BILL REQ. #:  H-0840.4 

Read first time 03/28/2007.   Referred to Committee on Finance.

     AN ACT Relating to raising revenue by restricting or eliminating tax exemptions, deductions, and credits; amending RCW 82.04.4281, 82.04.4282, 82.08.037, and 82.12.037; creating new sections; repealing RCW 82.04.062, 82.04.315, 82.04.317, 82.04.4292, and 82.04.44525; providing an effective date; and declaring an emergency.

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

NEW SECTION.  Sec. 1   The intent of this act is to make additional revenue available for appropriation for programs that are not adequately funded in the state budget, such as the following:
     (1) $25,000,000 for the department of social and health services for increases to the general assistance unemployable (GAU) and temporary assistance for needy families (TANF) programs.
     (2) $22,000,000 for the state health care authority for additional enrollment slots in the state basic health program.
     (3) $15,000,000 for the department of social and health services for nursing home component rate increases.
     (4) $14,000,000 for the department of corrections for offender transitional housing.
     (5) $10,000,000 for the department of social and health services to increase the wages of community mental health care workers.
     (6) $7,000,000 for the department of corrections for offender alcohol and substance abuse programs.
     (7) $7,000,000 for the department of corrections for offender mental health treatment.

Sec. 2   RCW 82.04.4281 and 2002 c 150 s 2 are each amended to read as follows:
     (1) In computing tax there may be deducted from the measure of tax((:
     (a))) amounts derived from investments((;
     (b) Amounts derived as dividends or distributions from [the] capital account by a parent from its subsidiary entities; and
     (c) Amounts derived from interest on loans between subsidiary entities and a parent entity or between subsidiaries of a common parent entity, but only if the total investment and loan income is less than five percent of gross receipts of the business annually)).
     (2) The following are not deductible under subsection (1)(((a))) of this section:
     (a) Amounts received from loans((, except as provided in subsection (1)(c) of this section,)) or the extension of credit to another, revolving credit arrangements, installment sales, the acceptance of payment over time for goods or services, or any of the foregoing that have been transferred by the originator of the same to an affiliate of the transferor; ((or))
     (b) Amounts received by a banking, lending, or security business; or
     (c) Amounts received by a corporation.
     (3) The definitions in this subsection apply only to this section.
     (a) "Banking business" means a person engaging in business as a national or state-chartered bank, a mutual savings bank, a savings and loan association, a trust company, an alien bank, a foreign bank, a credit union, a stock savings bank, or a similar entity that is chartered under Title 30, 31, 32, or 33 RCW, or organized under Title 12 U.S.C.
     (b) "Lending business" means a person engaged in the business of making secured or unsecured loans of money, or extending credit, and (i) more than one-half of the person's gross income is earned from such activities and (ii) more than one-half of the person's total expenditures are incurred in support of such activities.
     (c) The terms "loan" and "extension of credit" do not include ownership of or trading in publicly traded debt instruments, or substantially equivalent instruments offered in a private placement.
     (d) "Security business" means a person, other than an issuer, who is engaged in the business of effecting transactions in securities as a broker, dealer, or broker-dealer, as those terms are defined in the securities act of Washington, chapter 21.20 RCW, or the federal securities act of 1933. "Security business" does not include any company excluded from the definition of broker or dealer under the federal investment company act of 1940 or any entity that is not an investment company by reason of sections 3(c)(1) and 3(c)(3) through 3(c)(14) thereof.

Sec. 3   RCW 82.04.4282 and 1994 c 124 s 3 are each amended to read as follows:
     In computing tax there may be deducted from the measure of tax amounts derived from bona fide (1) initiation fees, (2) dues, (3) contributions, (4) donations, (5) tuition fees, (6) charges made by a nonprofit trade or professional organization for attending or occupying space at a trade show, convention, or educational seminar sponsored by the nonprofit trade or professional organization, which trade show, convention, or educational seminar is not open to the general public, (7) charges made for operation of privately operated kindergartens, and (8) endowment funds. With respect to initiation fees, the deduction authorized in this section only applies to the portion of initiation fees under one thousand dollars per membership. With respect to dues, the deduction authorized in this section only applies to the portion of dues under two hundred dollars per member per month. This section shall not be construed to exempt any person, association, or society from tax liability upon selling tangible personal property or upon providing facilities or services for which a special charge is made to members or others. If dues are in exchange for any significant amount of goods or services rendered by the recipient thereof to members without any additional charge to the member, or if the dues are graduated upon the amount of goods or services rendered, the value of such goods or services shall not be considered as a deduction under this section.

Sec. 4   RCW 82.08.037 and 2004 c 153 s 302 are each amended to read as follows:
     (1) A seller is entitled to a credit or refund for sales taxes previously paid on bad debts, as that term is used in 26 U.S.C. Sec. 166, as amended or renumbered as of January 1, 2003.
     (2) For purposes of this section, "bad debts" does not include:
     (a) Amounts due on property that remains in the possession of the seller until the full purchase price is paid;
     (b) Expenses incurred in attempting to collect debt; ((and))
     (c) Debts sold or assigned by the seller to third parties, where the third party is without recourse against the seller; and
     (d) Repossessed property.
     (3) If a credit or refund of sales tax is taken for a bad debt and the debt is subsequently collected in whole or in part, the tax on the amount collected must be paid and reported on the return filed for the period in which the collection is made.
     (4) Payments on a previously claimed bad debt are applied first proportionally to the taxable price of the property or service and the sales or use tax thereon, and secondly to interest, service charges, and any other charges.
     (5) If the seller uses a certified service provider as defined in RCW 82.58.010 to administer its sales tax responsibilities, the certified service provider may claim, on behalf of the seller, the credit or refund allowed by this section. The certified service provider must credit or refund the full amount received to the seller.
     (6) The department shall allow an allocation of bad debts among member states to the streamlined sales tax agreement, as defined in RCW 82.58.010(1), if the books and records of the person claiming bad debts support the allocation.
     (7) A person's right to claim a credit or refund under this section is not assignable. No person other than the original seller in the transaction that generated the bad debt or, as provided in subsection (5) of this section, a certified service provider is entitled to claim a credit or refund under this section. If the original seller in the transaction that generated the bad debt has sold or assigned the debt instrument to a third party with recourse, the original seller may claim a credit or refund under this section only after the debt instrument is reassigned by the third party to the original seller.

Sec. 5   RCW 82.12.037 and 2004 c 153 s 304 are each amended to read as follows:
     (1) A seller is entitled to a credit or refund for use taxes previously paid on bad debts, as that term is used in 26 U.S.C. Sec. 166, as amended or renumbered as of January 1, 2003.
     (2) For purposes of this section, "bad debts" does not include:
     (a) Amounts due on property that remains in the possession of the seller until the full purchase price is paid;
     (b) Expenses incurred in attempting to collect debt; ((and))
     (c) Debts sold or assigned by the seller to third parties, where the third party is without recourse against the seller; and
     (d) Repossessed property.
     (3) If a credit or refund of use tax is taken for a bad debt and the debt is subsequently collected in whole or in part, the tax on the amount collected must be paid and reported on the return filed for the period in which the collection is made.
     (4) Payments on a previously claimed bad debt are applied first proportionally to the taxable price of the property or service and the sales or use tax thereon, and secondly to interest, service charges, and any other charges.
     (5) If the seller uses a certified service provider as defined in RCW 82.58.010 to administer its use tax responsibilities, the certified service provider may claim, on behalf of the seller, the credit or refund allowed by this section. The certified service provider must credit or refund the full amount received to the seller.
     (6) The department shall allow an allocation of bad debts among member states to the streamlined sales and use tax agreement, as defined in RCW 82.58.010(1), if the books and records of the person claiming bad debts support the allocation.
     (7) A person's right to claim a credit or refund under this section is not assignable. No person other than the original seller in the transaction that generated the bad debt or, as provided in subsection (5) of this section, a certified service provider is entitled to claim a credit or refund under this section. If the original seller in the transaction that generated the bad debt has sold or assigned the debt instrument to a third party with recourse, the original seller may claim a credit or refund under this section only after the debt instrument is reassigned by the third party to the original seller.

NEW SECTION.  Sec. 6   Sections 4 and 5 of this act apply to claims for credit or refund made after June 30, 2007.

NEW SECTION.  Sec. 7   The legislature intends to supersede the holding of the supreme court of the state of Washington in Puget Sound National Bank v. Department of Revenue, 123 Wn.2d 284 (1994).

NEW SECTION.  Sec. 8   The following acts or parts of acts are each repealed:
     (1) RCW 82.04.062 ("Sale at wholesale," "sale at retail" excludes sale of precious metal bullion and monetized bullion -- Computation of tax) and 1985 c 471 s 5;
     (2) RCW 82.04.315 (Exemptions -- International banking facilities) and 1982 c 95 s 7;
     (3) RCW 82.04.317 (Exemptions -- Motor vehicle sales by manufacturers at wholesale auctions to dealers) and 1997 c 4 s 1;
     (4) RCW 82.04.4292 (Deductions -- Interest on investments or loans secured by mortgages or deeds of trust) and 1980 c 37 s 12; and
     (5) RCW 82.04.44525 (Credit -- New employment for international service activities in eligible areas -- Designation of census tracts for eligibility -- Records -- Tax due upon ineligibility -- Interest assessment--Information from employment security department) and 1998 c 313 s 2.

NEW SECTION.  Sec. 9   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2007.