AN ACT Relating to excise taxation; amending RCW 82.04.050, 82.04.060, 82.04.190, 82.08.100, 82.12.020, 82.14.020, 35.21.710, 35A.82.050, 48.14.080, 82.04.4282, 82.04.460, 82.04.470, 82.04.480, 82.08.020, 82.08.080, 82.08.090, 82.12.0252, 82.12.0253, 82.12.0255, 82.12.0259, 82.12.035, 82.12.060, 82.04.390, 82.04.4297, 54.28.010, 82.60.050, 82.62.040, 82.02.020, 35.21.870, and 82.14.200; reenacting and amending RCW 82.12.010 and 82.44.150; adding new sections to chapter 82.04 RCW; adding new sections to chapter 82.08 RCW; adding new sections to chapter 82.12 RCW; adding a new chapter to Title 36 RCW; creating new sections; recodifying RCW 82.08.100; providing effective dates; and declaring an emergency.

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

PART 1

SALES AND USE TAX BASE EXPANSION

Sec. 101. Section 1, chapter 8, Laws of 1970 ex. sess. as last amended by section 1, chapter 231, Laws of 1986 and RCW 82.04.050 are each amended to read as follows:

(1) "Sale at retail" or "retail sale" means every sale of tangible personal property (including articles produced, fabricated, or imprinted) to all persons irrespective of the nature of their business and including, among others, without limiting the scope hereof, persons who install, repair, clean, alter, improve, construct, or decorate real or personal property of or for consumers other than a sale to a person who (a) purchases for the purpose of resale as tangible personal property in the regular course of business without intervening use by such person, or (b) installs, repairs, cleans, alters, imprints, improves, constructs, or decorates real or personal property of or for consumers, if such tangible personal property becomes an ingredient or component of such real or personal property without intervening use by such person, or (c) purchases for the purpose of consuming the property purchased in producing for sale a new article of tangible personal property or substance, of which such property becomes an ingredient or component or is a chemical used in processing, when the primary purpose of such chemical is to create a chemical reaction directly through contact with an ingredient of a new article being produced for sale, or !se (d) purchases for the purpose of consuming the property purchased in producing ferrosilicon which is subsequently used in producing magnesium for sale, if the primary purpose of such property is to create a chemical reaction directly through contact with an ingredient of ferrosilicon, or (e) purchases for the purpose of providing the property to consumers as part of competitive telephone service, as defined in RCW 82.04.065. The term shall include every sale of tangible personal property which is used or consumed or to be used or consumed in the performance of any activity classified as a "sale at retail" or "retail sale" even though such property is resold or utilized as provided in (a), (b), (c), (d), or (e) above following such use. The term also means every sale of tangible personal property to persons engaged in any business which is taxable under RCW 82.04.280, subsections (2) and (7) and RCW 82.04.290.

(2) The term "sale at retail" or "retail sale" shall include the sale of or charge made for tangible personal property consumed and/or for labor and services rendered in respect to the following: (a) The installing, repairing, cleaning, altering, imprinting, or improving of tangible personal property of or for consumers, including charges made for the mere use of facilities in respect thereto, but excluding charges made for the use of coin operated laundry facilities when such facilities are situated in an apartment house, hotel, motel, rooming house, trailer camp or tourist camp for the exclusive use of the tenants thereof, and also excluding sales of laundry service to members by nonprofit associations composed exclusively of nonprofit hospitals, and excluding services rendered in respect to live animals, birds and insects; (b) the constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property of or for consumers, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation, and shall also include the sale of services or charges made for the clearing of land and the moving of earth excepting the mere leveling of land used in commercial farming or agriculture; (c) the sale of or charge made for labor and services rendered in respect to the cleaning, fumigating, razing or moving of existing buildings or structures, but shall not include the charge made for janitorial services; and for purposes of this section the term "janitorial services" shall mean those cleaning and caretaking services ordinarily performed by commercial janitor service businesses including, but not limited to, wall and window washing, floor cleaning and waxing, and the cleaning in place of rugs, drapes and upholstery. The term "janitorial services" does not include painting, papering, repairing, furnace or septic tank cleaning, snow removal or sandblasting; (d) the sale of or charge made for labor and services rendered in respect to automobile towing and similar automotive transportation services, but not in respect to those required to report and pay taxes under chapter 82.16 RCW; (e) the sale of and charge made for the furnishing of lodging and all other services by a hotel, rooming house, tourist court, motel, trailer camp, and the granting of any similar license to use real property, as distinguished from the renting or leasing of real property, and it shall be presumed that the occupancy of real property for a continuous period of one month or more constitutes a rental or lease of real property and not a mere license to use or enjoy the same; (f) the sale of or charge made for tangible personal property, labor and services to persons taxable under (a), (b), (c), (d), and (e) above when such sales or charges are for property, labor and services which are used or consumed in whole or in part by such persons in the performance of any activity defined as a "sale at retail" or "retail sale" even though such property, labor and services may be resold after such use or consumption. Nothing contained in this paragraph shall be construed to modify the first paragraph of this section and nothing contained in the first paragraph of this section shall be construed to modify this paragraph.

(3) The term "sale at retail" or "retail sale" shall include the sale of or charge made for personal business or professional services including amounts designated as interest, rents, fees, admission, and other service emoluments however designated, received by persons engaging in the following business activities: (a) Amusement and recreation businesses including but not limited to golf, pool, billiards, skating, bowling, ski lifts and tows and others; (b) abstract, title insurance and escrow businesses; (c) credit bureau businesses; (d) automobile parking and storage garage businesses.

(4) The term shall also include the renting or leasing of tangible personal property to consumers.

(5) The term shall also include the providing of telephone service, as defined in RCW 82.04.065, to consumers.

(6) The term shall not include the sale of or charge made for labor and services rendered in respect to the building, repairing, or improving of any street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle which is owned by a municipal corporation or political subdivision of the state or by the United States and which is used or to be used primarily for foot or vehicular traffic including mass transportation vehicles of any kind, nor shall it include sales of feed, seed, fertilizer, and spray materials to persons for the purpose of producing for sale any agricultural product whatsoever, including milk, eggs, wool, fur, meat, honey, or other substances obtained from animals, birds, or insects but only when such production and subsequent sale are exempt from tax under RCW 82.04.330, nor shall it include sales of chemical sprays or washes to persons for the purpose of post-harvest treatment of fruit for the prevention of scald, fungus, mold, or decay.

(7) The term shall not include the sale of or charge made for labor and services rendered in respect to the constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing, or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation. Nor shall the term include the sale of services or charges made for the clearing of land and the moving of earth of or for the United States, any instrumentality thereof, or a county or city housing authority.

(8) The term shall include the sale of or charge made, including labor, fees or other service emoluments however designated, for services rendered to consumers by persons engaging in the following business activities:

(a) All activities included in S.I.C. group number 723 (beauty shops);

(b) All activities included in S.I.C. group number 724 (barber shops);

(c) All activities included in S.I.C. industry number 7299 (beauty spas, dating services, debt counseling, escort services, health clubs, massage parlors, steam baths, and other miscellaneous personal services);

(d) All activities included in S.I.C. group number 737 (computer and data processing services);

(e) All activities included in S.I.C. industry number 7392 (management, consulting, and public relations services); and

(f) All cablevision, closed circuit, and similar television service businesses.

NEW SECTION. Sec. 102. A new section is added to chapter 82.04 RCW to be codified between RCW 82.04.020 and 82.04.212 to read as follows:

(1) "Activity included in S.I.C." means the correct classification of each taxpayer's actual activities, regardless of how those activities may have been previously classified by the department; and

(2) "S.I.C." means the standard industrial classification published by the federal office of management and budget, including the 1977 supplement.

Sec. 103. Section 82.04.060, chapter 15, Laws of 1961 as amended by section 26, chapter 3, Laws of 1983 2nd ex. sess. and RCW 82.04.060 are each amended to read as follows:

"Sale at wholesale" or "wholesale sale" means any sale of tangible personal property((~~, or any sale of telephone service as defined in RCW 82.04.065,~~)) which is not a sale at retail and means any sale of or charge made for labor and services rendered for persons who are not consumers, ((~~in respect to real or personal property,~~)) if such sale or charge is expressly defined as a retail sale by RCW 82.04.050 when rendered to or for consumers: PROVIDED, That the term ((~~"real or personal property" as used in this section~~)) "sale at wholesale" or "wholesale sale" shall not include any sale of or charge made for services in respect to any natural products named in RCW 82.04.100.

Sec. 104. Section 82.04.190, chapter 15, Laws of 1961 as last amended by section 2, chapter 231, Laws of 1986 and RCW 82.04.190 are each amended to read as follows:

"Consumer" means the following:

(1) Any person who purchases, acquires, owns, holds, or uses any article of tangible personal property irrespective of the nature of the person's business and including, among others, without limiting the scope hereof, persons who install, repair, clean, alter, improve, construct, or decorate real or personal property of or for consumers other than for the purpose (a) of resale as tangible personal property in the regular course of business or (b) of incorporating such property as an ingredient or component of real or personal property when installing, repairing, cleaning, altering, imprinting, improving, constructing, or decorating such real or personal property of or for consumers or (c) of consuming such property in producing for sale a new article of tangible personal property or a new substance, of which such property becomes an ingredient or component or as a chemical used in processing, when the primary purpose of such chemical is to create a chemical reaction directly through contact with an ingredient of a new article being produced for sale or (d) purchases for the purpose of consuming the property purchased in producing ferrosilicon which is subsequently used in producing magnesium for sale, if the primary purpose of such property is to create a chemical reaction directly through contact with an ingredient of ferrosilicon;

(2) Any person engaged in any business activity taxable under RCW 82.04.290 ((~~and any person who purchases, acquires, or uses any telephone service as defined in RCW 82.04.065, other than for resale in the regular course of business~~));

(3) Any person engaged in the business of contracting for the building, repairing or improving of any street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle which is owned by a municipal corporation or political subdivision of the state of Washington or by the United States and which is used or to be used primarily for foot or vehicular traffic including mass transportation vehicles of any kind as defined in RCW 82.04.280, in respect to tangible personal property when such person incorporates such property as an ingredient or component of such publicly owned street, place, road, highway, easement, right of way, mass public transportation terminal or parking facility, bridge, tunnel, or trestle by installing, placing or spreading the property in or upon the right of way of such street, place, road, highway, easement, bridge, tunnel, or trestle or in or upon the site of such mass public transportation terminal or parking facility;

(4) Any person who is an owner, lessee or has the right of possession to or an easement in real property which is being constructed, repaired, decorated, improved, or otherwise altered by a person engaged in business, excluding only (a) municipal corporations or political subdivisions of the state in respect to labor and services rendered to their real property which is used or held for public road purposes, and (b) the United States, instrumentalities thereof, and county and city housing authorities created pursuant to chapter 35.82 RCW in respect to labor and services rendered to their real property. Nothing contained in this or any other subsection of this definition shall be construed to modify any other definition of "consumer";

(5) Any person who is an owner, lessee, or has the right of possession to personal property which is being constructed, repaired, improved, cleaned, imprinted, or otherwise altered by a person engaged in business;

(6) Any person engaged in the business of constructing, repairing, decorating, or improving new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation; also, any person engaged in the business of clearing land and moving earth of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW. Any such person shall be a consumer within the meaning of this subsection in respect to services used and tangible personal property incorporated into, installed in, or attached to such building or other structure by such person;

(7) Any person who purchases, acquires, or uses any service included within the definition of retail sale in RCW 82.04.050 (5) or (8), unless the person can demonstrate with regularly kept books and records, or by other methods approved by rules of the department, that the service was purchased for resale in the regular course of business without intervening use by the person.

NEW SECTION. Sec. 105. A new section is added to chapter 82.08 RCW to read as follows:

(1) The tax levied by RCW 82.08.020 shall not apply to the sale of services included within the definition of retail sale in RCW 82.04.050 (8)(d) or (8)(e), if the service is purchased for use outside this state. As used in this section, "use outside this state" includes use outside this state in whole or in part.

(2) Unless a seller has taken from the buyer an out-of-state use certificate signed by the buyer, or unless the nature of the transaction is clearly shown as a sale for use outside this state by the books and records of the taxpayer in such other manner as the department of revenue shall by rule provide, the burden of proving that a sale of a service was for use outside this state shall be upon the person who made the sale. Each out-of-state use certificate shall include the name and address of the buyer, the registration number (if any) of the buyer, the name and address of the buyer's purchasing agent (if any), and other information as required by rules of the department.

Sec. 106. Section 82.08.100, chapter 15, Laws of 1961 as last amended by section 37, chapter 35, Laws of 1982 1st ex. sess. and RCW 82.08.100 are each amended to read as follows:

(1) The department of revenue, by general regulation, shall provide that a taxpayer whose regular books of account are kept on a cash receipts basis may file returns based upon his or her cash receipts for each reporting period and pay the tax herein provided upon such basis in lieu of reporting and paying the tax on all sales made during such period. A taxpayer filing returns on a cash receipts basis is not required to pay such tax on debts which are deductible as worthless for federal income tax purposes. Absent regular books and records to substantiate the accounting method chosen, returns shall be reported in the same manner as reported for federal income tax purposes.

(2) The accounting method for taxes administered under this section shall be uniform for all excise taxes unless a combined method is first approved by the department.

(3) A taxpayer may convert its reporting method to a different method which has prior approval by the department if the conversion satisfies the requirement in the rules adopted by the department pertaining to adjustments necessary to account for all income. The department shall not withhold its approval unless the taxpayer cannot, for whatever reason, make the necessary adjustments to account for all income. The department may permit adjustments which cause an increase in the income to be amortized over a period not to exceed twelve consecutive months.

NEW SECTION. Sec. 107. RCW 82.08.100 , as amended by this act, is recodified as a new section in chapter 82.32 RCW.

Sec. 108. Section 82.12.010, chapter 15, Laws of 1961 as last amended by section 1, chapter 132, Laws of 1985 and by section 1, chapter 222, Laws of 1985 and RCW 82.12.010 are each reenacted and amended to read as follows:

For the purposes of this chapter:

(1) "Value of the article used" shall mean the consideration, whether money, credit, rights, or other property except trade-in property of like kind, expressed in terms of money, paid or given or contracted to be paid or given by the purchaser to the seller for the article of tangible personal property, the use of which is taxable under this chapter. The term includes, in addition to the consideration paid or given or contracted to be paid or given, the amount of any tariff or duty paid with respect to the importation of the article used. In case the article used is acquired by lease or by gift or is extracted, produced, or manufactured by the person using the same or is sold under conditions wherein the purchase price does not represent the true value thereof, the value of the article used shall be determined as nearly as possible according to the retail selling price at place of use of similar products of like quality and character under such rules and regulations as the department of revenue may prescribe.

In case the articles used are acquired by bailment, the value of the use of the articles so used shall be in an amount representing a reasonable rental for the use of the articles so bailed, determined as nearly as possible according to the value of such use at the places of use of similar products of like quality and character under such rules and regulations as the department of revenue may prescribe: PROVIDED, That in case any such articles of tangible personal property are used in respect to the construction, repairing, decorating, or improving of, and which become or are to become an ingredient or component of, new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing or attaching of any such articles therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation, then the value of the use of such articles so used shall be determined according to the retail selling price of such articles, or in the absence of such a selling price, as nearly as possible according to the retail selling price at place of use of similar products of like quality and character or, in the absence of either of these selling price measures, such value may be determined upon a cost basis, in any event under such rules and regulations as the department of revenue may prescribe.

In the case of articles owned by a user engaged in business outside the state which are brought into the state for no more than ninety days in any period of three hundred sixty-five consecutive days and which are temporarily used for business purposes by the person in this state, the value of the article used shall be an amount representing a reasonable rental for the use of the articles, unless the person has paid tax under this chapter or chapter 82.08 RCW upon the full value of the article used, as defined in the first paragraph of this subsection.

In the case of articles manufactured or produced by the user and used in the manufacture or production of products sold or to be sold to the department of defense of the United States, the value of the articles used shall be determined according to the value of the ingredients of such articles.

In the case of an article manufactured or produced for purposes of serving as a prototype for the development of a new or improved product, the value of the article used shall be determined by: (a) The retail selling price of such new or improved product when first offered for sale; or (b) the value of materials incorporated into the prototype in cases in which the new or improved product is not offered for sale.

(2) "Value of the service used" shall mean the consideration, whether money, credit, rights, or other property, expressed in terms of money, paid or given or contracted to be paid or given by the purchaser to the seller for the service, the use of which is taxable under this chapter. If the service is received by gift or under conditions wherein the purchase price does not represent the true value of the service, the value of the services used shall be determined as nearly as possible according to the retail selling price at the place of use of similar services of like quality and character under rules prescribed by the department of revenue;

(3) "Use," "used," "using," or "put to use" shall have their ordinary meaning, and shall mean:

(a) With respect to personal property, the first act within this state by which the taxpayer takes or assumes dominion or control over the article of tangible personal property (as a consumer), and include installation, storage, withdrawal from storage, or any other act preparatory to subsequent actual use or consumption within this state; and

(b) With respect to a service, the first utilization in this state by the taxpayer of any part of the benefit afforded by the service;

(4) "Service" means a service of a type which is expressly defined as a retail sale by RCW 82.04.050 when rendered to or for consumers;

((~~(3)~~)) (5) "Taxpayer" and "purchaser" include all persons included within the meaning of the word "buyer" and the word "consumer" as defined in chapters 82.04 and 82.08 RCW;

((~~(4)~~)) (6) "Retailer" means every seller as defined in RCW 82.08.010 and every person engaged in the business of selling tangible personal property or services at retail and every person required to collect from purchasers the tax imposed under this chapter;

((~~(5)~~)) (7) The meaning ascribed to words and phrases in chapters 82.04 and 82.08 RCW, insofar as applicable, shall have full force and effect with respect to taxes imposed under the provisions of this chapter. "Consumer," in addition to the meaning ascribed to it in chapters 82.04 and 82.08 RCW insofar as applicable, shall also mean any person who distributes or displays, or causes to be distributed or displayed, any article of tangible personal property, except newspapers, the primary purpose of which is to promote the sale of products or services.

Sec. 109. Section 82.12.020, chapter 15, Laws of 1961 as last amended by section 7, chapter 7, Laws of 1983 and RCW 82.12.020 are each amended to read as follows:

(1) There is hereby levied and there shall be collected from every person in this state a tax or excise for the privilege of using within this state as a consumer any article of tangible personal property or service purchased at retail, or acquired by lease, gift, repossession, or bailment, or extracted or produced or manufactured by the person so using the same, or otherwise furnished to a person engaged in any business taxable under RCW 82.04.280, subsections (2) or (7).

(2) This tax will not apply with respect to the use of any article of tangible personal property purchased, extracted, produced or manufactured outside this state until the transportation of such article has finally ended or until such article has become commingled with the general mass of property in this state. This tax shall apply to the use of every article of tangible personal property, including property acquired at a casual or isolated sale, and including byproducts used by the manufacturer thereof, except as hereinafter provided, irrespective of whether the article or similar articles are manufactured or are available for purchase within this state.

(3) Except as provided in RCW 82.12.0252, payment by one purchaser or user of tangible personal property or service of the tax imposed by chapter 82.08 or 82.12 RCW shall not have the effect of exempting any other purchaser or user of the same property or service from the taxes imposed by such chapters.

(4) The tax shall be levied and collected in an amount equal to the value of the article used by the taxpayer multiplied by the rate in effect for the retail sales tax under RCW 82.08.020((~~, as now or hereafter amended, in the county in which the article is used~~)).

NEW SECTION. Sec. 110. A new section is added to chapter 82.12 RCW to read as follows:

(1) As used in this section, "financial organization" and "public utility" have the meanings given in RCW 82.56.010.

(2) Each taxpayer who uses all or any part of a service in this state shall allocate the full value of the service used to this state, unless apportionment is allowed under this section.

(3) Each taxpayer who uses a service included within the definition of retail sale in RCW 82.04.050 (8)(d) or (8)(e) both within this state and outside this state, other than a financial organization or public utility, shall apportion the value of the service used to this state by multiplying that value by a fraction. The numerator of the fraction is the taxpayer's property factor plus the taxpayer's payroll factor plus the taxpayer's sales factor. The denominator of the fraction is three. The taxpayer's factors shall be calculated as provided in RCW 82.56.010.

(4) Each financial organization and public utility which uses a service both within this state and outside this state shall apportion the value of services used to this state according to rules adopted by the department. The rules shall be consistent with this section, as far as the department deems practicable. In developing the rules, the department shall also give appropriate consideration to the rules of other states in which the sale or use of services are also taxable. (5) If the apportionment provisions of this section do not fairly represent the extent of the taxpayer's use of a service in this state, the taxpayer may petition for, or the department may require, in respect to all or any part of the taxpayer's use of services, if reasonable:

(a) Separate accounting;

(b) The exclusion of any one or more of the factors;

(c) The inclusion of one or more additional factors which will fairly represent the taxpayer's use of services in this state; or

(d) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's use of services.

Sec. 111. Section 3, chapter 94, Laws of 1970 ex. sess. as last amended by section 31, chapter 3, Laws of 1983 2nd ex. sess. and RCW 82.14.020 are each amended to read as follows:

For purposes of this chapter:

(1) A retail sale consisting solely of the sale of tangible personal property shall be deemed to have occurred at the retail outlet at or from which delivery is made to the consumer;

(2) A retail sale consisting essentially of the performance of ((~~personal business or professional~~)) services shall be deemed to have occurred at the place at which such services were primarily performed, except as provided in subsection (5) of this section;

(3) A retail sale consisting of the rental of tangible personal property shall be deemed to have occurred (a) in the case of a rental involving periodic rental payments, at the primary place of use by the lessee during the period covered by each payment, or (b) in all other cases, at the place of first use by the lessee;

(4) A retail sale within the scope of the second paragraph of RCW 82.04.050, and a retail sale of taxable personal property to be installed by the seller shall be deemed to have occurred at the place where the labor and services involved were primarily performed;

(5) A retail sale consisting of the providing to a consumer of telephone service, as defined in RCW 82.04.065, other than a sale of tangible personal property under subsection (1) of this section or a rental of tangible personal property under subsection (3) of this section, shall be deemed to have occurred at the situs of the telephone or other instrument through which the telephone service is rendered;

(6) "City" means a city or town;

(7) The meaning ascribed to words and phrases in chapters 82.04, 82.08 and 82.12 RCW, as now or hereafter amended, insofar as applicable, shall have full force and effect with respect to taxes imposed under authority of this chapter;

(8) "Taxable event" shall mean any retail sale, or any use of an article of tangible personal property or service, upon which a state tax is imposed pursuant to chapter 82.08 or 82.12 RCW, as they now exist or may hereafter be amended: PROVIDED, HOWEVER, That the term shall not include a retail sale taxable pursuant to RCW 82.08.150, as now or hereafter amended;

(9) "Treasurer or other legal depository" shall mean the treasurer or legal depository of a county or city.

Sec. 112. Section 6, chapter 134, Laws of 1972 ex. sess. as last amended by section 33, chapter 3, Laws of 1983 2nd ex. sess. and RCW 35.21.710 are each amended to read as follows:

Any city which imposes a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property or services which are measured by gross receipts or gross income from such sales, shall impose such tax at a single uniform rate upon all such business activities. The taxing authority granted to cities for taxes upon business activities measured by gross receipts or gross income from sales shall not exceed a rate of .0020; except that any city with an adopted ordinance at a higher rate, as of January 1, 1982 shall be limited to a maximum increase of ten percent of the January 1982 rate, not to exceed an annual incremental increase of two percent of current rate: PROVIDED, That any adopted ordinance which classifies according to different types of business or services shall be subject to both the ten percent and the two percent annual incremental increase limitation on each tax rate: PROVIDED FURTHER, That all surtaxes on business and occupation classifications in effect as of January 1, 1982, shall expire no later than December 31, 1982, or by expiration date established by local ordinance. Cities which impose a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property or services which are measured by gross receipts or gross income from such sales shall be required to submit an annual report to the state auditor identifying the rate established and the revenues received from each fee or tax. This section shall not apply to any business activities subject to the tax imposed by chapter 82.16 RCW. ((~~For purposes of this section, the providing to consumers of competitive telephone service, as defined in RCW 82.04.065, shall be deemed to be the retail sale of tangible personal property.~~))

Sec. 113. Section 7, chapter 134, Laws of 1972 ex. sess. as last amended by section 34, chapter 3, Laws of 1983 2nd ex. sess. and RCW 35A.82.050 are each amended to read as follows:

Any code city which imposes a license fee or tax upon business activities consisting of the making of retail sales of tangible personal property or services which are measured by gross receipts or gross income from such sales, shall impose such tax at a single uniform rate upon all such business activities. This section shall not apply to any business activities subject to the tax imposed by chapter 82.16 RCW. ((~~For purposes of this section, the providing to consumers of competitive telephone service, as defined in RCW 82.04.065, shall be deemed to be the retail sale of tangible personal property.~~))

Sec. 114. Section 21, chapter 190, Laws of 1949 and RCW 48.14.080 are each amended to read as follows:

As to insurers other than title insurers, the taxes imposed by this title shall be in lieu of all other taxes, except taxes on real and tangible personal property and excise taxes on the sale, purchase or use of such property and services.

Sec. 115. Section 3, chapter 37, Laws of 1980 and RCW 82.04.4282 are each amended to read as follows:

In computing tax there may be deducted from the measure of tax amounts derived from bona fide initiation fees, dues, contributions, donations, tuition fees, charges made for operation of privately operated kindergartens, and endowment funds. This paragraph shall not be construed to exempt any person, association, or society from tax liability upon selling tangible personal property or services 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 hereunder.

Sec. 116. Section 82.04.460, chapter 15, Laws of 1961 as last amended by section 154, chapter 7, Laws of 1985 and RCW 82.04.460 are each amended to read as follows:

(1) Any person rendering services taxable under RCW 82.04.290 and maintaining places of business both within and without this state which contribute to the rendition of such services shall, for the purpose of computing tax liability under RCW 82.04.290, apportion to this state that portion of ((~~his~~)) the person's gross income which is derived from services rendered within this state. Where such apportionment cannot be accurately made by separate accounting methods, the taxpayer shall apportion to this state that proportion of ((~~his~~)) the taxpayer's total income which the cost of doing business within the state bears to the total cost of doing business both within and without the state.

(2) Notwithstanding the provision of subsection (1) of this section, persons doing business both within and without the state who receive gross income from service charges, as defined in RCW 63.14.010 (relating to amounts charged for granting the right or privilege to make deferred or installment payments) or who receive gross income from engaging in business as financial institutions within the scope of chapter 82.14A RCW (relating to city taxes on financial institutions) shall apportion or allocate gross income taxable under RCW 82.04.290 to this state pursuant to rules promulgated by the department consistent with uniform rules for apportionment or allocation developed by the states.

(3) The department shall by rule provide a method or methods of apportioning or allocating gross income derived from sales of ((~~telephone~~)) services taxed under ((~~this chapter~~)) RCW 82.04.250 or 82.04.270, if the gross proceeds of sales subject to tax under ((~~this chapter~~)) RCW 82.04.250 or 82.04.270 do not fairly represent the extent of the taxpayer's income attributable to this state. The rules shall be, so far as feasible, consistent with the methods of apportionment contained in this section and shall require the consideration of those facts, circumstances, and apportionment factors as will result in an equitable and constitutionally permissible division of the services.

Sec. 117. Section 82.04.470, chapter 15, Laws of 1961 as last amended by section 29, chapter 3, Laws of 1983 2nd ex. sess. and RCW 82.04.470 are each amended to read as follows:

Unless a seller has taken from the purchaser a resale certificate signed by, and bearing the name and address and registration number of the purchaser to the effect that the property or service was purchased for resale, or unless the nature of the transaction is clearly shown as a sale ((~~at wholesale~~)) for resale by the books and records of the taxpayer in such other manner as the department of revenue shall by regulation provide, the burden of proving that a sale of tangible personal property, or of ((~~telephone service as defined in RCW 82.04.065~~)) a service expressly defined as a retail sale by RCW 82.04.050 when rendered to or for consumers, was not a sale at retail shall be upon the person who made it.

Sec. 118. Section 82.04.480, chapter 15, Laws of 1961 as amended by section 44, chapter 278, Laws of 1975 1st ex. sess. and RCW 82.04.480 are each amended to read as follows:

Every consignee, bailee, factor, or auctioneer having either actual or constructive possession of tangible personal property, or having possession of the documents of title thereto, with power to sell such tangible personal property in his or its own name and actually so selling, and every agent with power to sell services in the agent's own name and actually so selling, shall be deemed the seller of such tangible personal property or services within the meaning of this chapter; and further, the consignor, bailor, principal, or owner shall be deemed a seller of such property or services to the consignee, bailee, factor, ((or)) auctioneer, or agent.

The burden shall be upon the taxpayer in every case to establish the fact that he is not engaged in the business of selling tangible personal property or services but is acting merely as broker or agent in promoting sales for a principal. Such claim will be allowed only when the taxpayer's accounting records are kept in such manner as the department of revenue shall by general regulation provide.

Sec. 119. Section 1, chapter 32, Laws of 1985 and RCW 82.08.020 are each amended to read as follows:

(1) There is levied and there shall be collected a tax on each retail sale in this state equal to six and five-tenths percent of the selling price.

(2) The tax imposed under this chapter shall apply to successive retail sales of the same property or services.

(3) The rate provided in this section applies to taxes imposed under chapter 82.12 RCW as provided in RCW 82.12.020.

Sec. 120. Section 82.08.080, chapter 15, Laws of 1961 as last amended by section 2, chapter 36, Laws of 1986 and RCW 82.08.080 are each amended to read as follows:

The department of revenue may authorize a seller to pay the tax levied under this chapter upon retail sales of tangible personal property or services made under conditions of business such as to render impracticable the collection of the tax as a separate item and waive collection of the tax from the customer. Where sales are made by receipt of a coin or coins dropped into a receptacle that results in delivery of the merchandise in single purchases of smaller value than the minimum sale upon which a one cent tax may be collected from the purchaser, according to the schedule provided by the department under authority of RCW 82.08.060, and where the design of the sales device is such that multiple sales of items are not possible or cannot be detected so as practically to assess a tax, in such a case the selling price for the purposes of the tax imposed under RCW 82.08.020 shall be sixty percent of the gross receipts of the vending machine through which such sales are made. No such authority shall be granted except upon application to the department and unless the department, after hearing, finds that the conditions of the applicant's business are such as to render impracticable the collection of the tax in the manner otherwise provided. The department, by regulation, may provide that the applicant, under this section, furnish a proper bond sufficient to secure the payment of the tax.

Sec. 121. Section 82.08.090, chapter 15, Laws of 1961 as amended by section 49, chapter 278, Laws of 1975 1st ex. sess. and RCW 82.08.090 are each amended to read as follows:

In the case of installment sales and leases of personal property or services, the department of revenue, by regulation, may provide for the collection of taxes upon the installments of the purchase price, or amount of rental, as of the time the same fall due.

Sec. 122. Section 52, chapter 37, Laws of 1980 and RCW 82.12.0252 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of any article of tangible personal property or service purchased at retail or acquired by lease, gift or bailment if the sale thereof to, or the use thereof by, the present user or ((~~his~~)) the user's bailor or donor has already been subjected to the tax under chapter 82.08 or 82.12 RCW and such tax has been paid by the present user or by ((~~his~~)) the user's bailor or donor; or in respect to the use of property acquired by bailment and such tax has once been paid based on reasonable rental as determined by RCW 82.12.060 measured by the value of the article at time of first use multiplied by the tax rate imposed by chapter 82.08 or 82.12 RCW as of the time of first use; or in respect to the use of any article of tangible personal property acquired by bailment, if the property was acquired by a previous bailee from the same bailor for use in the same general activity and such original bailment was prior to June 9, 1961.

Sec. 123. Section 53, chapter 37, Laws of 1980 and RCW 82.12.0253 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of any article of tangible personal property or service the sale of which is specifically taxable under chapter 82.16 RCW.

Sec. 124. Section 55, chapter 37, Laws of 1980 and RCW 82.12.0255 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of any article of tangible personal property or any service which the state is prohibited from taxing under the Constitution of the state or under the Constitution or laws of the United States.

Sec. 125. Section 59, chapter 37, Laws of 1980 and RCW 82.12.0259 are each amended to read as follows:

The provisions of this chapter shall not apply in respect to the use of tangible personal property or services by corporations which have been incorporated under any act of the congress of the United States and whose principal purposes are to furnish volunteer aid to members of the armed forces of the United States and also to carry on a system of national and international relief and to apply the same in mitigating the sufferings caused by pestilence, famine, fire, flood, and other national calamities and to devise and carry on measures for preventing the same.

Sec. 126. Section 5, chapter 89, Laws of 1967 ex. sess. and RCW 82.12.035 are each amended to read as follows:

A credit shall be allowed against the taxes imposed by this chapter upon the use of tangible personal property or services in this state in the amount that the present user thereof or ((~~his~~)) the user's bailor or donor has paid a retail sales or use tax with respect to such property or services to any other state, political subdivision thereof, or the District of Columbia, prior to the use of such property or services in this state.

Sec. 127. Section 82.12.060, chapter 15, Laws of 1961 as last amended by section 54, chapter 278, Laws of 1975 1st ex. sess. and RCW 82.12.060 are each amended to read as follows:

(1) In the case of installment sales and leases of personal property or services, the department, by regulation, may provide for the collection of taxes upon the installments of the purchase price, or amount of rental, as of the time the same fall due.

(2) In the case of property acquired by bailment, the department, by regulation, may provide for payment of the tax due in installments based on the reasonable rental for the property as determined under RCW 82.12.010(1).

PART 2

ADDITIONAL B&O TAX

NEW SECTION. Sec. 201. A new section is added to chapter 82.04 RCW to read as follows:

There is levied and shall be collected from every person for the act or privilege of engaging in business activities, as a part of the tax imposed by the provisions of RCW 82.04.230, 82.04.240, 82.04.250, 82.04.255, 82.04.270, and 82.04.290, an additional tax equal to ten percent multiplied by the tax payable under the provisions of RCW 82.04.230, 82.04.240, 82.04.250, 82.04.255, 82.04.270, and 82.04.290.

To facilitate collection of this additional tax, the department of revenue is authorized to adjust the basic rates of persons to which this section applies in such manner as to reflect the amount to the nearest one-thousandth of one percent of the additional tax hereby imposed, adjusting ten-thousandths equal to or greater than five ten-thousandths to the greater thousandth.

PART 3

MISCELLANEOUS TAX PROVISIONS

Sec. 301. Section 82.04.390, chapter 15, Laws of 1961 and RCW 82.04.390 are each amended to read as follows:

This chapter shall not apply to gross proceeds derived from the sale of real estate. This section however, shall not be construed to allow a deduction of (1) amounts received as commissions from the sale of real estate, nor as fees, handling charges, discounts, interest or similar financial charges resulting from, or relating to, real estate transactions, nor (2) amounts derived from operating a storage warehouse, mini-storage warehouse, self-service storage facility, or other facility which leases, rents, or grants licenses to use storage space for any period of time.

Sec. 302. Section 17, chapter 37, Laws of 1980 and RCW 82.04.4297 are each amended to read as follows:

In computing tax there may be deducted from the measure of tax amounts received from the United States or any instrumentality thereof or from the state of Washington or any municipal corporation or political subdivision thereof as compensation for, or to support, health or social welfare services rendered by a health or social welfare organization or by a municipal corporation or political subdivision, except amounts are not deductible under this section if the amounts are received as compensation for services rendered as part of employee benefits provided by the person paying the amount.

Sec. 303. Section 7, chapter 278, Laws of 1957 as last amended by section 1, chapter 366, Laws of 1977 ex. sess. and RCW 54.28.010 are each amended to read as follows:

As used in this chapter:

(1) "Operating property" means all of the property utilized by a public utility district in the operation of a plant or system for the generation, transmission, or distribution of electric energy for sale;

(2) "Taxing districts" means counties, cities, towns, school districts, and road districts;

(3) "Distributes to consumers" means the sale of electric energy to ultimate consumers thereof, and does not include sales of electric energy for resale by the purchaser: PROVIDED, That a purchaser not subject to taxation under chapter 82.16 RCW acquiring electric energy for resale shall be considered an ultimate consumer;

(4) "Wholesale value" means all costs of a public utility district associated with the generation and transmission of energy from its own generation and transmission system to the point or points of inter-connection with a distribution system owned and used by a district to distribute such energy to consumers, or in the event a distribution system owned by a district is not used to distribute such energy, then the term means the gross revenues derived by a district from the sale of such energy to consumers;

(5) "Thermal electric generating facility" means a steam-powered electrical energy producing facility utilizing nuclear or fossil fuels;

(6) "Placed in operation" means delivery of energy into a transmission or distribution system for use or sale in such a manner as to establish a value accruing to the power plant operator, except operation incidental to testing or startup adjustments;

(7) "Impacted area" for a thermal electric generating facility on a federal reservation means that area in the state lying within thirty-five statute miles of the most commonly used entrance of the federal reservation and which is south of the southern boundary of township fifteen north.

NEW SECTION. Sec. 304. A new section is added to chapter 82.04 RCW to read as follows:

This chapter does not apply to adult family homes which are licensed as such, or which are specifically exempt from licensing, under rules of the department of social and health services.

NEW SECTION. Sec. 305. A new section is added to chapter 82.08 RCW to read as follows:

The tax imposed by RCW 82.08.020 shall not apply to sales of materials and supplies directly used in the receiving, washing, sorting, and packing of fresh perishable horticultural products by any person entitled to the deduction under RCW 82.04.4287 either as an agent or an independent contractor.

NEW SECTION. Sec. 306. A new section is added to chapter 82.12 RCW to read as follows:

The tax imposed by RCW 82.12.020 shall not apply to the use of materials and supplies directly used in the receiving, washing, sorting, and packing of fresh perishable horticultural products by any person entitled to the deduction under RCW 82.04.4287 either as an agent or an independent contractor.

Sec. 307. Section 10, chapter 232, Laws of 1985 and RCW 82.60.050 are each amended to read as follows:

RCW 82.60.030 and 82.60.040 shall expire July 1, ((~~1991~~)) 1994.

Sec. 308. Section 22, chapter 116, Laws of 1986 and RCW 82.62.040 are each amended to read as follows:

RCW 82.62.020 and 82.62.030 shall expire July 1, ((~~1988~~)) 1991.

PART 4

LOCAL GOVERNMENT TAXES

NEW SECTION. Sec. 401. As used in this chapter:

(1) "Electrical utility" means an electrical power distribution business as defined in RCW 82.16.010.

(2) "Gas utility" means a gas distribution business as defined in RCW 82.16.010.

(3) "Telephone utility" means any firm engaged in the business of providing network telephone service as defined in RCW 82.04.065.

(4) "Water utility" means a water distribution business as defined in RCW 82.16.010.

(5) "Sewer utility" means a sewerage collection business as defined in RCW 82.16.020.

(6) "Cable television" means a cablevision, closed circuit, and any similar television service business.

(7) "Retail sale" means the sale of or charge made for a commodity or service to consumers or users thereof by a utility. A retail sale occurs at the place to which electrical energy, gas, or water is delivered and made available to a consumer thereof or where network telephone services, sewerage services, or cable television services are provided to the user thereof.

(8) "Selling price" has the meaning ascribed to it by RCW 82.08.010.

(9) "Utility" means an electrical utility, gas utility, telephone utility, water utility, sewer utility, or cable television utility.

NEW SECTION. Sec. 402. By ordinance, the legislative authority of a county may levy an excise tax on retail sales by utilities. The tax shall be measured by the selling price and shall:

(1) Apply equally at a single rate to these utilities;

(2) Apply uniformly at a single rate throughout the county;

(3) Be imposed at a rate which does not exceed one and one-half percent;

(4) Allow a credit against the county tax for any business or utility taxes imposed by a city or town upon the same retail sales which are subject to the county tax, up to the full amount of the county tax;

(5) Allow an exemption from tax for electrical utility services used for irrigation purposes if the services are metered separately from electrical utility services used for other purposes; and

(6) Be additional to payments made pursuant to franchises granted by the county.

Each utility shall add the tax so levied to the rates or charges it makes for utility services provided to consumers or users thereof and shall separately state the amount of the tax on consumer or user billings.

No tax levied under this chapter may apply to sales prior to the effective date of the ordinance.

NEW SECTION. Sec. 403. The county legislative authority may establish, by agreement with the utility, classes of persons based on use upon whom the utility taxes are levied and may establish different rates of taxation on the classes, exemption of a class or classes, or rebates for a class or classes. Differential rates, exemptions, and rebates granted under this section shall be allowed equally for both consumers of electrical utility services and consumers of gas utility services.

NEW SECTION. Sec. 404. The taxes authorized by this chapter shall be administered and collected by the county or counties jointly which impose the taxes.

Sec. 405. Section 82.02.020, chapter 15, Laws of 1961 as last amended by section 5, chapter 49, Laws of 1982 1st ex. sess. and RCW 82.02.020 are each amended to read as follows:

Except only as expressly provided in RCW 67.28.180 and 67.28.190 ((~~and the provisions of~~)), chapter 82.14 RCW, and chapter 36.--!sc ,1RCW (sections 401 through 404 of this 1987 act), the state preempts the field of imposing taxes upon retail sales of tangible personal property and services, the use of tangible personal property and services, parimutuel wagering authorized pursuant to RCW 67.16.060, conveyances, and cigarettes, and no county, town, or other municipal subdivision shall have the right to impose taxes of that nature. No county, city, town, or other municipal corporation shall impose any tax, fee, or charge, either direct or indirect, on the construction or reconstruction of residential buildings, commercial buildings, industrial buildings, or on any other building or building space or appurtenance thereto, or on the development, subdivision, classification, or reclassification of land. However, this section does not preclude dedications of land or easements pursuant to RCW 58.17.110 within the proposed development or plat which the county, city, town, or other municipal corporation can demonstrate are reasonably necessary as a direct result of the proposed development or plat to which the dedication of land or easement is to apply.

This section does not prohibit voluntary agreements with counties, cities, towns, or other municipal corporations that allow a payment in lieu of a dedication of land or to mitigate a direct impact that has been identified as a consequence of a proposed development, subdivision, or plat: PROVIDED, That any such voluntary agreement shall be subject to the following provisions:

(1) The payment shall be held in a reserve account and may only be expended to fund a capital improvement agreed upon by the parties to mitigate the identified, direct impact;

(2) The payment shall be expended in all cases within five years of collection; and

(3) Any payment not so expended shall be refunded with interest at the rate applied to judgments to the property owners of record at the time of the refund; however, if the payment is not expended within five years due to delay attributable to the developer, the payment shall be refunded without interest.

No county, city, town, or other municipal corporation shall require any payment as part of such a voluntary agreement which the county, city, town, or other municipal corporation cannot establish is reasonably necessary as a direct result of the proposed development or plat.

Nothing in this section prohibits cities, towns, counties, or other municipal corporations from collecting reasonable fees from an applicant for a permit or other governmental approval to cover the cost to the city, town, county, or other municipal corporation of processing applications, inspecting and reviewing plans, or preparing detailed statements required by chapter 43.21C RCW.

This section does not limit the existing authority of any county, city, town, or other municipal corporation to impose special assessments on property specifically benefitted thereby in the manner prescribed by law.

Nothing in this section prohibits counties, cities, or towns from imposing or permits counties, cities, or towns to impose water, sewer, natural gas, drainage utility, and drainage system charges: PROVIDED, That no such charge shall exceed the proportionate share of such utility or system's capital costs which the county, city, or town can demonstrate are attributable to the property being charged: PROVIDED FURTHER, That these provisions shall not be interpreted to expand or contract any existing authority of counties, cities, or towns to impose such charges.

This section does not apply to special purpose districts formed and acting pursuant to Titles 54, 56, 57, or 87 RCW, nor is the authority conferred by these titles affected.

NEW SECTION. Sec. 406. Sections 401 through 404 of this act shall constitute a new chapter in Title 36 RCW.

Sec. 407. Section 4, chapter 49, Laws of 1982 1st ex. sess. as last amended by section 6, chapter 225, Laws of 1984 and RCW 35.21.870 are each amended to read as follows:

(1) No city or town may impose a tax on the privilege of conducting an electrical energy, natural gas, steam energy, or telephone business at a rate which exceeds ((~~six~~)) seven percent unless the rate is first approved by a majority of the voters of the city or town voting on such a proposition.

(2) If a city or town is imposing a rate of tax under subsection (1) of this section in excess of ((~~six~~)) seven percent on ((~~April 20, 1982~~)) the effective date of this 1987 section, the city or town ((shall decrease the rate to a rate of six percent or less by reducing the rate each year on or before November 1st by ordinances to be effective on January 1st of the succeeding year, by an amount equal to one-tenth the difference between the tax rate on April 20, 1982, and six percent)) may retain its current rate or seven percent whichever is higher: PROVIDED, HOWEVER, That any retained rate higher than seven percent may not be increased: AND PROVIDED FURTHER, That any city or town imposing utility rates under subsection (1) of this section which are less than seven percent as of the effective date of this 1987 section shall not exceed seven percent.

Nothing in this subsection prohibits a city or town from reducing its rates ((~~by amounts greater than the amounts required in this subsection~~)).

Voter approved rate increases under subsection (1) of this section shall not be included in the ((~~computations~~)) rate limits under this subsection.

Sec. 408. Section 21, chapter 49, Laws of 1982 1st ex. sess. as last amended by section 82, chapter 57, Laws of 1985 and RCW 82.14.200 are each amended to read as follows:

There is created in the state treasury a special account to be known as the "county sales and use tax equalization account." Into this account shall be placed a portion of all motor vehicle excise tax receipts as provided in RCW 82.44.150(2). Funds in this account shall be allocated by the state treasurer according to the following procedure:

(1) Prior to April 1st of each year the director of revenue shall inform the state treasurer of the total and the per capita levels of revenues for the unincorporated area of each county and the state-wide weighted average per capita level of revenues for the unincorporated areas of all counties imposing the sales and use tax authorized under RCW 82.14.030(1) for the previous calendar year.

(2) At such times as distributions are made under RCW 82.44.150, as now or hereafter amended, the state treasurer shall apportion to each county imposing the sales and use tax under RCW 82.14.030(1) at the maximum rate and receiving less than ((~~one~~)) two hundred fifty thousand dollars from the tax for the previous calendar year, an amount from the county sales and use tax equalization account sufficient, when added to the amount of revenues received the previous calendar year by the county, to equal ((~~one~~)) two hundred fifty thousand dollars.

The department of revenue shall establish a governmental price index as provided in this subsection. The base year for the index shall be the end of the third quarter of ((~~1982~~)) 1987. Prior to November 1, ((~~1983~~)) 1988, and prior to each November 1st thereafter, the department of revenue shall establish another index figure for the third quarter of that year. The department of revenue may use the implicit price deflators for state and local government purchases of goods and services calculated by the United States department of commerce to establish the governmental price index. Beginning on January 1, ((~~1984~~)) 1989, and each January 1st thereafter, the ((~~one~~)) two hundred fifty thousand dollar base figure in this subsection shall be adjusted in direct proportion to the percentage change in the governmental price index from ((~~1982~~)) 1987 until the year before the adjustment. Distributions made under this subsection for ((~~1984~~)) 1989 and thereafter shall use this adjusted base amount figure.

(3) Subsequent to the distributions under subsection (2) of this section and at such times as distributions are made under RCW 82.44.150, as now or hereafter amended, the state treasurer shall apportion to each county imposing the sales and use tax under RCW 82.14.030(1) at the maximum rate and receiving less than seventy-five percent of the state-wide weighted average per capita level of revenues for the unincorporated areas of all counties as determined by the department of revenue under subsection (1) of this section, an amount from the county sales and use tax equalization account sufficient, when added to the per capita level of revenues for the unincorporated area received the previous calendar year by the county, to equal seventy-five percent of the state-wide weighted average per capita level of revenues for the unincorporated areas of all counties determined under subsection (1) of this section, subject to reduction under subsections (6) and (7) of this section. When computing distributions under this section, any distribution under subsection (2) of this section shall be considered revenues received from the tax imposed under RCW 82.14.030(1) for the previous calendar year.

(4) Subsequent to the distributions under subsection (3) of this section and at such times as distributions are made under RCW 82.44.150, as now or hereafter amended, the state treasurer shall apportion to each county imposing the sales and use tax under RCW 82.14.030(2) at the maximum rate and receiving a distribution under subsection (2) of this section, a third distribution from the county sales and use tax equalization account. The distribution to each qualifying county shall be equal to the distribution to the county under subsection (2) of this section, subject to the reduction under subsections (6) and (7) of this section. To qualify for the total distribution under this subsection, the county must impose the tax under RCW 82.14.030(2) for the entire calendar year. Counties imposing the tax for less than the full year shall qualify for prorated allocations under this subsection proportionate to the number of months of the year during which the tax is imposed.

(5) Subsequent to the distributions under subsection (4) of this section and at such times as distributions are made under RCW 82.44.150, as now or hereafter amended, the state treasurer shall apportion to each county imposing the sales and use tax under RCW 82.14.030(2) at the maximum rate and receiving a distribution under subsection (3) of this section, a fourth distribution from the county sales and use tax equalization account. The distribution to each qualifying county shall be equal to the distribution to the county under subsection (3) of this section, subject to the reduction under subsections (6) and (7) of this section. To qualify for the distributions under this subsection, the county must impose the tax under RCW 82.14.030(2) for the entire calendar year. Counties imposing the tax for less than the full year shall qualify for prorated allocations under this subsection proportionate to the number of months of the year during which the tax is imposed.

(6) Revenues distributed under ((~~this section~~)) subsections (3) and (5) of this section in any calendar year shall not exceed an amount equal to seventy-five percent of the state-wide weighted average per capita level of revenues for the unincorporated areas of all counties during the previous calendar year. If distributions under subsections (3) ((~~through~~)) and (5) of this section cannot be made because of this limitation, then distributions under subsections (3) ((~~through~~)) and (5) of this section shall be reduced ratably among the qualifying counties.

(7) (a) If inadequate revenues exist in the county sales and use tax equalization account to make the distributions under subsections ((~~(3)~~)) (2) through (5) of this section, then the distributions under subsections ((~~(3)~~)) (2) through (5) of this section shall be reduced ((~~ratably~~)) among the qualifying counties by the department as follows:

(i) First, the distributions under subsection (5) of this section shall be reduced on a pro rata basis or eliminated;

(ii) Second, if inadequate revenues still exist to make the distributions under subsections (2) through (4) of this section, the distributions under subsection (4) of this section shall be reduced on a pro rata basis or eliminated;

(iii) Third, if inadequate revenues still exist to make the distributions under subsections (2) and (3) of this section, the distributions under subsection (3) of this section shall be reduced on a pro rata basis or eliminated; and

(iv) Fourth, if inadequate revenues still exist to make the distributions under subsection (2) of this section, then the distributions under subsection (2) of this section shall be reduced on a pro rata basis or eliminated.

(b) At such time during the year as additional funds accrue to the county sales and use tax equalization account, additional distributions shall be made sequentially under subsections ((~~(3)~~)) (2) through (5) of this section to the counties until all previously reduced distributions have been restored.

(8) If the level of revenues in the county sales and use tax equalization account exceeds the amount necessary to make the distributions under subsections (2) through (5) of this section, then the additional revenues shall be credited and transferred to the state general fund.

(9) All earnings of investments of balances in the county sales and use tax equalization account shall be credited to the general fund.

Sec. 409. Section 1, chapter 87, Laws of 1972 ex. sess. as last amended by section 13, chapter 35, Laws of 1982 1st ex. sess. and by section 20, chapter 49, Laws of 1982 1st ex. sess. and RCW 82.44.150 are each reenacted and amended to read as follows:

(1) The director of licensing shall on the twenty-fifth day of February, May, August and November of each year, commencing with November, 1971, advise the state treasurer of the total amount of motor vehicle excise taxes remitted to the department of licensing during the preceding calendar quarter ending on the last day of March, June, September and December, respectively, except for those payable under RCW 82.44.020(5), and 82.44.030((~~, and 82.44.070~~)), from motor vehicle owners residing within each municipality which has levied a tax under RCW 35.58.273, which amount of excise taxes shall be determined by the director as follows:

The total amount of motor vehicle excise taxes remitted to the department, except those payable under RCW 82.44.020(5), and 82.44.030((~~, and 82.44.070~~)), from each county shall be multiplied by a fraction, the numerator of which is the population of the municipality residing in such county, and the denominator of which is the total population of the county in which such municipality or portion thereof is located. The product of this computation shall be the amount of excise taxes from motor vehicle owners residing within such municipality or portion thereof. Where the municipality levying a tax under RCW 35.58.273 is located in more than one county, the above computation shall be made by county, and the combined products shall provide the total amount of motor vehicle excise taxes from motor vehicle owners residing in the municipality as a whole. Population figures required for these computations shall be supplied to the director by the office of financial management, who shall adjust the fraction annually.

(2) On the first day of the months of January, April, July, and October of each year, the state treasurer based upon information provided by the department of licensing shall make the following apportionment and distribution of motor vehicle excise taxes deposited in the general fund except taxes collected under RCW 82.44.020(5). A sum equal to seventeen percent thereof shall be paid to cities and towns in the proportions and for the purposes hereinafter set forth; and a sum equal to ((~~two~~)) three and one-half percent ((~~of all motor vehicle excise tax receipts~~)) thereof shall be allocable to the county sales and use tax equalization account under RCW 82.14.200((; and a sum equal to seventy percent of all motor vehicle excise tax receipts, except taxes collected under RCW 82.44.020(5), shall be allocable to the state school equalization fund and credited and transferred each year in the following order of priority:

(a) The amount required and certified by the state finance committee each year as being necessary for payment of principal of and interest on bonds authorized by RCW 28A.47.760 through 28A.47.774 in the ensuing twelve months and any additional amounts required by the covenants of such bonds shall be transferred from the state school equalization fund to the 1963 public school building bond retirement fund.

(b) Any remaining amounts in the state school equalization fund from the motor vehicle excise taxes not required for debt service on the above bond issues shall be transferred and credited to the general fund)).

(3) The amount payable to cities and towns shall be apportioned among the several cities and towns within the state according to the following formula:

(a) Sixty-five percent of the sum specified in subsection (2) of this section to be paid to cities and towns shall be apportioned ratably on the basis of population as last determined by the office of financial management.

(b) Thirty-five percent of the sum specified in subsection (2) of this section to be paid to cities and towns shall be apportioned to cities and towns under RCW 82.14.210.

(4) When so apportioned, the amount payable to each such city and town shall be transmitted to the city treasurer thereof, and shall be utilized by such city or town for the purposes of police and fire protection and the preservation of the public health therein, and not otherwise. In case it be adjudged that revenue derived from the excise tax imposed by this chapter cannot lawfully be apportioned or distributed to cities or towns, all moneys directed by this section to be apportioned and distributed to cities and towns shall be credited and transferred to the state general fund.

(5) On the first day of the months of January, April, July, and October of each year, the state treasurer, based upon information provided by the department of licensing, shall remit motor vehicle excise tax revenues imposed and collected under RCW 35.58.273 as follows:

(a) The amount required to be remitted by the state treasurer to the treasurer of any municipality levying the tax shall not exceed in any calendar year the amount of locally-generated tax revenues, excluding the excise tax imposed under RCW 35.58.273 for the purposes of this section, which shall have been budgeted by the municipality to be collected in such calendar year for any public transportation purposes including but not limited to operating costs, capital costs, and debt service on general obligation or revenue bonds issued for these purposes; and

(b) In no event may the amount remitted in a single calendar quarter exceed the amount collected on behalf of the municipality under RCW 35.58.273 during the calendar quarter next preceding the immediately preceding quarter.

(6) At the close of each calendar year accounting period, but not later than April 1, each municipality that has received motor vehicle excise taxes under subsection (5) of this section shall transmit to the director of licensing and the state auditor a written report showing by source the previous year's budgeted tax revenues for public transportation purposes as compared to actual collections. Any municipality that has not submitted the report by April 1 shall cease to be eligible to receive motor vehicle excise taxes under subsection (5) of this section until the report is received by the director of licensing. If a municipality has received more or less money under subsection (5) of this section for the period covered by the report than it is entitled to receive by reason of its locally-generated collected tax revenues, the director of licensing shall, during the next ensuing quarter that the municipality is eligible to receive motor vehicle excise tax funds, increase or decrease the amount to be remitted in an amount equal to the difference between the locally-generated budgeted tax revenues and the locally-generated collected tax revenues. In no event may the amount remitted for a calendar year exceed the amount collected on behalf of the municipality under RCW 35.58.273 during that same calendar year. At the time of the next fiscal audit of each municipality, the state auditor shall verify the accuracy of the report submitted and notify the director of licensing of any discrepancies.

(7) The motor vehicle excise taxes imposed under RCW 35.58.273 and required to be remitted under this section shall be remitted without legislative appropriation.

(8) Any municipality levying and collecting a tax under RCW 35.58.273 which does not have an operating, public transit system or a contract for public transportation services in effect within one year from the initial effective date of the tax shall return to the state treasurer all motor vehicle excise taxes received under subsection (5) of this section.

PART 5

CONSTRUCTION‑-EFFECTIVE DATE

NEW SECTION. Sec. 501. Part captions as used in this act shall constitute no part of the law.

NEW SECTION. Sec. 502. This act shall not be construed as affecting any existing right acquired or liability or obligation incurred under the sections amended or repealed in this act or under any rule, regulation, or order adopted under those sections, nor as affecting any proceeding instituted under those sections.

NEW SECTION. Sec. 503. 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. 504. This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect June 1, 1987, except section 302 of this act shall take effect January 1, 1988.