HOUSE BILL REPORT

                 SSB 5157

             As Reported By House Committee On:

                           Finance

Title:  An act relating to sales and use tax exemptions for victims of inclement weather that led to a declaration of a disaster area.

Brief Description:  Providing tax exemptions for items obtained to replace weather‑damaged items.

Sponsors:  Senate Committee on Ways & Means (originally sponsored by Senators Zarelli, Stevens and Kohl).

Brief History:

Committee Activity:

Finance:  3/25/97, 4/7/97 [DPA].

HOUSE COMMITTEE ON FINANCE

Majority Report:  Do pass as amended.  Signed by 12 members:  Representatives Carrell, Vice Chairman; Dickerson, Assistant Ranking Minority Member; Boldt; Butler; Conway; Kastama; Mason; Morris; Pennington; Schoesler; Thompson and Van Luven.

Minority Report:  Do not pass.  Signed by 3 members:  Representatives B. Thomas, Chairman; Mulliken, Vice Chairman; and Dunshee, Ranking Minority Member.

Staff:  Linda Brooks (786-7153).

Background:  A 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 tax rate is between 7 percent and 8.6 percent, depending on the location.

Sales tax applies when items are purchased at retail in the state.  Sales tax is paid by the purchaser and collected by the seller.  Use tax is imposed on the use of an item in the state, when the acquisition of the item has not been subject to sales tax.  Use tax applies to items purchased from sellers who do not collect sales tax, items acquired from out-of-state, and items produced by the person using the item.  Use tax is equal to the sales tax rate multiplied by the value of the property used.  Use tax is paid directly to the Department of Revenue.

No sales or use tax exemptions exist for purchases of tangible personal property, labor, and/or services to repair or replace homes, businesses, or automobiles damaged by disasters.

Several severe storms hit Washington between November 1, 1995, and June 30, 1997.  During this time period, federal disaster declarations were issued for various counties  and Indian nations as the result of the following storms:

!November/December 1995 storm,

!January/February 1996 storm,

!December/January 1996-97 storm,

!March 1997 storm.

Summary of Amended Bill:  New sales and use tax exemptions are created for purchases of

!tangible personal property that becomes an ingredient or component of a residential or commercial building during the course of repair or construction;

!labor or services to repair or replace a residential or commercial building; and

!private automobiles, if replacing a private automobile registered and licensed in Washington at the time that it was damaged or destroyed by a disaster.

These new sales and use tax exemptions apply only if the building or private automobile being repaired or replaced was damaged or destroyed by a disaster occurring between November 1, 1995, and June 30, 1997.  The damaged or destroyed building also must be located in a county or Indian nation declared as a federal disaster area.

Only persons approved to receive one or more of the following forms of disaster assistance may claim these new sales and use tax exemptions:

(1) Federal Emergency Management Agency (FEMA) Housing Assistance Grant;

(2) Small Business Administration (SBA) Loan; or

(3) Farm Service Agency Loan.

The Department of Revenue will issue a special disaster assistance certificate to each person presenting proof of his or her eligibility.  Whenever a buyer wishes to claim an exemption on his or her purchases, he or she must present to the seller his or her special disaster assistance certificate and picture identification.  The buyer must also complete a sales tax exemption certificate at the time of sale, and the seller must retain a copy of the sales tax exemption certificate.

These new sales and use tax exemptions expire on July 1, 1998.

Amended Bill Compared to Substitute Bill:  Sales and use tax exemptions are created for purchases of labor, services, and tangible personal property used to repair or replace not only residential buildings but also commercial buildings.  To qualify for the exemptions, the buildings being replaced or repaired must be located in a county or Indian nation that has been declared a federal disaster area.

Sales and use tax exemptions are not allowed on purchases of new household goods or personal effects to replace goods or effects damaged or destroyed by a storm. 

Persons eligible to claim these sales and use tax exemptions are limited to persons who were approved to receive one or more of the following forms of disaster assistance: (1) FEMA Housing Assistance Grant; (2) SBA Loan; or (3) Farm Agency Service Loan.  To claim an exemption, a person must present proof of his or her eligibility to the Department of Revenue, and the department will issue the person a special disaster assistance certificate.  The person must display the special disaster assistance certificate when claiming a tax exemption.

Under the substitute bill, anyone who suffered storm-related damage could claim an exemption except persons whose losses where covered by insurance and persons who received disaster grants.

Appropriation:  None.

Fiscal Note:  Available.  Fiscal note on the amended bill requested on April 7, 1997.

Effective Date of Amended Bill:  The bill contains an emergency clause and takes effect on July 1, 1997.

Testimony For:  (pro) The state=s tax revenues should not increase as a result of extra spending by persons who need to replace or repair storm-damaged property.  Many homeowners who suffered storm-related damage to their homes do not have insurance covering damage due to mudslides or flooding.  Federal disaster grants are made to low-income disaster victims who do not qualify for loans.  Federal disaster loans are extended to persons able to qualify for the loans.  However, there are some individuals who do not qualify for either the grants or the loans.  For example, a person may earn too much to qualify for a grant, but at the same time he or she might have too many outstanding debts to qualify for a disaster loan.  We need to do something for persons who are not receiving any help in recovering from their losses.

(administrative concerns) The bill is unclear in a few areas.  The bill states that inclement weather means weather that led to the declaration of a disaster somewhere within the state.  Is Adeclaration of disaster@ the correct term?  The Governor is authorized to declare a Astate of emergency.@  Another section of the bill states that a buyer must present to a seller proof of loss that the Department of Revenue may require by rule.  The Department of Revenue asks for further legislative guidance.  What should a person have to present to prove a loss?  A third area in need of clarification is the section of the bill dealing with insurance.  If a person=s loss was covered by insurance, then he or she is not entitled to a sales tax exemption.   However, if a person=s loss was not fully covered by insurance, then is the person entitled to a sales tax exemption on the portion of the loss not covered by insurance?  Also, how does the Department or Revenue or a retailer know if a buyer was uninsured or under-insured?

Testimony Against:  None.

Testified:  Senator Zarelli, prime sponsor; and Senator Kohl, sponsor (pro); Sue Graham, Department of Revenue (pro/with administrative concerns).