SENATE BILL REPORT

SB 5360

BYSenator McDermott; by request of Office of the Governor

Extending the sales tax to services and providing business and occupation tax and public utility tax deductions and reducing the state sales and use tax rate.

Senate Committee on Ways & Means

Senate Hearing Date(s):January 26, 1987

Senate Staff:Gary Benson (786-7441)

AS OF JANUARY 26, 1987

BACKGROUND:

The Governor has proposed several new programs in the areas of K-12 education, higher education and economic development.  To fund the proposed education programs, additional state revenues may be necessary.  The economic development proposals consist of granting business tax relief.

Most services performed for businesses and individuals (e.g., accounting, engineering, medical, legal, services, etc.) are not now subject to the sales tax.  Many services rendered to real and tangible personal property (e.g., auto repair, bindery, carpentry, painting, etc.) are currently subject to sales tax.

SUMMARY:

The sales tax is extended to most services including business services, consumer services, financial services, and medical services.  The current sales tax exemption for newspapers is repealed.  The current B&O tax exemption for the interest income of non-financial businesses is removed.

The state sales tax rate is reduced from 6.5 percent to 6.0 percent.  Several B&O tax surcharges on extracting, manufacturing, wholesaling, and retailing activities are repealed.  Businesses subject to the B&O tax or the public utility tax are allowed to deduct $48,000 from their gross income for tax purposes.  Sales tax deferrals allowing eight years to pay sales tax on new plants and equipment can be granted to any manufacturing or research and development firm anywhere in the state when the expansion exceeds 25 percent of the existing plant.

Revenue:    yes

Fiscal Note:      requested

Effective Date:June 1, 1987