ESHB 2352

HOUSE BILL REPORT
ESHB 2352

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Amended by the Senate

Title: An act relating to the excise taxation of persons engaged in farming and farming services.

Sponsors: By House Committee on Finance (originally sponsored by Representatives Grant, Linville, Simpson and Bailey).

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 8 members: Representatives Hunter, Chair; Orcutt, Ranking Minority Member; Condotta, Assistant Ranking Minority Member; Conway, Ericks, McIntire, Roach and Santos.

Minority Report: Do not pass. Signed by 1 member: Representative Hasegawa, Vice Chair.

Background:

The business and occupation (B&O) tax is assessed on the gross proceeds of a business and the tax rate depends on which category the business activity is placed. The B&O tax does not apply to agricultural products sold at wholesale by farmers. Currently, custom farming activities fall under the catch-all "service and other activities" category and are subject to a 1.5 percent tax rate. Motor transportation services are subject to the public utility tax and are assessed at a 1.926 percent rate.

Summary of Engrossed Substitute Bill:

Custom farming services, such as custom plowing, cultivation, planting, and harvesting performed for farmers is exempt from the B&O tax if performed by a farmer whose principal place of business is within 50 miles of the farmer receiving the custom farm service.

Farm management services, contract labor services, and services for farm animals, if performed by a person related to the farmer or the custom farm operator, is exempt from the B&O tax.

Persons hauling agricultural products or farm machinery are exempt from the public utility tax if the service is provided to a farmer or a person performing custom farming service, but only if the hauling is done by a related person.

The exemptions expire December 31, 2020.

EFFECT OF SENATE AMENDMENT(S):

The Senate striking amendment allows a B&O tax exemption for custom farm services provided by a farmer that produces at least $10,000 of agricultural products. This requirement replaces the condition that the farmer that provides custom farm services be located within 50 miles of the farm where the services are performed. The Senate striking amendment does not allow the tax exemption for farm management services, contract labor services, and animal services for transactions between two corporations that are members of the same controlled group. The striking amendment establishes an effective date of August 1, 2007 rather than ninety days after session ends.

Effective Date: The bill takes effect 90 days after the adjournment of session in which bill is passed.

Staff Summary of Public Testimony:

(In support) Farm equipment is expensive and often specialized for specific crops. A farmer that rotates to another crop may not have the equipment needed to harvest or process that crop. If a farmer hires another farmer with the equipment to provide these services then the B&O tax is triggered according to the Department of Revenue. This interpretation penalizes young farmers that are just getting started and cannot afford expensive equipment. Families organize their farms into separate entities due to federal regulations. As the younger generation starts out they often hire other family members to provide farming services. The B&O tax does not apply to farmers.

(Opposed) None.