SENATE BILL REPORT

                  SHB 2505

                    As of February 19, 1996

Title:  An act relating to business and occupation tax on the handling of hay, alfalfa, or seed.

Brief Description:  Lowering the business and occupation taxation of the handling of hay, alfalfa, or seed.

Sponsors:  House Committee on Agriculture & Ecology (originally sponsored by Representatives Mastin, Schoesler, Chandler, Mulliken, Sheahan and Boldt).

Brief History:

Committee Activity:  Agriculture & Agricultural Trade & Development:  2/20/96.

SENATE COMMITTEE ON AGRICULTURE & AGRICULTURAL TRADE & DEVELOPMENT

Staff:  Vic Moon (786-7469)

Background:  The primary business and occupation (B&O) tax rate on manufacturing and on wholesale sales is 0.484 percent.  For manufacturing, the rate is applied to the value of the products manufactured.  For wholesale sales, the rate is applied to the gross proceeds of the sales. 

When a grower bales hay, the Department of Revenue considers this to be part of the harvesting process.  The department also considers the cubing of hay as part of the harvesting process when it is performed on the grower's land.  A grower who sells hay at wholesale which was grown and cubed upon his or her own land is also exempt from the B&O tax.  If the cubing of hay is performed away from the grower's land, it is considered by the department to be a manufacturing activity and the B&O tax applies.  Sale of hay that is cubed away from the grower's property is not exempt from the B&O tax because the hay is considered to be part of the manufacturing process.  The harvesting process is considered to have ended once the hay leaves the grower's property.

There are a number of exceptions to the primary rate contained in statute.  The B&O tax rate for wholesale sales of wheat, oats, dry peas, dry beans, lentils, triticale, corn, rye, and barley is established at a rate of 0.011 percent.  This lower rate does not apply to wholesale sales of seed conditioned for sale or use in planting.

Summary of Bill:  The bailing, compressing, or cubing of hay or alfalfa for sale or use as feed stock is excluded from the definition of manufacturing for purposes of imposing the business and occupation (B&O) tax.

The B&O tax rate for the wholesale sales of seed conditioned for sale or use in planting is lowered to 0.011 percent.

Appropriation:  None.

Fiscal Note:  Available.

Effective Date:  Ninety days after adjournment of session in which bill is passed.