HOUSE BILL REPORT

HB 2215

BYRepresentatives Holland, H. Sommers, Schoon, Peery, Brough, Cole, Betrozoff, Ebersole, Miller, Rasmussen, Prince, Hine, Hankins, G. Fisher, Ferguson, Rayburn, May, Jacobsen, Ballard, Dorn, Beck, Bristow, Walker, Braddock, Moyer, Fraser, S. Wilson, Morris, Pruitt, Brekke, Cantwell, Leonard, Locke, Heavey, Rust, Valle, Spanel, Phillips, Dellwo and Prentice

Dedicating sales and use taxes on candy and sweets for financing public school and higher education construction.

House Committe on Capital Facilities & Financing

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

      Signed by Representatives H. Sommers, Chair; Rasmussen, Vice Chair; Schoon, Ranking Republican Member; Beck, Betrozoff, Braddock, Bristow, Fraser, Jacobsen, Peery and Wang.

Minority Report:  Do not pass.  (1)

      Signed by Representative Bowman

House Staff:Robin Appleford and Bill Robinson (786-7136)

AS REPORTED BY COMMITTEE ON CAPITAL FACILITIES & FINANCING

MARCH 30, 1989

BACKGROUND:

Food products sold for human consumption generally are exempt from retail sales and use taxation.  The definition of "food products" includes broad categories such as "sugar products" and "milk products," and thus has been interpreted to include candy, chewing gum, sweet baked goods, and ice cream products.

The exemption for food products does not apply to 1) food sold in restaurants, 2) food sold in places that are subject to an admission charge, and 3) some prepared foods for which retail vendors are required to have a food handler's permit to prepare the food for sale, such as deli sandwiches sold in grocery stores.  Fifty-seven percent of food products sold in vending machines are subject to sales tax.

All revenues from sales and use taxes are deposited in the general fund.

During the 1988 interim, the Legislature appointed a joint study committee to discuss the continuing problem encountered in funding the state portion of school construction costs from school trust land money.  The committee identified a backlog of $320 million in school construction projects.  These projects have been approved by the local community and have local money, but the state matching funds for construction have not been available.

The state's higher education system also has a backlog of needed building renovation and construction projects.  Modern physical facilities have become an increasingly important factor in the recruitment and retention of faculty, and in the highly competitive research marketplace.  For example, a recent study of the University of Washington science and engineering facilities recommended a 10 year plan to build new facilities and remodel existing space to state-of-the-art standards.  The state only has sufficient money to fund about one fourth of the plan.

SUMMARY:

SUBSTITUTE BILL:  The exemption from retail sales and use taxes for "food products" is narrowed so that sales of candy, chewing gum, sweet baked goods, and ice cream products are taxed.  The taxation of sweet food products is estimated to generate $63.5 million for the 1989-1991 Biennium, which is estimated to equal 1.1 percent of total sales and use tax collections.  It is intended that these revenues be dedicated for public school and higher education funding.  However, due to the administrative difficulty of actually earmarking tax revenues from sales of particular items, 1.1 percent of total retail sales and use tax collections are deposited in a newly created education construction account.  The Department of Revenue is to provide the Legislature with an updated estimate of the percentage of sales and use tax revenues actually generated by taxation of sweet food products by January 1 of each year.

Expenditures from the new education construction account may be used only for acquisition, construction, alteration, repair, or equipping of facilities for the common schools and higher education institutions.  Moneys in the account may not be used for debt service payments or to incur state indebtedness.

The following amounts are appropriated from the account for the 1989-1991 Biennium:  Common schools, $50 million; Community colleges, $3.75 million; University of Washington, $3.75 million; Washington State University, $2 million; Central Washington University, $1 million; Eastern Washington University, $1 million; Western Washington University, $1 million; Evergreen State College, $.5 million; Total, $63 million.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The Department of Revenue is specifically authorized to define by rule which sweet food items are subject to taxation.  The substitute bill increases the appropriations for the University of Washington and the community colleges from $3 million to $3.75 million.

Appropriation:    $63,000,000.

Revenue:    The bill has a revenue impact.

Fiscal Note:      Requested March 24, 1989.

House Committee ‑ Testified For:    Representative Bruce Holland, Prime Sponsor; Grant Anderson, State Board of Education; Mike Roberts, Office of the Superintendent of Public Instruction; Dwayne Slate, Washington School Directors' Association; Mark Haley, Brown and Haley, Co.; Bill Julius, State Board for Community College Education; Bob Edie, University of Washington; Sharon Foster, Council of Youth Agencies; Flossie McNally, Washington State PTA.

House Committee - Testified Against:      Randy Durham, Washington Retailers' Association.

House Committee - Testimony For:    Public school and higher education construction projects are important and well documented, however, the state is unable to meet its responsibility because of the lack of financial resources.  The backlog of voter approved school projects is growing and further delays in projects already approved by voters may cause legal action or voter revolt.  Schools need a long term funding solution and this bill helps achieve that goal.

House Committee - Testimony Against:      The bill as currently drafted is a problem for retailers due to the difficulty of identifying which products would be subject to taxation.  The retailers would prefer taxable candy items to be more clearly defined in statute, and oppose the taxation of sweet baked products.