Brief Description: Modifying the administration of fuel taxes.

Sponsors: Senate Committee on Transportation (originally sponsored by Senators Jacobsen, Swecker, Haugen and Benson; by request of Department of Transportation and Department of Licensing).

Hearing Date: 2/20/06

Staff: Jerry Long (786-7306).

Background:

Washington's fuel tax statutes declare that motor vehicle and special fuel taxes are imposed on the end user. Statute also directs fuel taxes be collected at the time the fuel is removed from the terminal rack, with those in the chain of distribution above the retailer being allowed certain credits and required to keep records showing the tax has been passed down the distribution chain. However, retailers are not allowed those same credits, and are not required to pass on the tax to the consumer, or required to show receipts indicating the tax has been paid. Also, there is no enforcement at the user level for motor vehicle fuels to determine if the tax was paid by the end user.

On January 4, 2006, the U.S. District Court for the Western District of Washington entered an
order in favor of two plaintiff tribes, the Squaxin and Swinomish, declaring that the legal
incidence of Washington's motor vehicle fuel tax is on the retailer. Under federal law, absent
explicit Congressional authorization, states are prohibited from imposing taxes on a tribe or its
members for sales made on tribal lands. The order, therefore, states that Washington's motor
vehicle fuel taxes may not be applied to motor vehicle fuels delivered to, received by, or sold
by any retail fuel station that is owned by a tribe, tribal enterprise, or tribal member and
located on tribal lands. Because the court found that the Squaxin and Swinomish meet the
above criteria, the court entered an injunction against the collection of Washington's motor
vehicle fuel taxes for fuels delivered to, received by, or sold by the plaintiffs' retail stations.

Summary of Bill:

Current statutory language declaring that motor vehicle and special fuel taxes are imposed on the end user are eliminated from state motor vehicle and special fuel tax statutes. References to retailers, as well as refunds and credits available to, or tax liability of, licensed fuel distributors are also removed. Amendatory language is included to define licensees as fuel suppliers, importers, exporters, blenders, or international fuel tax agreement (IFTA) license holders, and explicitly states that the incidence of taxation be borne exclusively by these entities.

The Department of Licensing is authorized to enter into fuel tax compact agreements with
tribes that currently do not have such compacts within one year of the effective date of the
bill, or within one year of the opening of the first tribally licensed retail station. A formula for
disbursing fuel tax refunds to tribal entities is based on average, annual gallons consumed, number of enrolled tribal members on or near the reservation, and the current fuel tax rate. New sections are added to the motor fuel and special fuel tax chapters requiring tribal licensees and retailers pass the tax through to end users as part of the selling price.

Certain technical amendments are also addressed including: moving the racing fuel exemption
from the special fuels to the motor fuels chapter, inserting IFTA provisions, and moving compliance language to more appropriate subsections of the two fuel tax chapters.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill contains an emergency clause and takes effect immediately.