HOUSE BILL REPORT

HB 1801

BYRepresentative Sayan

Providing an exemption to the leasehold excise tax.

House Committe on Revenue

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (16)

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

House Staff:Rick Wickman and Bob Longman (786-7136)

AS REPORTED BY COMMITTEE ON REVENUE FEBRUARY 14, 1989

BACKGROUND:

The state, counties, and cities levy leasehold excise taxes "in-lieu" of property taxes on private lessees who lease or rent publicly-owned property. Typically, these kinds of properties are public ports (wharves, warehouses, etc.) or other public facilities.  The leasehold excise tax is intended to replace the property tax revenue that would be collected if the leased property were privately owned.

The leasehold excise tax is equal to 12.84 percent of the taxable rent.  A county may impose a leasehold excise tax at the rate of 6 percent.  The county tax is credited against the state tax, reducing the state tax rate to 6.84 percent.  A city within a county may impose a rate of 4 percent, which is credited against the county tax, reducing the county tax rate to 2 percent.  The Department of Revenue collects the tax and remits the local shares.

Taxable rent is generally equal to the rent paid under the contract between the public owner and the private lessee.  If a lease is in effect for more than 10 years without renegotiation of the terms of the lease, the Department of Revenue may establish a taxable rent that reflects a fair rate of return on the open market.

There are 16 exemptions from the Leasehold tax.  Major exemptions include federal properties, road or utility easement rights-of- ways, student housing, and land, buildings, and machinery used in the production of alcohol fuel.

SUMMARY:

SUBSTITUTE BILL:  Leasehold interests held by lessees who meet the requirements for senior citizen property tax exemption shall receive a leasehold excise tax exemption of an equal percentage.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Under the original bill, leases of 10 years or more that contain an inflation index would be considered "renegotiated leases" by the Department of Revenue for calculating the leasehold excise tax.

The original bill included a specific reference to appeals as part of the administration process.

Fiscal Note:      Requested February 2, 1989.

House Committee ‑ Testified For:    Representative Sayan, prime sponsor and George Reis, Cushman Resident.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    Leases for 10 years or more that contain an inflation index should be considered "renegotiated leases" by the Department of Revenue as a fair and equitable leasehold excise determination.

Senior citizens who pay leasehold excise taxes on their residences should be entitled to an exemption just like seniors who are exempt from property taxes on their residences.

House Committee - Testimony Against:      None Presented.