HOUSE BILL REPORT

HB 1574

BYRepresentatives Wang, D. Sommers, Haugen and Nealey

Authorizing cities and towns to impose an excise tax on brokered natural gas.

House Committe on Revenue

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (17)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair; Holland, Ranking Republican Member; Horn, Assistant Ranking Republican Member; Appelwick, Basich, Brumsickle, Fraser, Fuhrman, Grant, Haugen, Morris, Phillips, Rust, Silver, H. Sommers and Van Luven.

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

AS REPORTED BY COMMITTEE ON REVENUE FEBRUARY 22, 1989

BACKGROUND:

The state and some cities levy a public utility tax on the gross income received by natural gas utilities from the production or distribution of gas in Washington State.  The state public utility tax rate for natural gas utilities is 3.852 percent. Cities may levy a utility tax at a rate not exceeding 6 percent unless city voters approve a higher rate.

Until recently, federal regulations required users of natural gas to purchase directly from in-state natural gas utilities.  Due to changes in these regulations, large companies may now bypass in- state utilities and obtain natural gas directly from an out-of- state producer or broker.  Purchases of brokered natural gas are not subject to public utility taxation, and are subject to sales or use tax instead.

Manufactured gas is treated the same as natural gas for tax purposes.

SUMMARY:

SUBSTITUTE BILL:  Brokered natural gas is exempted from both state and local sales and use taxation.  A new state tax is imposed for the privilege of using natural gas in the state, with a rate equal to the state public utility on non-brokered natural gas.  Cities are authorized to impose a new tax for the privilege of using natural gas in the city, with a rate equal to the city public utility tax on natural gas.

These new state and city use taxes do not apply to the use of natural gas if the seller of the gas has paid a state or city public utility tax on the gas.  The tax base does not include charges for the transmission of gas that is subject to the new use taxes.  

Credits are allowed against the new use taxes for 1) taxes similar to Washington's state and local public utility taxes that are paid by the seller to another state, and 2) taxes similar to the use taxes imposed by this bill that are paid by the consumer to another state.

The consumer of the gas is responsible for payment of taxes to the Department of Revenue.  The person delivering the gas to the consumer must make a quarterly report to the department containing the volume of gas delivered and the name of the consumer to whom the gas was delivered.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Brokered natural gas is taxed under state and city use taxes at public utility tax rates instead of being taxed under actual public utility taxes. Credits, rather than exemptions, are provided for similar taxes paid to Washington or to other states.  It is clarified that charges for the transmission of brokered natural gas are not subject to taxation.  The consumer of the gas is responsible for paying taxes directly to the department rather than to the distributor of the gas.

Fiscal Note:      Requested February 2, 1989.

House Committee ‑ Testified For:    Stan Finkelstein, Association of Washington Cities; and Richard Newman, City of Tacoma.

House Committee - Testified Against:      Scott Nelson, Washington Natural Gas.

House Committee - Testimony For:    Due to a change in federal regulations governing the marketing practices of natural gas companies, cities have lost significant revenues from the utility tax on natural gas.  Cities need the ability to tax brokered natural gas to make up for these lost revenues. 

House Committee - Testimony Against:      Natural gas companies support the cities' attempt to regain lost revenues.  However, there are technical problems with the original bill that could lead to double taxation of some natural gas companies.