HOUSE BILL REPORT

HB 1306

BYRepresentatives Appelwick, Holland, Wang and Phillips; by request of Department of Revenue

Modifying the taxation of tangible personal property.

House Committe on Revenue

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (11)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair, Appelwick, Basich, Fraser, Grant, Haugen, Morris, Phillips, Rust and H. Sommers.

Minority Report:  Do not pass.  (6)

      Signed by Representatives Holland, Ranking Republican Member, Horn, Assistant Ranking Republican Member, Brumsickle, Fuhrman, Silver and Van Luven.

House Staff:Robin Appleford and Bob Longman (786-7136)

AS REPORTED BY COMMITTEE ON REVENUE FEBRUARY 14, 1989

BACKGROUND:

Washington businesses often contract with companies in other states for printing of advertising materials and distribution of those materials to Washington residents.  The Department of Revenue interpreted Washington's use tax as applying to the use of these advertising materials by Washington companies.  However, a Washington superior court ruled several years ago that collection of use tax in these circumstances would discriminate against interstate commerce in violation of the Commerce Clause of the federal Constitution.  Recently, the U.S. Supreme Court upheld the imposition of Louisiana's use tax on department store catalogues prepared out-of-state for Louisiana retailers and distributed directly to Louisiana residents.  The Court ruled that the Commerce Clause allows imposing the use tax on an in- state company in this situation.

While Washington's use tax statute appears to impose use tax on the company that orders advertising materials to be printed and distributed, some taxpayers have argued that the statute can be read as imposing the use tax on the final recipient of the advertising materials, rather than the company that ordered the printing and distribution.  Collection of use tax from large numbers of recipients would be extremely difficult if not impossible.

SUMMARY:

SUBSTITUTE BILL:  The use tax statute is amended to remove any ambiguity as to the use tax liability of Washington businesses that contract with out-of-state companies for the preparation and delivery of advertising materials to Washington residents.

A findings and intent section declares that the use tax should be applied in as broad a manner as is constitutionally possible, and should be applied to reduce unfair competition from out-of-state businesses.  The Legislature declares that the intent of the bill is to clarify the applicability of use tax to persons causing materials to be distributed from out-of-state companies to persons in Washington state. 

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Findings and intent sections are added, and existing language that defines "use" as including dominion or control is restored.

Fiscal Note:      Available.

House Committee ‑ Testified For:    James Olsen, Pacific Printing Industries; Dave Colby, Consolidated Press; Kenneth Robinson, Robinson Communications and Steven Wilson, United Graphics

House Committee - Testified Against:      Jan Gee, Washington Retail Association; John Andrews, JC Penny; and Al White, Sears.

House Committee - Testimony For:    In-state printing companies have lost a significant amount of work from retailers who purchase printing that is prepared out- of-state and is distributed to Washington residents.

House Committee - Testimony Against:      Taxing catalogues printed out-of-state for distribution to Washington residents places Washington retailers at a competitive disadvantage with out-of-state mail order vendors.