HOUSE BILL
REPORT
HB 2590
As Reported By
House Committee On:
Finance
Title: An act relating to excise tax changes needed as a result
of the United States supreme court in Jefferson Lines v. Oklahoma.
Brief Description: Implementing excise tax changes needed as a
result of Jefferson Lines v. Oklahoma.
Sponsors: Representatives Van Luven, Dickerson and
B. Thomas; by request of Department of Revenue.
Brief History:
Committee Activity:
Finance: 1/31/96, 2/5/96 [DPS].
HOUSE COMMITTEE ON FINANCE
Majority Report: The substitute bill be
substituted therefor and the substitute bill do pass. Signed by 12 members:
Representatives B. Thomas, Chairman; Carrell, Vice Chairman; Boldt, Vice
Chairman; Morris, Ranking Minority Member; Dickerson, Assistant Ranking Minority
Member; Hymes; Mason; Mulliken; Pennington; Schoesler; Sheldon and Van Luven.
Staff: Bob Longman (786-7139).
Background: Sales taxation of guided tours and guided
charters. The sales tax is imposed on retail sales of most items of
tangible personal property and some services. The state tax rate is 6.5
percent and is applied to the selling price of the article or service. In
addition, local sales taxes apply. The total rate is between 7 percent and
8.2 percent, depending on the location.
Wholesales of tangible personal property are exempt from sales tax.
Except for telephone services, there is no similar exemption for wholesales of
services.
In 1993, the Legislature extended state and local retail sales taxes to
sales of certain services, including guided tours and guided charters. Other
services subjected to sales taxation in 1993 were massage services; landscape
maintenance and horticultural services other than horticultural services
provided to farmers; coin-operated laundry facilities in apartment houses,
hotels, trailer camps and tourist camps; service charges associated with
tickets to professional sporting events; physical fitness services; tanning
salon services; tattoo parlor services; steam bath services; turkish bath
services; escort services; and dating services. These services were added to
the list of services that were already subject to sales tax, which were
construction; repair; automobile parking and storage; telephone services; some
amusement and recreation services; and services provided by abstract, title
insurance, escrow, and credit bureau businesses. Many types of services remain
exempt from sales tax. Major exemption categories include medical, legal,
accounting, engineering, motion pictures, veterinary, cable television, and
beauty and barber services.
Guided tours and guided charters often involve multi-state
transactions. Part of the tour or charter may take place in Washington and
part in another state. Tickets for a trip in Washington may be sold in another
state. Tickets for trips in other states may be sold in Washington. The
Department of Revenue drafted a proposed rule which addressed multi-state
issues for guided tours and guided charters. Under this proposed rule
(a)If the guided tour or guided charter takes place entirely in this
state, the total price of the guided tour or charter is subject to Washington's
retail sales tax.
(b)If the guided tour or guided charter takes place both inside and
outside of Washington, the percentage of the tour that takes place in this
state is subject to Washington's retail sales tax if the percentage is more
than 25 percent. Percentage of tour relates to the time spent on the tour.
The treatment of guided tours and guided charters under the
Department's proposed rule differs from the usual treatment of sales of goods.
Sales of goods are generally treated as occurring solely in the state where the
goods are delivered. Sales tax applies to the full price, if the goods are
delivered in the state. Sales tax does not apply at all if the goods are
delivered outside the state.
On April 3, 1995, the United States Supreme Court delivered its decision
in Oklahoma Tax Commission v. Jefferson Lines. The court held that
sales of bus tickets should be taxed, based on the full price, in the state
where agreement, payment, and delivery of some of the services occurs. The
Department of Revenue subsequently withdrew its proposed rule.
B&O taxation of travel agents and tour operators.
Washington's major business tax is the business and occupation (B&O) tax.
This tax is imposed on gross income from business activities conducted within
the state. There are several different B&O tax rates.
Travel agents are taxed under a special B&O tax rate of 0.287
percent. Tour operators are taxed under the service or other business rate of
1.829 percent.
Summary of Substitute Bill: Guided tours and guided charters
are removed from the definition of retail sale and replaced with day trips for
sightseeing purposes. Wholesales of day trips and other amusement and
recreation services, such as golf, pool, billiards, skating, bowling, and ski
lifts are exempted from sales tax.
The special B&O tax rate of 0.287 percent for travel agents is
applied to all sellers of travel whose principal duties include consulting with
and advising persons concerning travel arrangements.
Substitute Bill Compared to Original Bill: The substitute bill
clarifies that sales to consumers are retail sales, and sales to nonconsumers
are wholesales. The substitute bill is consistent with HB 2212, which repeals
all the 1993 sales taxes on services. If HB 2212 becomes law, the sales tax on
guided tours and guided charters will cease, including day trips. The
remainder of the changes made in this bill will still be effective.
Appropriation: None.
Fiscal Note: Available.
Effective Date of Substitute Bill: The bill contains an
emergency clause and takes effect on April 1, 1996.
Testimony For: Taxation of the travel industry has become more
complicated because of a recent U.S. Supreme Court decision. This bill will
restore fair treatment of guided tours and charters in this state. Without
this bill, guided tour and charter operators will move out of state so they
will not have to collect sales tax. Taxing tour operators and travel agents at
different B&O rates under current law is unfair and difficult for the
Department of Revenue to administer.
Testimony Against: None.
Testified: Ryan Spiller, Department of Revenue.