BILL REQ. #:  H-4390.2 

Read first time 01/28/2004.   Referred to Committee on Finance.

     AN ACT Relating to tax incidence notes; amending RCW 43.88A.010, 43.88A.030, 43.88A.040, and 43.88A.900; adding new sections to chapter 43.88A RCW; and adding a new section to chapter 82.01 RCW.

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

Sec. 1   RCW 43.88A.010 and 1977 ex.s. c 25 s 1 are each amended to read as follows:
     The legislature hereby recognizes the necessity of developing a uniform and coordinated procedure for determining the expected fiscal impact of bills and resolutions on state government and for determining the expected tax incidence of bills and resolutions on individuals and businesses. The legislature also recognizes that developing ((such)) these statements ((of fiscal impact, which shall be known as fiscal notes,)) requires the designation of a state agency to be principally responsible ((therefor)) for the statements. The statements shall be known as fiscal notes and tax incidence notes.

NEW SECTION.  Sec. 2   A new section is added to chapter 43.88A RCW to read as follows:
     (1) The office of financial management shall, in cooperation with appropriate legislative committees and legislative staff, establish a procedure for the provision of a tax incidence note for any bill or resolution that increases, decreases, or redistributes state government revenues for any state tax or local tax administered by the state by more than ten million dollars per fiscal year. Tax incidence notes shall be calculated using the procedures contained in instructions issued by the office of financial management. The office of financial management shall coordinate the development of tax incidence notes with all affected state agencies.
     (2) A tax incidence note shall be a written report describing who would experience the fiscal burden or benefit imposed by a proposed change. The note shall indicate the tax incidence for the first full year in which the bill or resolution will be effective. To the extent data is available, the note shall report on the tax incidence effects that would result if the bill or resolution were enacted. The note may contain fiscal burden or benefit information by income classes, taxpayer characteristics, or other relevant categories that use system-wide measures, and may include analysis of the effect of the bill or resolution on representative taxpayers.
     (3) The note shall describe the tax incidence using two points:
     (a) The legal tax incidence, meaning who bears the legal liability of a tax. This point shall be expressed in terms of the change in legal fiscal liability for households, businesses, governments, and out-of-state taxpayers; and
     (b) The final tax incidence, meaning who experiences the fiscal burden or benefit of a tax change once the legal liability of a tax has been absorbed by the taxpayer or passed onto households within the state or out-of-state taxpayers. This point shall be expressed in terms of final fiscal burden or benefit by household income, excluding fiscal burdens or benefits shifted to out-of-state taxpayers.
     (4) The methodology developed for determining the final tax incidence shall detail the assumptions used for shifting the legal tax incidence of taxes on businesses and other nonhousehold taxpayers to the final tax incidence on resident households. These assumptions shall be expressed in a single static mechanistic model that can be used to analyze all taxes for all taxpayers, including businesses by industry and households by income group.
     (5) The note must contain a statement of the assumptions that were used in computing the tax incidence.

Sec. 3   RCW 43.88A.030 and 1986 c 158 s 16 are each amended to read as follows:
     When a fiscal or tax incidence note is prepared and approved as to form, accuracy, and completeness by the office of financial management, which depicts the expected ((fiscal)) impact of a bill or resolution, copies shall be filed immediately with:
     (1) The chairperson of the committee to which the bill or resolution was referred upon introduction in the house of origin;
     (2) The senate committee on ways and means, or its successor; and
     (3) The house committees on ((revenue)) finance and appropriations, or their successors.
     Whenever possible, ((such fiscal)) the note shall be provided prior to or at the time the bill or resolution is first heard by the committee of reference in the house of origin.
     When a fiscal or tax incidence note has been prepared for a bill or resolution, a copy of the ((fiscal)) note shall be placed in the bill books or otherwise attached to the bill or resolution and shall remain with the bill or resolution throughout the legislative process insofar as possible.

Sec. 4   RCW 43.88A.040 and 1979 c 151 s 148 are each amended to read as follows:
     The office of financial management shall also provide a fiscal or tax incidence note on any legislative proposal at the request of any legislator. ((Such)) The fiscal or tax incidence note shall be returned to the requesting legislator, and copies shall be filed with the appropriate legislative committees pursuant to RCW 43.88A.030 at the time such proposed legislation is introduced in either house.

Sec. 5   RCW 43.88A.900 and 1977 ex.s. c 25 s 5 are each amended to read as follows:
     Nothing in this chapter shall prevent either house of the legislature from acting on any bill or resolution before it as otherwise provided by the state Constitution, by law, and by the rules and joint rules of the senate and house of representatives, nor shall the lack of any fiscal or tax incidence note as provided in this chapter or any error in the accuracy thereof affect the validity of any measure otherwise duly passed by the legislature.

NEW SECTION.  Sec. 6   A new section is added to chapter 43.88A RCW to read as follows:
     (1) A tax incidence note advisory committee is hereby established. The advisory committee's sole responsibility is the biennial development of a methodology to be used for tax incidence notes.
     (2) The advisory committee shall consist of:
     (a) Staff from the house of representatives and senate fiscal committees, to be designated by the chairs of the committees;
     (b) Academic economists representing the state colleges and universities, to be appointed by the director of the department of revenue; and
     (c) Staff from the department of revenue research division, to be designated by the director of the department of revenue.
     (3) The methodology developed by the committee shall detail the assumptions used for shifting the legal tax incidence of taxes on businesses and other nonhousehold taxpayers to the final tax incidence on resident households. These assumptions shall be expressed in a single static mechanistic model that can be used to analyze all taxes for all taxpayers, including businesses by industry and households by income group.
     (4) The methodology developed by the committee shall be submitted in writing to the forecast council for approval. The submittal shall be such that there is adequate time for the forecast council to review the methodology and communicate any concerns to the committee. The forecast council shall notify the committee and the office of financial management in writing if the methodology is approved. If it is not approved, the forecast council shall notify the advisory committee in writing of the areas of concern. If approved, the methodology shall be used for the following two-year legislation session. The advisory committee shall review the methodology every two years. If no changes are recommended, the committee shall notify the forecast council.
     (5) The advisory committee shall be formed and convene its first meeting by August 1, 2004. The committee shall develop the proposed methodology for submittal to the forecast council by October 1, 2005, for use in tax incidence notes for the 2005 legislative session.

NEW SECTION.  Sec. 7   A new section is added to chapter 82.01 RCW to read as follows:
     (1) In January of every odd-numbered year, beginning January 2007, the department shall submit to the legislature before the regular session a report on the tax incidence of state and local taxes administered by the department.
     (2) The report shall present information on the distribution of the tax burden (a) by overall income distribution, using a system-wide tax incidence measure with appropriate measures of equality and inequality, (b) by income classes, including at a minimum deciles of the income distribution, and (c) by other appropriate taxpayer characteristics.