SENATE BILL REPORT

SB 5265

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.

Background: Washington currently has four local sales and use taxes on lodging of less than one month. These are commonly referred to as "hotel-motel taxes." The first is a maximum 2 percent tax for tourism-related purposes; the second is a maximum 2 percent tax for promotion of tourism or construction and operation of tourism-related facilities; the third is specifically for the Washington State Convention and Trade Center, is charged at 7 percent in Seattle, 2.8 percent for the rest of King County, and applies only to facilities with at least 60 lodging units; and the fourth is for tourism promotion areas.

Tourism promotion areas were created by the Legislature in 2003. Counties of populations between 40,000 and one million, and incorporated cities and towns within them, may establish a tourism promotion area if the legislative authority receives an initiation petition by the businesses that would pay 60 percent of the increased taxes. An interlocal agreement is required for a county to establish a promotion area in a city and for a city to establish a promotion area in an unincorporated part of a county. The tourism promotion area can only be created by ordinance after one or more hearings.

Within a tourism promotion area, the city or county legislative authority may impose a lodging furnishing charge of up to $2 per night from persons who are taxable by the state under chapter 82.08 RCW (retail sales tax). The charge may vary in an area, according to no more than six classifications based on number of rooms, room revenue, and location in the area, and applies only at lodging businesses with at least 40 rooms.

The Department of Revenue administers the charge.

Summary of Bill: Counties with populations greater than 1 million may create tourism promotion areas if two or more jurisdictions operating under an interlocal agreement seek the establishment of the tourism promotion area.

Lodging businesses in counties with population greater than 1 million may request an exemption before the creation of the tourism promotion area. Exemptions must be granted, and if at least one is requested, one of the six classifications must be an exempt classification with a rate of zero. If, after a hearing, an ordinance is passed to create a tourism promotion area, the ordinance must list lodging businesses that are exempt.

A new lodging business in a tourism promotion area in a county of 1.5 million or more persons is automatically exempt from the lodging furnishing charge unless it petitions to be included.

Staff Summary of Public Testimony: PRO: East King County is becoming a vacation destination. Everyone in Washington except for King County can form TPAs, and its time to level the playing field. Tourism Promotion Areas (TPAs) have proven to be very effective in Spokane, Vancouver, and Yakima, and hoteliers in King County want to try this program. It has been very successful at economic development elsewhere. The bill is good, but the exemption provisions are unnecessary because 60 percent of taxable businesses must ask for a TPA. It also sets a dangerous precedent for areas that will be revamping their TPAs. King County was only excluded initially because hoteliers didn't see the benefit to themselves and because they have a high tax rate. They now want to participate. Tax rates are set by the hotels through a negotiation, and hotels are taxing themselves rather than government taxing private enterprise.