BP BHEAD INT S

AN ACT Relating to sales and use taxes on electrical energy imposed by the state, cities, and towns; amending RCW 82.16.010; adding a new section to chapter 82.08 RCW; adding a new section to chapter 82.12 RCW; adding a new section to chapter 82.14 RCW; adding a new section to chapter 35.21 RCW; creating a new section; and providing an effective date.

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

NEW SECTION. Sec. 1. (1) The legislature finds that:

(a) Although the state and cities and towns are authorized by law to impose a public utility tax upon light and power businesses, they cannot impose this tax upon an electricity supplier beyond their taxing jurisdictions or against a power marketing agency of the federal government;

(b) Customers of light and power businesses in the state have been, or will be, allowed to purchase electrical energy at retail from alternative electrical energy suppliers, including out‑of‑state utilities and power marketers, which cannot be taxed as a light and power business by the state or cities and towns;

(c) The purchase of electrical energy at retail by customers of light and power businesses from alternative electrical energy suppliers beyond the jurisdictional boundaries of the state and cities and towns has resulted in a reduction in public utility tax revenues collected by the state and cities and towns;

(d) As more customers of light and power businesses are permitted to purchase electrical energy at retail from alternative electrical energy suppliers, additional public utility tax revenue reductions could be realized by the state and cities and towns;

(e) Light and power businesses in the state are competitively disadvantaged because no tax comparable to the public utility tax may be levied by the state and cities and towns upon retail electrical energy purchases made at retail by customers of light and power businesses from alternative electrical energy suppliers; and

(f) As a competitive retail electrical energy market develops in the state, electric utilities may be required to separate rate components for electrical generation, transmission, and distribution in order to properly account for expenses relating to competitive and monopoly services, respectively.

(2) The legislature declares that:

(a) The method by which the state and cities and towns tax the sale of electrical energy or light and power businesses should be adapted to, and accommodate, the development and operation of a competitive retail electrical energy market in the state;

(b) Changes to the method by which the state and cities and towns tax the sale and use of electrical energy should be effectuated in a way that treats taxpayers uniformly and does not discriminate between intrastate and interstate commerce;

(c) The gross income of a light and power business that is subject to the public utility tax should be adapted to the evolution of a competitive retail electrical energy market so that the tax will no longer apply to revenues deriving from the sale of electrical energy, but should continue to be levied at its current rate upon residual revenues;

(d) To ensure that purchases and sales of electrical energy in a competitive retail electrical energy market are taxed uniformly and in a manner that does not discriminate between purchasers or sellers of electrical energy or between intrastate and interstate commerce, the state and cities and towns should apply a retail sales and use tax to the sale and use of electrical energy at a rate comparable to the current rate imposed upon light and power businesses through the public utility tax; and

(e) Certain exemptions from, or deductions or credits against, the retail sales and use tax on electrical energy should be allowed.

NEW SECTION. Sec. 2. A new section is added to chapter 82.08 RCW to read as follows:

(1) There is levied and there shall be collected a tax on each sale of electricity equal to the value of the electrical energy multiplied by the rate in effect for the public utility tax on a light and power business as defined in RCW 82.16.010. For the purposes of this section, "value of electrical energy" means the consideration paid, given, or contracted to be paid or given by the purchaser of the electrical energy to the seller of the electrical energy, but does not include any amounts that are paid for the hire or use of a light and power business as defined in RCW 82.16.010 in transporting the electrical energy subject to tax under this subsection if those amounts are subject to tax under chapter 82.16 RCW.

(2) The tax levied under this section does not apply to the consumption of electrical energy generated by a person for that person's own use. For the purposes of this subsection: (a) Electrical energy is considered as generated by a person for that person's own use if the person owns or leases the generating facility, or a portion of the facility, that supplies electrical energy to the person, or has other financial arrangements with the owner of the facility that are comparable to an ownership or lease interest; and (b) "person" includes the person, affiliated parties to the person, and the person's tenants.

(3) The tax levied under this section does not apply to the consumption of electrical energy in a manufacturing process in which electrical energy becomes an ingredient or component of a new article produced in the manufacturing process, or is a chemical used in a manufacturing process in which the primary purpose of the chemical is to create a chemical reaction with an ingredient of a new article produced for sale.

(4) There shall be a credit against the tax levied under this section in an amount equal to the tax paid by the person consuming the electrical energy upon which a use tax similar to the tax imposed under this section was paid to another state with respect to the electrical energy for which a credit is sought under this subsection.

(5) The use tax imposed under this section shall be paid by the person consuming the electrical energy to the department.

(6) A light and power business subject to the tax levied under chapter 82.16 RCW shall contract with the department to collect the tax imposed under this section. The contract must provide for a deduction of a percentage amount of the tax collected by the business under this section for expenses incurred by the business for the tax collection.

NEW SECTION. Sec. 3. A new section is added to chapter 82.12 RCW to read as follows:

(1) There is hereby levied and there shall be collected from every person in this state a use tax for the privilege of consuming electrical energy within this state.

(2) The tax shall be levied and collected in an amount equal to the value of the electrical energy multiplied by the rate in effect for the public utility tax on a light and power business as defined in RCW 82.16.010. For the purposes of this section, "value of electrical energy" means the consideration paid, given, or contracted to be paid or given by the purchaser of the electrical energy to the seller of the electrical energy, but does not include any amounts that are paid for the hire or use of a light and power business as defined in RCW 82.16.010 in transporting the electrical energy subject to tax under this subsection if those amounts are subject to tax under chapter 82.16 RCW.

(3) The tax levied under this section does not apply to the consumption of electrical energy generated by a person for that person's own use. For the purposes of this subsection: (a) Electrical energy is considered as generated by a person for that person's own use if the person owns or leases the generating facility, or a portion of the facility, that supplies electrical energy to the person, or has other financial arrangements with the owner of the facility that are comparable to an ownership or lease interest; and (b) "person" includes the person, affiliated parties to the person, and the person's tenants.

(4) The tax levied under this section does not apply to the consumption of electrical energy in a manufacturing process in which electrical energy becomes an ingredient or component of a new article produced in the manufacturing process, or is a chemical used in a manufacturing process in which the primary purpose of the chemical is to create a chemical reaction with an ingredient of a new article produced for sale.

(5) There shall be a credit against the tax levied under this section in an amount equal to the tax paid by the person consuming the electrical energy upon which a use tax similar to the tax imposed under this section was paid to another state with respect to the electrical energy for which a credit is sought under this subsection.

(6) The use tax imposed under this section shall be paid by the person consuming the electrical energy to the department.

(7) A light and power business subject to the tax levied under chapter 82.16 RCW shall contract with the department to collect the tax imposed under this section. The contract must provide for a deduction of a percentage amount of the tax collected by the business under this section for expenses incurred by the business for the tax collection.

NEW SECTION. Sec. 4. A new section is added to chapter 82.14 RCW to read as follows:

(1) The governing body of any 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 on every person a use tax for the privilege of consuming electrical energy within the city.

(2) The tax shall be imposed in an amount equal to the value of the electrical energy multiplied by the rate in effect for the tax on electrical energy businesses under RCW 35.21.870 in the city in which the electrical energy is consumed. The "value of the electrical energy" means the consideration paid, given, or contracted to be paid or given by the purchaser of the electrical energy to the seller of the electrical energy, but does not include any amounts that are paid for the hire or use of an electrical energy business in transporting the electrical energy subject to tax under this subsection if those amounts are subject to tax under RCW 35.21.870.

(6) The use tax imposed under this section shall be paid by the person consuming the electrical energy.

Sec. 5. RCW 82.16.010 and 1996 c 150 s 1 are each amended to read as follows:

For the purposes of this chapter, unless otherwise required by the context:

(1) "Railroad business" means the business of operating any railroad, by whatever power operated, for public use in the conveyance of persons or property for hire. It shall not, however, include any business herein defined as an urban transportation business.

(2) "Express business" means the business of carrying property for public hire on the line of any common carrier operated in this state, when such common carrier is not owned or leased by the person engaging in such business.

(3) "Railroad car business" means the business of operating stock cars, furniture cars, refrigerator cars, fruit cars, poultry cars, tank cars, sleeping cars, parlor cars, buffet cars, tourist cars, or any other kinds of cars used for transportation of property or persons upon the line of any railroad operated in this state when such railroad is not owned or leased by the person engaging in such business.

(4) "Water distribution business" means the business of operating a plant or system for the distribution of water for hire or sale.

(5) "Light and power business" means the business of operating a plant or system for the generation, production or distribution of electrical energy for hire or sale and/or for the wheeling of electricity for others.

(6) "Telegraph business" means the business of affording telegraphic communication for hire.

(7) "Gas distribution business" means the business of operating a plant or system for the production or distribution for hire or sale of gas, whether manufactured or natural.

(8) "Motor transportation business" means the business (except urban transportation business) of operating any motor propelled vehicle by which persons or property of others are conveyed for hire, and includes, but is not limited to, the operation of any motor propelled vehicle as an auto transportation company (except urban transportation business), common carrier or contract carrier as defined by RCW 81.68.010 and 81.80.010: PROVIDED, That "motor transportation business" shall not mean or include the transportation of logs or other forest products exclusively upon private roads or private highways.

(9) "Urban transportation business" means the business of operating any vehicle for public use in the conveyance of persons or property for hire, insofar as (a) operating entirely within the corporate limits of any city or town, or within five miles of the corporate limits thereof, or (b) operating entirely within and between cities and towns whose corporate limits are not more than five miles apart or within five miles of the corporate limits of either thereof. Included herein, but without limiting the scope hereof, is the business of operating passenger vehicles of every type and also the business of operating cartage, pickup, or delivery services, including in such services the collection and distribution of property arriving from or destined to a point within or without the state, whether or not such collection or distribution be made by the person performing a local or interstate line-haul of such property.

(10) "Public service business" means any of the businesses defined in subdivisions (1), (2), (3), (4), (5), (6), (7), (8), and (9) or any business subject to control by the state, or having the powers of eminent domain and the duties incident thereto, or any business hereafter declared by the legislature to be of a public service nature, except telephone business as defined in RCW 82.04.065 and low-level radioactive waste site operating companies as redefined in RCW 81.04.010. It includes, among others, without limiting the scope hereof: Airplane transportation, boom, dock, ferry, pipe line, toll bridge, toll logging road, water transportation and wharf businesses.

(11) "Tugboat business" means the business of operating tugboats, towboats, wharf boats or similar vessels in the towing or pushing of vessels, barges or rafts for hire.

(12) "Gross income" means the value proceeding or accruing from the performance of the particular public service or transportation business involved, including operations incidental thereto, but without any deduction on account of the cost of the commodity furnished or sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense whatsoever paid or accrued and without any deduction on account of losses. "Gross income" does not include the value of electrical energy.

(13) The meaning attributed, in chapter 82.04 RCW, to the term "tax year," "person," "value proceeding or accruing," "business," "engaging in business," "in this state," "within this state," "cash discount" and "successor" shall apply equally in the provisions of this chapter.

NEW SECTION. Sec. 6. A new section is added to chapter 35.21 RCW to read as follows:

The following definitions apply to RCW 35.21.860, 35.21.865, and 35.21.870 unless the context clearly requires otherwise:

(1) "Electrical energy" includes the distribution of electrical energy but not the selling of electrical energy.

(2) "Gross income" has the same meaning as in chapter 82.16 RCW.

(3) "Rate" means the percentage by which the gross income is multiplied.

NEW SECTION. Sec. 7. 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.

NEW SECTION. Sec. 8. This act takes effect August 1, 1997.