BILL REQ. #:  Z-0871.6 

Read first time 01/15/2004.   Referred to Committee on Finance.

     AN ACT Relating to conforming Washington's tax structure to portions of the streamlined sales and use tax agreement not implemented by chapter 168, Laws of 2003; amending RCW 82.32.020 and 82.32.030; amending 2003 c 168 s 902 (uncodified); reenacting and amending RCW 82.14.020; adding new sections to chapter 82.32 RCW; adding a new section to chapter 82.14 RCW; adding a new section to chapter 82.08 RCW; adding a new section to chapter 82.12 RCW; creating a new section; providing effective dates; and providing contingent effective dates.

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

Sec. 101   RCW 82.32.020 and 2003 1st sp.s. c 13 s 16 are each amended to read as follows:
     For the purposes of this chapter:
     (1) The meaning attributed in chapters 82.01 through 82.27 RCW to the words and phrases "tax year," "taxable year," "person," "company," "gross proceeds of sales," "gross income of the business," "business," "engaging in business," "successor," "gross operating revenue," "gross income," "taxpayer," "retail sale," and "value of products" shall apply equally to the provisions of this chapter.
     (2) Unless the context requires otherwise, "agreement" means the streamlined sales and use tax agreement.
     (3) "Certified automated system" means software certified under the agreement to calculate the tax imposed by each jurisdiction on a transaction, determine the amount of tax to remit to the appropriate state, and maintain a record of the transaction.
     (4) "Certified service provider" means an agent certified under the agreement to perform all of the seller's sales and use tax functions, other than the seller's obligation to remit tax on its own purchases.
     (5)(a) "Member state" means a state that:
     (i) Has petitioned for membership in the agreement and submitted a certificate of compliance; and
     (ii) Prior to the effective date of the agreement, has been found to be in substantial compliance with the requirements of the agreement by an affirmative vote of three-fourths of the other petitioning states; or
     (iii) After the effective date of the agreement, has been found to be in compliance with the agreement by a three-fourths vote of the entire governing board of the agreement.
     (b) Membership under (a)(ii) of this subsection is effective on the first day of a calendar quarter at least sixty days after at least ten states comprising at least twenty percent of the total population, as determined by the 2000 federal census, of all states imposing a state sales tax have petitioned for membership and have been found in compliance with the agreement.
     (c) Membership under (a)(iii) of this subsection is effective on the state's proposed date of entry.
     (6) "Model 1 seller" means a seller that has selected a certified service provider as its agent to perform all the seller's sales and use tax functions, other than the seller's obligation to remit tax on its own purchases.
     (7) "Model 2 seller" means a seller that has selected a certified automated system to perform part of its sales and use tax functions, but retains responsibility for remitting the tax.
     (8) "Model 3 seller" means a seller that has sales in at least five member states, has total annual sales revenue of at least five hundred million dollars, has a proprietary system that calculates the amount of tax due each jurisdiction, and has entered into a performance agreement with the member states that establishes a tax performance standard for the seller. As used in this subsection, a seller includes an affiliated group of sellers using the same proprietary system.
     (9) "Source" means the location in which the sale or use, of tangible personal property or a service, subject to tax under chapter 82.08, 82.12, 82.14, or 82.14B RCW, is deemed to occur.

NEW SECTION.  Sec. 201   A new section is added to chapter 82.32 RCW to read as follows:
     (1) A seller, by written agreement, may appoint a person to represent the seller as its agent. The seller's agent has authority to register the seller with the state. An agent may also be a certified service provider, with authority to perform all the seller's sales and use tax functions, except that the seller remains responsible for remitting the tax on its own purchases.
     (2) The seller or its agent must provide the state with a copy of the written agreement upon request.

Sec. 202   RCW 82.32.030 and 1996 c 111 s 2 are each amended to read as follows:
     (1) Except as provided in subsections (2) and (3) of this section, if any person engages in any business or performs any act upon which a tax is imposed by the preceding chapters, he or she shall, under such rules as the department of revenue shall prescribe, apply for and obtain from the department a registration certificate. Such registration certificate shall be personal and nontransferable and shall be valid as long as the taxpayer continues in business and pays the tax accrued to the state. In case business is transacted at two or more separate places by one taxpayer, a separate registration certificate for each place at which business is transacted with the public shall be required. Each certificate shall be numbered and shall show the name, residence, and place and character of business of the taxpayer and such other information as the department of revenue deems necessary and shall be posted in a conspicuous place at the place of business for which it is issued. Where a place of business of the taxpayer is changed, the taxpayer must return to the department the existing certificate, and a new certificate will be issued for the new place of business. No person required to be registered under this section shall engage in any business taxable hereunder without first being so registered. The department, by rule, may provide for the issuance of certificates of registration to temporary places of business.
     (2) Unless the person is a dealer as defined in RCW 9.41.010, registration under this section is not required if the following conditions are met:
     (a) A person's value of products, gross proceeds of sales, or gross income of the business, from all business activities taxable under chapter 82.04 RCW, is less than twelve thousand dollars per year;
     (b) The person's gross income of the business from all activities taxable under chapter 82.16 RCW is less than twelve thousand dollars per year;
     (c) The person is not required to collect or pay to the department of revenue any other tax or fee which the department is authorized to collect; and
     (d) The person is not otherwise required to obtain a license subject to the master application procedure provided in chapter 19.02 RCW.
     (3) Persons who agree to collect and remit sales and use tax to the department under the agreement and are not required to register under subsection (1) of this section may:
     (a) Register through an on-line system authorized under the agreement, if the person agrees to provide additional information to the department to complete the registration process; or
     (b) Register under subsection (1) of this section.

NEW SECTION.  Sec. 301   A new section is added to chapter 82.32 RCW to read as follows:
     (1) The department shall adopt by rule monetary allowances for certified service providers, model 2 sellers, model 3 sellers, and other sellers that are not model 1 or model 2 sellers. The department may be guided by the provisions for monetary allowances adopted by the governing board of the agreement to determine the amount of the allowances and the conditions under which they are allowed. The monetary allowance must be reasonable and provide adequate incentive for certified service providers and sellers to collect and remit under the agreement.
     (2) For certified service providers, the monetary allowance may include a base rate that applies to taxable transactions processed by the certified service provider. Additionally, for a period not to exceed twenty-four months following a seller's registration under RCW 82.32.030(3), the monetary allowance may include a percentage of tax revenue generated by the seller.
     (3) For model 2 sellers, the monetary allowance may include a base rate or percentage of revenue generated by a seller registering under RCW 82.32.030(3), but shall not exceed a period of twenty-four months.
     (4) For model 3 sellers and all other sellers that are not model 1 sellers or model 2 sellers, the monetary allowance may include a percentage of tax revenue generated by a seller registering under RCW 82.32.030(3), but shall not exceed a period of twenty-four months.

NEW SECTION.  Sec. 302   A new section is added to chapter 82.32 RCW to read as follows:
     (1) The department may adopt by rule vendor compensation for sellers collecting and remitting sales and use taxes. The vendor compensation may include a base rate or a percentage of tax revenue collected by the seller, and may vary by type of seller. The department may be guided by the findings of the cost of collection study performed under the agreement, by cost of collection studies performed by the department, and by vendor compensation provided by other states, to determine reasonable vendor compensation for sellers for the costs to collect and remit sales and use taxes.
     (2) A seller shall not be entitled to vendor compensation while the seller or its certified service provider, as defined in RCW 82.32.020, receives a monetary allowance under section 201 of this act.

NEW SECTION.  Sec. 401   A new section is added to chapter 82.32 RCW to read as follows:
     (1) No assessment for taxes imposed under chapters 82.08 and 82.12 RCW, or related penalties or interest, may be made by the department against a seller who:
     (a) Within twelve months of the effective date of this state becoming a member state of the agreement, registers to collect and remit to the department the applicable taxes imposed under chapters 82.08 and 82.12 RCW on sales made to buyers in this state in accordance with the terms of the agreement, if the seller was not so registered in this state in the twelve-month period preceding the effective date of this state becoming a member state of the agreement; and
     (b) Continues to be registered and continues to collect and remit to the department the applicable taxes imposed under chapters 82.08 and 82.12 RCW for a period of at least thirty-six months, absent the seller's fraud or intentional misrepresentation of a material fact.
     (2) The provisions of subsection (1) of this section preclude an assessment for taxes imposed under chapters 82.08 and 82.12 RCW for sales made to buyers during the period the seller was not registered in this state.
     (3) The provisions of this section do not apply to any seller with respect to:
     (a) Any matter or matters for which the seller, before registering to collect and remit the applicable taxes imposed under chapters 82.08 and 82.12 RCW, received notice from the department of the commencement of an audit and which audit is not yet finally resolved including any related administrative and judicial processes;
     (b) Taxes imposed under chapters 82.08 and 82.12 RCW and collected or remitted to the department by the seller; or
     (c) That seller's liability for taxes imposed under chapters 82.08 and 82.12 RCW in that seller's capacity as a buyer.
     (4) The periods of limitation for making an assessment or correction of an assessment prescribed in RCW 82.32.050(3) and 82.32.100(3) do not run during the thirty-six month period in subsection (1)(b) of this section.

NEW SECTION.  Sec. 501   A new section is added to chapter 82.32 RCW to read as follows:
     (1) Except as provided in subsections (5), (6), (7), and (8) of this section, for purposes of collecting or paying sales or use taxes to the appropriate jurisdictions, all sales at retail shall be sourced in accordance with this subsection and subsections (2) through (4) of this section.
     (a) When tangible personal property or a service defined as a retail sale under RCW 82.04.050 is received by the purchaser at a business location of the seller, the sale is sourced to that business location.
     (b) When the tangible personal property or a service defined as a retail sale under RCW 82.04.050 is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser or the purchaser's donee, designated as such by the purchaser, occurs, including the location indicated by instructions for delivery to the purchaser or donee, known to the seller.
     (c) When (a) and (b) of this subsection do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller's business when use of this address does not constitute bad faith.
     (d) When (a), (b), and (c) of this subsection do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including the address of a purchaser's payment instrument, if no other address is available, when use of this address does not constitute bad faith.
     (e) When (a), (b), (c), or (d) of this subsection do not apply, including the circumstance where the seller is without sufficient information to apply those provisions, then the location shall be determined by the address from which tangible personal property was shipped, from which the digital good or the computer software delivered electronically was first available for transmission by the seller, or from which the service defined as a retail sale under RCW 82.04.050 was provided, disregarding for these purposes any location that merely provided the digital transfer of the product sold.
     (2) The lease or rental of tangible personal property, other than property identified in subsection (3) or (4) of this section, shall be sourced as follows:
     (a) For a lease or rental that requires recurring periodic payments, the first periodic payment is sourced the same as a retail sale in accordance with subsection (1) of this section. Periodic payments made subsequent to the first payment are sourced to the primary property location for each period covered by the payment. The primary property location shall be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. The property location shall not be altered by intermittent use at different locations, such as use of business property that accompanies employees on business trips and service calls.
     (b) For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with subsection (1) of this section.
     (c) This subsection does not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.
     (3) The lease or rental of motor vehicles, trailers, semitrailers, or aircraft that do not qualify as transportation equipment shall be sourced as follows:
     (a) For a lease or rental that requires recurring periodic payments, each periodic payment is sourced to the primary property location. The primary property location shall be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. This location shall not be altered by intermittent use at different locations.
     (b) For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with subsection (1) of this section.
     (c) This subsection does not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.
     (4) The retail sale, including lease or rental, of transportation equipment shall be sourced the same as a retail sale in accordance with subsection (1) of this section.
     (5) A purchaser that is a business and is not a holder of a direct pay permit that knows at the time of purchase of a digital good, computer software delivered electronically, or a service that the digital good, computer software delivered electronically, or service will be concurrently available for use in more than one jurisdiction shall deliver to the seller in conjunction with its purchase a multiple points of use exemption form disclosing this fact.
     (a) Upon receipt of the multiple point of use exemption form, the seller is relieved of all obligation to collect, pay, or remit the applicable tax and the purchaser is obligated to collect, pay, or remit the applicable tax.
     (b) A purchaser delivering the multiple point of use exemption form, or a direct pay permit in lieu of a multiple point of use exemption form, may use any reasonable, but consistent and uniform, method of apportionment that is supported by the purchaser's business records as they exist at the time of the consummation of the sale.
     (c) The multiple point of use exemption form shall remain in effect for all future sales by the seller to the purchaser until it is revoked in writing.
     (6)(a) A purchaser of direct mail that is not a holder of a direct pay permit shall provide to the seller in conjunction with the purchase either a direct mail form or information that shows the jurisdictions to which the direct mail is delivered to recipients.
     (i) Upon receipt of the direct mail form, the seller is relieved of all obligations to collect, pay, or remit the applicable tax and the purchaser is obligated to pay or remit the applicable tax on a direct pay basis. A direct mail form shall remain in effect for all future sales of direct mail by the seller to the purchaser until it is revoked in writing.
     (ii) Upon receipt of information from the purchaser showing the jurisdictions to which the direct mail is delivered to recipients, the seller shall collect the tax according to the delivery information provided by the purchaser. In the absence of bad faith, the seller is relieved of any further obligation to collect tax on any transaction where the seller has collected tax pursuant to the delivery information provided by the purchaser.
     (b) If the purchaser of direct mail does not have a direct pay permit and does not provide the seller with either a direct mail form or delivery information as required by (a) of this subsection, the seller shall collect the tax according to subsection (1)(e) of this section. This subsection does not limit a purchaser's obligation for sales or use tax to any state to which the direct mail is delivered.
     (c) If a purchaser of direct mail provides the seller with documentation of direct pay authority, the purchaser is not required to provide a direct mail form or delivery information to the seller.
     (7) The following are sourced to the location at or from which delivery is made to the consumer:
     (a) A retail sale consisting of watercraft;
     (b) A retail sale consisting of a modular home, manufactured home, or mobile home;
     (c) A retail sale, excluding the lease and rental, consisting of a motor vehicle, trailer, semitrailer, or aircraft, that do not qualify as transportation equipment; and
     (d) Until January 1, 2006, a retail sale of tangible personal property made by a person engaged in the business of selling flowers. The rules for the sourcing retail sales and use taxes of flowers delivered with telegraphic instructions in WAC 458-20-158, as effective on July 1, 1970, shall remain in effect until January 1, 2006.
     (8) A retail sale consisting of the providing of telecommunications services shall be sourced in accordance with RCW 82.32.520.
     (9) The definitions in this subsection apply throughout this section.
     (a) "Delivered electronically" means delivered to the purchaser by means other than tangible storage media.
     (b) "Direct mail" means printed material delivered or distributed by United States mail or other delivery service to a mass audience or to addressees on a mailing list provided by the purchaser or at the direction of the purchaser when the cost of the items are not billed directly to the recipients. "Direct mail" includes tangible personal property supplied directly or indirectly by the purchaser to the direct mail seller for inclusion in the package containing the printed material. "Direct mail" does not include multiple items of printed material delivered to a single address.
     (c) "Receive" and "receipt" means taking possession of tangible personal property, making first use of services, or taking possession or making first use of digital goods, whichever comes first. "Receive" and "receipt" do not include possession by a shipping company on behalf of the purchaser.
     (d) "Transportation equipment" means any of the following:
     (i) Locomotives and railcars that are used for the carriage of persons or property in interstate commerce;
     (ii) Trucks and truck-tractors with a gross vehicle weight rating of 10,001 pounds or greater, trailers, semitrailers, or passenger buses that are:
     (A) Registered through the international registration plan; and
     (B) Operated under authority of a carrier authorized and certificated by the United States department of transportation or another federal authority to engage in the carriage of persons or property in interstate commerce;
     (iii) Aircraft that are operated by air carriers authorized and certificated by the United States department of transportation or another federal or foreign authority to engage in the carriage of persons or property in interstate or foreign commerce;
     (iv) Containers designed for use on and component parts attached or secured on the items described in (d)(i) through (iii) of this subsection.
     (10) In those instances where there is no obligation on the part of a seller to collect or remit use tax, the use of tangible personal property or of a service, subject to use tax, is sourced to the place of first use. The definition of use in RCW 82.12.010 applies to this subsection.

Sec. 502   RCW 82.14.020 and 2003 c 168 s 503 and 2003 c 168 s 502 are each reenacted and 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 that for the performance of a tow truck service, as defined in RCW 46.55.010, the retail sale shall be deemed to have occurred at the place of business of the operator of the tow truck service;
     (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 place of primary 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 RCW 82.04.050(2), 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) 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 or a sale of mobile telecommunications services, shall be deemed to have occurred at the situs of the telephone or other instrument through which the telephone service is rendered;
     (b) A retail sale consisting of the providing of telecommunications services shall be sourced in accordance with RCW 82.32.520;
     (6) A retail sale of linen and uniform supply services is deemed to occur as provided in RCW 82.08.0202;
     (7))) "City" means a city or town;
     (((8))) (2) 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;
     (((9))) (3) "Taxable event" shall mean any retail sale, or any use, 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;
     (((10))) (4) "Treasurer or other legal depository" shall mean the treasurer or legal depository of a county or city.

NEW SECTION.  Sec. 503   A new section is added to chapter 82.14 RCW to read as follows:
     Sales and use taxes imposed under this chapter shall be sourced in accordance with section 501 of this act.

NEW SECTION.  Sec. 601   A new section is added to chapter 82.32 RCW to read as follows:
     (1) A fundamental precept of allowing the use of a certified service provider is to preserve the privacy of consumers by protecting their anonymity. With very limited exceptions, a certified service provider shall perform its tax calculation, remittance, and reporting functions without retaining the personally identifiable information of consumers.
     (2) The department of revenue shall provide public notification to consumers, including purchasers claiming exemption from tax, of its practices relating to the collection, use, and retention of personally identifiable information.
     (3) When personally identifiable information that has been collected and retained is no longer required to ensure the validity of exemptions from taxation by reason of the consumer's status or the intended use of the goods or services purchased, the information shall no longer be retained by the state of Washington.
     (4) When personally identifiable information regarding an individual is retained by or on behalf of the state of Washington, this state shall provide reasonable access for the individual to his or her own information and a right to correct any inaccurately recorded information.
     (5) If anyone other than a member state of the agreement, or other than a person authorized by Washington law or the agreement, seeks to discover personally identifiable information, the state of Washington shall make a reasonable and timely effort to notify the individual of the request.
     (6) The provisions of this section may be enforced by petitioning the superior court of Thurston county for injunctive relief.

NEW SECTION.  Sec. 701   A new section is added to chapter 82.32 RCW to read as follows:
     (1) The department of revenue shall complete a taxability matrix maintained by the member states of the agreement in downloadable format. The matrix contains terms defined in the agreement. The department of revenue shall provide notice of changes in the taxability of products or services listed in the matrix.
     (2) Sellers and certified service providers are relieved from liability to the state and to local jurisdictions for having charged or collected the incorrect amount of sales or use tax if the error resulted from reliance on erroneous information provided by the department of revenue in the taxability matrix.

NEW SECTION.  Sec. 801   A new section is added to chapter 82.08 RCW to read as follows:
     When computing the tax levied by RCW 82.08.020, if a shipment consists of taxable tangible personal property and nontaxable tangible personal property, and delivery charges are included in the sales price, the seller must collect and remit tax on the percentage of delivery charges allocated to the taxable tangible property, but does not have to collect and remit tax on the percentage allocated to exempt tangible personal property. The seller may use either of the following percentages to determine the taxable portion of the delivery charges:
     (1) A percentage based on the total sales price of the taxable tangible property compared to the total sales price of all tangible personal property in the shipment; or
     (2) A percentage based on the total weight of the taxable tangible personal property compared to the total weight of all tangible personal property in the shipment.

NEW SECTION.  Sec. 802   A new section is added to chapter 82.12 RCW to read as follows:
     When computing the tax levied by RCW 82.12.020, if a shipment consists of taxable tangible personal property and nontaxable tangible personal property, and delivery charges are included in the purchase price, the retailer must collect and remit tax on the percentage of delivery charges allocated to the taxable personal property, but does not have to collect and remit tax on the percentage allocated to exempt tangible personal property. The retailer may use either of the following percentages to determine the taxable portion of the delivery charges:
     (1) A percentage based on the total purchase price of the taxable personal property compared to the total purchase price of all tangible personal property in the shipment; or
     (2) A percentage based on the total weight of the taxable tangible personal property compared to the total weight of all tangible personal property in the shipment.

NEW SECTION.  Sec. 901   (1) Sections 501 through 503 and 902 of this act take effect April 1, 2005. Section 401 of this act takes effect when Washington becomes a member state of the streamlined sales and use tax agreement. Section 302 of this act takes effect when:
     (a) The United States congress grants individual states the authority to impose sales and use tax collection duties on remote sellers; or
     (b) It is determined by a court of competent jurisdiction, in a judgment not subject to review, that a state can impose sales and use tax collection duties on remote sellers.
     (2) The remainder of this act takes effect July 1, 2004.

Sec. 902   2003 c 168 s 902 (uncodified) is amended to read as follows:
     (1) If a court of competent jurisdiction enters a final judgment on the merits that is based on federal or state law, is no longer subject to appeal, and substantially limits or impairs the essential elements of P.L. 106-252, 4 U.S.C. Secs. 116 through 126, or chapter 67, Laws of 2002, then chapter 67, Laws of 2002 is null and void in its entirety, except as provided in subsection (2) of this section.
     (2) ((If the contingency in subsection (1) of this section occurs, section 502, chapter 168, Laws of 2003 is null and void)) Subsection (1) of this section does not apply to section 7, chapter 67, Laws of 2002 on or after April 1, 2005.

NEW SECTION.  Sec. 903   Part headings used in this act are not any part of the law.

NEW SECTION.  Sec. 904   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.