BILL REQ. #:  Z-1153.3 

Read first time 01/22/10.   Referred to Committee on Ways & Means.

     AN ACT Relating to increasing revenues by eliminating and narrowing preferential tax treatment; amending RCW 82.08.890 and 82.12.890; reenacting and amending RCW 82.04.360; adding a new section to chapter 82.32 RCW; creating new sections; repealing RCW 82.04.062; providing an effective date; and providing an expiration date.

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

NEW SECTION.  Sec. 101   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excludes sale of precious metal bullion and monetized bullion -- Computation of tax) and 1985 c 471 s 5 are each repealed.

NEW SECTION.  Sec. 102   The repeal in section 101 of this act does not affect any existing right acquired or liability or obligation incurred under the statute repealed or under any rule or order adopted under that statute nor does it affect any proceeding instituted under the repealed statute.

Sec. 201   RCW 82.08.890 and 2009 c 469 s 601 are each amended to read as follows:
     (1) The tax levied by RCW 82.08.020 does not apply to sales to eligible persons of:
     (a) Qualifying livestock nutrient management equipment;
     (b) Labor and services rendered in respect to installing, repairing, cleaning, altering, or improving qualifying livestock nutrient management equipment; and
     (c)(i) Labor and services rendered in respect to repairing, cleaning, altering, or improving of qualifying livestock nutrient management facilities, or to tangible personal property that becomes an ingredient or component of qualifying livestock nutrient management facilities in the course of repairing, cleaning, altering, or improving of such facilities.
     (ii) The exemption provided in this subsection (1)(c) does not apply to the sale of or charge made for: (A) Labor and services rendered in respect to the constructing of new, or replacing previously existing, qualifying livestock nutrient management facilities; or (B) tangible personal property that becomes an ingredient or component of qualifying livestock nutrient management facilities during the course of constructing new, or replacing previously existing, qualifying livestock nutrient management facilities.
     (2) The exemption provided in subsection (1) of this section applies to sales made after the livestock nutrient management plan is: (a) Certified under chapter 90.64 RCW; (b) approved as part of the permit issued under chapter 90.48 RCW; or (c) approved as required under subsection (4)(((c))) (d)(iii) of this section.
     (3)(a) The department of revenue must provide an exemption certificate to an eligible person upon application by that person.
     (b) The department of agriculture must provide a list of eligible persons, as defined in subsection (4)(((c))) (d)(i) and (ii) of this section, to the department of revenue. Conservation districts must maintain lists of eligible persons as defined in subsection (4)(((c))) (d)(iii) of this section to allow the department of revenue to verify eligibility. The application must be in a form and manner prescribed by the department and must contain information regarding the location of the dairy or animal feeding operation and other information the department may require.
     (((b))) (c) A person claiming an exemption under this section must keep records necessary for the department to verify eligibility under this section. The exemption is available only when the buyer provides the seller with an exemption certificate in a form and manner prescribed by the department. The seller must retain a copy of the certificate for the seller's files.
     (4) The definitions in this subsection apply to this section and RCW 82.12.890 unless the context clearly requires otherwise:
     (a) "Animal feeding operation" means a lot or facility, other than an aquatic animal production facility, where the following conditions are met:
     (i) Animals, other than aquatic animals, have been, are, or will be stabled or confined and fed or maintained for a total of forty-five days or more in any twelve-month period; and
     (ii) Crops, vegetation, forage growth, or postharvest residues are not sustained in the normal growing season over any portion of the lot or facility.
     (b) "Beef cattle feeding operation" means an animal feeding operation primarily engaged in the feeding of beef cattle.
     (c) "Conservation district" means a subdivision of state government organized under chapter 89.08 RCW.
     (((c))) (d) "Eligible person" means a person who:
     (i) Is licensed to produce milk under chapter 15.36 RCW and who has a certified dairy nutrient management plan, as required by chapter 90.64 RCW;
     (ii) ((who)) Owns an animal feeding operation, other than a beef cattle feeding operation, and has a permit issued under chapter 90.48 RCW; or
     (iii) ((who)) Owns an animal feeding operation, other than a beef cattle feeding operation, and has a nutrient management plan approved by a conservation district as meeting natural resource conservation service field office technical guide standards and who possesses an exemption certificate under RCW 82.08.855.
     (((d))) (e) "Handling and treatment of livestock manure" means the activities of collecting, storing, moving, or transporting livestock manure, separating livestock manure solids from liquids, or applying livestock manure to the agricultural lands of an eligible person other than through the use of pivot or linear type traveling irrigation systems.
     (((e))) (f) "Permit" means either a state waste discharge permit or a national pollutant discharge elimination system permit, or both.
     (((f))) (g)(i) "Qualifying livestock nutrient management equipment" means the following tangible personal property for exclusive use in the handling and treatment of livestock manure, including repair and replacement parts for such equipment: (((i))) (A) Aerators; (((ii))) (B) agitators; (((iii))) (C) augers; (((iv))) (D) conveyers; (((v))) (E) gutter cleaners; (((vi))) (F) hard-hose reel traveler irrigation systems; (((vii))) (G) lagoon and pond liners and floating covers; (((viii))) (H) loaders; (((ix))) (I) manure composting devices; (((x))) (J) manure spreaders; (((xi))) (K) manure tank wagons; (((xii))) (L) manure vacuum tanks; (((xiii))) (M) poultry house cleaners; (((xiv))) (N) poultry house flame sterilizers; (((xv))) (O) poultry house washers; (((xvi))) (P) poultry litter saver machines; (((xvii))) (Q) pipes; (((xviii))) (R) pumps; (((xix))) (S) scrapers; (((xx))) (T) separators; (((xxi))) (U) slurry injectors and hoses; and (((xxii))) (V) wheelbarrows, shovels, and pitchforks.
     (((g))) (ii) "Qualifying livestock nutrient management equipment" does not include tangible personal property used in the handling and treatment of livestock manure originating from a beef cattle feeding operation.
     (h) "Qualifying livestock nutrient management facilities" means the following structures and facilities for exclusive use in the handling and treatment of livestock manure except for livestock manure originating from a beef cattle feeding operation: (i) Flush systems; (ii) lagoons; (iii) liquid livestock manure storage structures, such as concrete tanks or glass-lined steel tanks; and (iv) structures used solely for the dry storage of manure, including roofed stacking facilities.

Sec. 202   RCW 82.12.890 and 2009 c 469 s 602 are each amended to read as follows:
     (1) The provisions of this chapter do not apply with respect to the use by an eligible person of:
     (a) Qualifying livestock nutrient management equipment;
     (b) Labor and services rendered in respect to installing, repairing, cleaning, altering, or improving qualifying livestock nutrient management equipment; and
     (c)(i) Tangible personal property that becomes an ingredient or component of qualifying livestock nutrient management facilities in the course of repairing, cleaning, altering, or improving of such facilities.
     (ii) The exemption provided in this subsection (1)(c) does not apply to the use of tangible personal property that becomes an ingredient or component of qualifying livestock nutrient management facilities during the course of constructing new, or replacing previously existing, qualifying livestock nutrient management facilities.
     (2)(a) To be eligible, the equipment and facilities must be used exclusively for activities necessary to maintain a livestock nutrient management plan.
     (b) The exemption applies to the use of tangible personal property and labor and services made after the livestock nutrient management plan is: (i) Certified under chapter 90.64 RCW; (ii) approved as part of the permit issued under chapter 90.48 RCW; or (iii) approved as required under RCW 82.08.890(4)(((c))) (d)(iii).
     (3) The exemption certificate and recordkeeping requirements of RCW 82.08.890 apply to this section. The definitions in RCW 82.08.890 apply to this section.

NEW SECTION.  Sec. 203   A new section is added to chapter 82.32 RCW to read as follows:
     (1)(a) The department must make a reasonable effort to notify any person who operates a beef cattle feeding operation as defined in RCW 82.08.890 and who was issued an exemption certificate under RCW 82.08.890 before July 1, 2010, that the person is no longer an eligible person for purposes of the exemptions provided in RCW 82.08.890 and 82.12.890 and that the person's exemption certificate is void.
     (b) The notice required in this subsection must also advise the person that:
     (i) Continued use of the exemption certificate to claim exemption under RCW 82.08.890 will subject the person to the penalty imposed in subsection (2) of this section; and
     (ii) The person must reapply for an exemption certificate under RCW 82.08.890 to claim an exemption under RCW 82.08.890 after June 30, 2013. Such applications may be made no earlier than April 30, 2013.
     (2) If any person who, after receiving notice as provided in subsection (1) of this section, uses the person's exemption certificate, including the exemption certificate number, issued by the department to claim an exemption under RCW 82.08.890, the department must assess against that person a penalty of fifty percent of the tax due, in addition to all other taxes, penalties, and interest due, on the item or service purchased.

NEW SECTION.  Sec. 301   (1) In adopting the state's business and occupation tax, the legislature intended to tax virtually all business activities carried on within the state. See Simpson Inv. Co. v. Dep't of Revenue, 141 Wn.2d 139, 149 (2000). The legislature recognizes that the business and occupation tax applies to all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly, unless a specific exemption applies.
     (2) One of the major business and occupation tax exemptions is provided in RCW 82.04.360 for income earned as an employee or servant as distinguished from income earned as an independent contractor. The legislature's intent in providing this exemption was to exempt employee wages from the business and occupation tax but not to exempt income earned as an independent contractor.
     (3) The legislature finds that corporate directors are not employees or servants of the corporation whose board they serve on and therefore are not entitled to a business and occupation tax exemption under RCW 82.04.360. The legislature further finds that there are no business and occupation tax exemptions for compensation received for serving as a member of a corporation's board of directors.
     (4) The legislature also finds that there is a widespread misunderstanding among corporate directors that the business and occupation tax does not apply to the compensation they receive for serving as a director of a corporation. It is the legislature's expectation that the department of revenue will take appropriate measures to ensure that corporate directors understand and comply with their business and occupation tax obligations with respect to their director compensation. However, because of the widespread misunderstanding by corporate directors of their liability for business and occupation tax on director compensation, the legislature finds that it is appropriate in this unique situation to provide limited relief against the retroactive assessment of business and occupation taxes on corporate director compensation.
     (5) The legislature also reaffirms its intent that all income of all independent contractors is subject to business and occupation tax unless specifically exempt under the Constitution or laws of this state or the United States.

Sec. 302   RCW 82.04.360 and 1991 c 324 s 19 and 1991 c 275 s 2 are each reenacted and amended to read as follows:
     (1) This chapter ((shall)) does not apply to any person in respect to his or her employment in the capacity of an employee or servant as distinguished from that of an independent contractor. For the purposes of this section, the definition of employee shall include those persons that are defined in section 3121(d)(3)(B) of the federal internal revenue code of 1986, as amended through January 1, 1991.
     (2) ((A booth renter, as defined by RCW 18.16.020, is an independent contractor for purposes of this chapter.)) Until July 1, 2010, this chapter does not apply to amounts received by an individual from a corporation as compensation for serving as a member of that corporation's board of directors. Beginning July 1, 2010, such amounts are taxable under RCW 82.04.290(2).

NEW SECTION.  Sec. 303   The sole reason for deleting the language in RCW 82.04.360(2) is because RCW 18.16.020 no longer defines the term "booth renter." This should not be construed as a substantive change in the law.

NEW SECTION.  Sec. 304   In accordance with Article VIII, section 5 of the state Constitution, sections 302 and 402 of this act do not authorize refunds of business and occupation tax validly collected before July 1, 2010, on amounts received by an individual from a corporation as compensation for serving as a member of that corporation's board of directors.

NEW SECTION.  Sec. 401   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 402   Section 302 of this act applies retroactively as well as prospectively.

NEW SECTION.  Sec. 403   Sections 101 through 203 of this act take effect July 1, 2010.

NEW SECTION.  Sec. 404   Sections 201 and 202 of this act expire July 1, 2013.