in the tax year, according to rules adopted by the department. Interest and penalties shall be assessed under this chapter for an estimated payment of tax unless the estimated payment is at least one-twelfth of a reasonable estimate of tax liability for the tax year and the sum of all estimated payments for the tax year are at least ninety percent of the actual tax liability for the tax year.

NEW SECTION. Sec. 702. (1) As used in this section, a "partial tax year" means, for a tax year ending after June 30, 1988, and before June 30, 1989, the portion of that tax year which is after June 30, 1988. The tax imposed by RCW 82.04.220 or section 501 of this act for taxable activities occurring during a partial tax year shall be calculated by one of the following methods, at the taxpayer's election:

(a) The taxpayer's taxable gross income for the entire tax year shall be multiplied by a fraction. The numerator of the fraction is the number of days in the partial tax year. The denominator of the fraction is the number of days in the entire tax year.

(b) The taxpayer's taxable gross income shall be adjusted, in accordance with rules of the department, so as to include only such gross income and be reduced only by such exemptions and deductions as can be clearly determined according to the permanent records of the taxpayer to be attributable to the partial tax year.

NEW SECTION. Sec. 703. A new section is added to chapter 82.32 RCW to read as follows:

The department may require any taxpayer to furnish to the department copies or pertinent extracts of:

(1) Any return or document pertaining to tax liability which the taxpayer has filed with or received from this state, another state, the federal government, or foreign government; and

(2) Any statement or registration made under any state or federal law pertaining to securities or securities exchange regulations.

NEW SECTION. Sec. 704. (1) Each bill proposing and each act adopting a tax preference after the initial enactment of this act shall include an increase in the rate of the tax imposed in RCW 82.04.220 or section 501 of this act sufficient to completely offset the revenue loss resulting from the tax preference.

(2) As used in this section, "tax preference" includes:

(a) A new exemption from the tax imposed in RCW 82.04.220 or section 501 of this act;

(b) An increase in the scope of an existing exemption from the tax imposed in RCW 82.04.220 or section 501 of this act;

(d) An increase in the scope of an existing deduction from gross income subject to the tax imposed in RCW 82.04.220 or section 501 of this act; and

(e) Application of a separate rate of tax to any taxpayer under this chapter, if the separate rate is less than the rate of the otherwise applicable tax imposed in RCW 82.04.220 or section 501 of this act. PART 8

INHERITANCE AND GIFT TAXES

Sec. 801. Section 83.100.020, chapter 7, Laws of 1981 2nd ex. sess. and RCW 83.100.020 are each amended to read as follows:

As used in this chapter:

(1) "Class A beneficiary" means a person who is:

(a) Decedent's lineal ancestor;

(b) Decedent's lineal descendant including stepchildren and their lineal descendants and adopted persons and their lineal descendants if, in the case of adopted persons, the decree of adoption was either (i) entered before May 29, 1979, or before the eighteenth birthday of the adopted person or (ii) entered more than five years before the death of the decedent if the decree of adoption was entered on or after the eighteenth birthday of the adopted person;

(d) A spouse of a lineal descendant of the decedent;

(2) "Class B beneficiary" means a person who is the decedent's brother or sister, or a lineal descendant of the decedent's brother or sister;

(3) "Class C beneficiary" means a person, corporation, or body politic who or which is neither a class A beneficiary nor a class B beneficiary nor an entity exempt from inheritance tax;

(4) "Decedent" means a deceased individual;

((~~(2)~~)) (5) "Department" means the department of revenue, the director of that department, or any employee of the department exercising authority lawfully delegated to him by the director;

((~~(3) "Federal credit" means the maximum amount of the credit for estate death taxes allowed by section 2011 for the decedent's net estate;~~

~~(4)~~)) (6) "Gross estate" means "gross estate" as defined and used in section 2031 of the United States Internal Revenue Code of 1954, as amended or renumbered;

((~~(5)~~)) (7) "Net estate" means "taxable estate" as defined in section 2051 of the United States Internal Revenue Code of 1954, as amended or renumbered;

((~~(6)~~)) (8) "Nonresident" means a decedent who was domiciled outside Washington at his death;

((~~(7)~~)) (9) "Person" means any individual, estate, trust, receiver, cooperative association, club, corporation, company, firm, partnership, joint venture, syndicate, or other entity and, to the extent permitted by law, any federal, state, or other governmental unit or subdivision or agency, department, or instrumentality thereof;

((~~(8)~~)) (10) "Personal representative" means the executor or administrator of a decedent or, if no executor or administrator is appointed, qualified, and acting, any person who has possession of any property;

((~~(9)~~)) (11) "Property" means property included in the gross estate;

((~~(10)~~)) (12) "Release" means a release of no tax due or a receipt for payment of the tax due under this chapter;

((~~(11)~~)) (13) "Resident" means a decedent who was domiciled in Washington at time of death;

((~~(12)~~)) (14) "Section 2011" means section 2011 of the United States Internal Revenue Code of 1954, as amended or renumbered; and

((~~(13)~~)) (15) "Transfer" means "transfer" as defined and used in section 2001 of the United States Internal Revenue Code of 1954, as amended or renumbered.

Sec. 802. Section 83.100.030, chapter 7, Laws of 1981 2nd ex. sess. and RCW 83.100.030 are each amended to read as follows:

(1) A tax in an amount equal to ((~~the federal credit~~)) the net estate multiplied by the appropriate rate set forth in section 804, 806, or 807 of this 1987 act is imposed on the transfer of the net estate of every resident.

(2) If any property of a resident is subject to a death tax imposed by another state for which a credit is allowed by section 2011, and if the tax imposed by the other state is not qualified by a reciprocal provision allowing the property to be taxed in the state of decedent's domicile, the amount of the tax due under this section shall be credited with the lesser of:

(a) The amount of the death tax paid the other state and credited against the federal estate tax; or

(b) An amount computed by multiplying the ((~~federal credit~~)) tax otherwise imposed under this chapter by a fraction, the numerator of which is the value of the property subject to the death tax imposed by the other state, and the denominator of which is the value of the decedent's gross estate.

Sec. 803. Section 83.100.040, chapter 7, Laws of 1981 2nd ex. sess. and RCW 83.100.040 are each amended to read as follows:

(1) ((~~Tax in an amount computed as provided in this section~~)) A tax is imposed on the transfer of the net estate located in Washington of every nonresident.

(2) The tax shall be computed by multiplying the ((~~federal credit~~)) tax otherwise imposed under this chapter by a fraction, the numerator of which is the value of the property located in Washington, and the denominator of which is the value of the decedent's gross estate.

(3) The transfer of the property of a nonresident is exempt from the tax imposed by this section to the extent that the property of residents is exempt from taxation under the laws of the state in which the nonresident is domiciled.

NEW SECTION. Sec. 804. The rate of tax imposed under this chapter for class A beneficiaries is as follows:

!tp1,1,1,1 !ix(1) If the amount passing!tj2!tcThe!sc ,1rate!sc ,1of!sc ,1tax!sc ,1is:

to class A is:

!ix(a)!sc ,1!ih*Up to and including

$25,000!tj2!tc1%

(b)!sc ,1!ih*In excess of $25,000

up to and including

$50,000!tj2!tc2%

(c)!sc ,1!ih*In excess of $50,000

up to and including

$75,000!tj2!tc3%

(d)!sc ,1!ih*In excess of $75,000

up to and including

$100,000!tj2!tc4%

(e)!sc ,1!ih*In excess of $100,000

up to and including

$200,000!tj2!tc7%

(f)!sc ,1!ih*In excess of $200,000

up to and including

$500,000!tj2!tc9%

(g)!sc ,1!ih*In excess of $500,000!tj2!tc10%

(2) There shall be allowed as exemptions to class A the following amounts:

(a) One hundred thirty thousand dollars of the sum of any amounts passing to the spouse or any minor child of the decedent;

(b) Twelve thousand five hundred dollars for each living minor child of the decedent;

(c) Twelve thousand five hundred dollars of any amount passing to any child of the decedent other than a minor child; and

(d) Twelve thousand five hundred dollars of any amount passing to the descendants of any deceased child, stepchild, or adopted child as a class (per stirpes and not per capita).

(e) As used in this subsection (2), "child" includes a child, stepchild, or adopted child; and "minor child" means a child under the age of twenty-five, or a child eighteen years of age at the time of the parent's death who has been found to be incompetent by judicial determination in this or any state, or who is unable to support himself or herself by reason of physical or mental handicap as determined by the department of revenue.

(3) In addition to the exemptions under subsection (2) of this section, there shall be allowed as an exemption an amount equal to five thousand dollars multiplied by the difference between twenty-one and the age in years of a child of the decedent who is under the age of twenty-one years on the date of decedent's death if:

(a) The decedent does not have a surviving spouse; and

(b) The child, immediately after the death of the decedent, has no known parent.

(4) The exemption under subsection (3) of this section shall not exceed the value of property passing to the child.

(5) The total of the exemptions under this section shall be applied against that portion of the total amount passing to class A which is taxable at the lowest rates, and the allowable exemptions shall not be increased by the amount of any award or allowance granted under chapter 11.52 RCW.

NEW SECTION. Sec. 805. (1) In addition to the exemptions allowed in this chapter, the following exemption shall apply to community property passing to a surviving spouse in the following manner: For decedents dying in 1988: One-quarter of the value of the community property not attributable to the surviving spouse. For decedents dying in 1989: One-half of the value of the community property not attributable to the surviving spouse. For decedents dying in 1990: Three-fourths of the value of the community property not attributable to the surviving spouse. For decedents dying in or after 1991: The entire amount of the value of the community property not attributable to the surviving spouse.

(2) The total of the exemptions under this section shall be applied against that portion of the total amount passing to class A which is taxable at the lowest rates, and the allowable exemptions shall not be increased by the amount of any award or allowance granted under chapter 11.52 RCW.

NEW SECTION. Sec. 806. The rate of tax imposed under this chapter for class B beneficiaries is as follows:

!tp1,1,1,1 !ix(1) If the amount passing !tj2!tcThe!sc ,1rate!sc ,1of!sc ,1tax!sc ,1is:

to class B is:

!ix(a)!sc ,1!ih*Up to $10,000!tj2!tc3%

(b)!sc ,1!ih*In excess of $10,000

up to and including

$20,000!tj2!tc4%

(c)!sc ,1!ih*In excess of $20,000

up to and including

$60,000!tj2!tc7%

(d)!sc ,1!ih*In excess of $60,000

up to and including

$100,000!tj2!tc10%

(e)!sc ,1!ih*In excess of $100,000

up to and including

$200,000!tj2!tc15%

(f)!sc ,1!ih*In excess of $200,000!tj2!tc20%

(2) If no exemption for class A is allowed, ten thousand dollars of any amount passing to class B is exempt, and the exemption shall be applied to that portion of the total amount passing to class B which is taxable at the lowest rates.

NEW SECTION. Sec. 807. The rate of tax imposed under this chapter for class C beneficiaries is as follows:

!tp1,1,1,1 !ixIf the amount passing !tj2!tcThe!sc ,1rate!sc ,1of!sc ,1tax!sc ,1is:

to class C is:

!ix(1)!sc ,1!ih*Up to $20,000!tj2!tc10%

(2)!sc ,1!ih*In excess of $20,000

up to and including

$50,000!tj2!tc15%

(3)!sc ,1!ih*In excess of $50,000

up to and including

$100,000!tj2!tc20%

(4)!sc ,1!ih*In excess of $100,000 !tj2!tc25%

NEW SECTION. Sec. 808. Any devise, bequest, legacy, or gift of or beneficial interest in any property or income therefrom passing in trust shall be classified and taxed in accordance with the relationship of the transferor to the trust beneficiary.

NEW SECTION. Sec. 809. The taxes imposed and the exemption with respect to each class of beneficiaries shall be apportioned between the beneficiaries in such class in proportion to the amount receivable by such beneficiary.

NEW SECTION. Sec. 810. In case of the good faith compromise of a dispute regarding rights and interests of transferees approved or determined by court order, the tax shall be computed as though the persons receiving distribution were originally entitled thereto as transferees of the property.

NEW SECTION. Sec. 811. (1) Whether or not there is a federal estate tax liability, if the estate would be authorized to pay federal estate taxes under section 6166 of the federal internal revenue code, as in effect on December 31, 1986, in lieu of full payment, payment under this chapter may be made according to an equal payment schedule over a period not to exceed fifteen years from the decedent's date of death. If an election is made under this subsection, the election shall apply only to the portion of the tax payable in respect to a beneficiary which is determined by dividing the value of property received by a beneficiary which qualifies an estate for the election under the internal revenue code by the value of all property received by the beneficiary. A beneficiary electing to pay under this subsection may subsequently pay part or all of the remaining tax plus interest at the time any scheduled payment is due under this subsection. Interest on installment payments under this subsection shall be computed at the rate provided for tax refunds under RCW 82.32.060.

(2) If the tax due under this chapter has not been finally determined, payment of an estimated tax may be made under this subsection on the same basis as a determined tax. Upon final determination of the tax, the difference between the estimated and determined tax and interest may be equally allocated to the remaining payment periods.

(3) Any beneficiary electing to pay under this subsection shall, within one year of the decedent's date of death, file written notice of the election with the department and with the personal representative. Any beneficiary who fails to give notice under this paragraph shall make full payment as required under RCW 83.100.060.

(4) Upon the filing of a notice under subsection (3), beneficiaries of real estate shall provide the department a certified copy of a lien for unpaid taxes and interest on the property to secure payment, recorded in the the county in which the property is located. Beneficiaries of personal property, upon the filing of a notice under subsection (3) may either provide a lien or provide the department a financial guarantee bond equaling the estimated tax and interest elected to be paid under this subsection to secure payment if the tax has not been determined. Upon determination of the tax, beneficiaries of personal property shall provide a lien or provide a financial guarantee bond sufficient to secure payment of the tax and interest or pay the department the excess over the amount of tax and interest secured by the bond. The department may require security to cover the tax with a lien affecting only part of the property if there is sufficient security to secure payment of the tax. Any beneficiary who fails to provide the security required under this paragraph, or who disposes of one-third or more of the property on which the tax is secured under this paragraph, shall make full payment as required under RCW 83.100.060.

(5) Upon the failure of any beneficiary to make a scheduled payment agreed to under subsection (1) of this section, upon the beneficiary's death or if the security provided under subsection (4) of this section is jeopardized, the department may proceed to collect the payment or the entire unpaid balance of the taxes, costs and interest.

NEW SECTION. Sec. 812. Sections 804 through 811 of this act are each added to chapter 83.100 RCW. PART 9

MISCELLANEOUS

NEW SECTION. Sec. 901. Nine million dollars, or so much thereof as may be necessary, is appropriated from the general fund to the department of social and health services for the fiscal biennium ending June 30, 1988, to carry out the purposes of section 109 of this act.

NEW SECTION. Sec. 902. This act shall not be construed as affecting any existing right acquired or liability or obligation incurred under the sections amended or repealed in this act or under any rule, regulation, or order adopted under those sections, nor as affecting any proceeding instituted under those sections.

NEW SECTION. Sec. 903. Part headings as used in this act constitute no part of the law.

NEW SECTION. Sec. 904. (1) If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

(2) The tax imposed in RCW 82.04.220 shall not be affected by the invalidity of one or more deductions or exemptions, even if the result is the imposition of the tax, at the rate specified in RCW 82.04.220, upon the entire gross income of a taxpayer.

NEW SECTION. Sec. 905. This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect on June 1, 1987.

NEW SECTION. Sec. 906. The following acts or parts of acts are each repealed:

(1) Section 82.04.230, chapter 15, Laws of 1961, section 7, chapter 149, Laws of 1967 ex. sess., section 33, chapter 262, Laws of 1969 ex. sess., section 2, chapter 281, Laws of 1971 ex. sess. and RCW 82.04.230;

(2) Section 82.04.240, chapter 15, Laws of 1961, section 5, chapter 173, Laws of 1965 ex. sess., section 8, chapter 149, Laws of 1967 ex. sess., section 34, chapter 262, Laws of 1969 ex. sess., section 3, chapter 281, Laws of 1971 ex. sess., section 1, chapter 196, Laws of 1979 ex. sess., section 1, chapter 172, Laws of 1981 and RCW 82.04.240;

(3) Section 82.04.250, chapter 15, Laws of 1961, section 9, chapter 149, Laws of 1967 ex. sess., section 35, chapter 262, Laws of 1969 ex. sess., section 2, chapter 186, Laws of 1971 ex. sess., section 4, chapter 281, Laws of 1971 ex. sess., section 2, chapter 172, Laws of 1981 and RCW 82.04.250;

(4) Section 3, chapter 65, Laws of 1970 ex. sess., section 1, chapter 9, Laws of 1983, section 1, chapter 3, Laws of 1983 2nd ex. sess., section 2, chapter 32, Laws of 1985 and RCW 82.04.255;

(5) Section 5, chapter 3, Laws of 1983 2nd ex. sess., section 2, chapter 135, Laws of 1985, section 1, chapter 471, Laws of 1985 and RCW 82.04.260;

(6) Section 82.04.270, chapter 15, Laws of 1961, section 11, chapter 149, Laws of 1967 ex. sess., section 37, chapter 262, Laws of 1969 ex. sess., section 4, chapter 186, Laws of 1971 ex. sess., section 6, chapter 281, Laws of 1971 ex. sess., section 4, chapter 172, Laws of 1981 and RCW 82.04.270;

(7) Section 2, chapter 8, Laws of 1970 ex. sess., section 7, chapter 281, Laws of 1971 ex. sess., section 5, chapter 299, Laws of 1971 ex. sess., section 3, chapter 90, Laws of 1975 1st ex. sess., section 1, chapter 132, Laws of 1983, section 2, chapter 226, Laws of 1986 and RCW 82.04.280;

(8) Section 82.04.290, chapter 15, Laws of 1961, section 2, chapter 28, Laws of 1963 ex. sess., section 14, chapter 149, Laws of 1967 ex. sess., section 39, chapter 262, Laws of 1969 ex. sess., section 4, chapter 65, Laws of 1970 ex. sess., section 8, chapter 281, Laws of 1971 ex. sess., section 212, chapter 3, Laws of 1983, section 2, chapter 9, Laws of 1983, section 2, chapter 3, Laws of 1983 2nd ex. sess., section 3, chapter 32, Laws of 1985 and RCW 82.04.290;

(9) Section 4, chapter 32, Laws of 1985 and RCW 82.04.2901;

(10) Section 3, chapter 9, Laws of 1983, section 3, chapter 3, Laws of 1983 2nd ex. sess., section 5, chapter 32, Laws of 1985 and RCW 82.04.2904;

(11) Section 7, chapter 95, Laws of 1982 and RCW 82.04.315;

(12) Section 13, chapter 196, Laws of 1979 ex. sess., section 3, chapter 157, Laws of 1980, section 2, chapter 371, Laws of 1985 and RCW 82.04.325;

(13) Section 82.04.340, chapter 15, Laws of 1961 and RCW 82.04.340;

(14) Section 82.04.350, chapter 15, Laws of 1961 and RCW 82.04.350;

(15) Section 12, chapter 196, Laws of 1979 ex. sess. and RCW 82.04.395;

(16) Section 14, chapter 196, Laws of 1979 ex. sess. and RCW 82.04.397;

(17) Section 82.04.425, chapter 15, Laws of 1961, section 9, chapter 173, Laws of 1965 ex. sess., section 78, chapter 37, Laws of 1980 and RCW 82.04.425;

(18) Section 15, chapter 37, Laws of 1980 and RCW 82.04.4295;

(19) Section 16, chapter 37, Laws of 1980 and RCW 82.04.4296;

(20) Section 2, chapter 140, Laws of 1981 and RCW 82.04.4324;

(21) Section 26, chapter 173, Laws of 1965 ex. sess., section 1, chapter 89, Laws of 1967 ex. sess., section 1, chapter 257, Laws of 1969 ex. sess., section 6, chapter 299, Laws of 1971 ex. sess. and RCW 82.04.435;

(22) Section 82.04.440, chapter 15, Laws of 1961, section 12, chapter 173, Laws of 1965 ex. sess., section 16, chapter 149, Laws of 1967 ex. sess., section 5, chapter 172, Laws of 1981, section 1, chapter 190, Laws of 1985 and RCW 82.04.440;

(23) Section 5, chapter 169, Laws of 1974 ex. sess. and RCW 82.04.444;

(24) Section 6, chapter 169, Laws of 1974 ex. sess. and RCW 82.04.445;

(25) Section 82.04.450, chapter 15, Laws of 1961, section 42, chapter 278, Laws of 1975 1st ex. sess., section 3, chapter 55, Laws of 1983 1st ex. sess. and RCW 82.04.450;

(26) Section 82.04.460, chapter 15, Laws of 1961, section 9, chapter 291, Laws of 1975 1st ex. sess., section 28, chapter 3, Laws of 1983 2nd ex. sess., section 154, chapter 7, Laws of 1985 and RCW 82.04.460;and

(27) Section 21, chapter 37, Laws of 1980 and RCW 82.08.0253.