HB 2352

HOUSE BILL REPORT
HB 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 Reported by House Committee On:
Finance

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

Brief Description: Exempting persons engaged in farming and certain farming services from business and occupation taxation.

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 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 person who is related to the farmer.

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.

Substitute Bill Compared to Original Bill:

The substitute bill limits the exemption for custom farming services to those performed by a person who is related to the farmer. The substitute bill adds the expiration date of December 31, 2020.

Effective Date of Substitute Bill: 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.