SENATE BILL REPORT

SHB 1305

BYHouse Committee on Revenue (originally sponsored by Representatives Wang, Holland and Appelwick; by request of Department of Revenue)

Correcting the public utility tax in response to a 1986 Thurston county superior court decision.

House Committe on Revenue

Senate Committee on Energy & Utilities

Senate Hearing Date(s):March 28, 1989; March 31, 1989

Majority Report:  Do pass as amended and be referred to Committee on Ways & Means.

      Signed by Senators Benitz, Chairman; Bluechel, Vice Chairman; Metcalf, Nelson, Owen, Stratton, Sutherland, Williams.

Senate Staff:Phil Moeller (786-7445)

                  March 31, 1989

Senate Committee on Ways & Means

Senate Hearing Date(s):March 31, 1989; April 3, 1989

Majority Report:  Do pass as amended.

      Signed by McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bauer, Bluechel, Cantu, Hayner, Johnson, Lee, Moore, Newhouse, Niemi, Saling, Smith, Talmadge, Williams, Wojahn.

Senate Staff:Terry Wilson (786-7715)

                  April 4, 1989

AS REPORTED BY COMMITTEE ON WAYS & MEANS, APRIL 3, 1989

BACKGROUND:

The public utility tax was enacted as part of the Revenue Act of 1935.  "Light and power businesses" are among the utilities taxed under the public utility tax.  Although the public utility tax does not contain any express exemption for power sold outside Washington, a general clause exempting activities that the state cannot tax under the "constitution or laws of the United States" was interpreted as exempting exported power.  The original public utility tax rate for light and power businesses was 3 percent.  The current rate is now 3.852 percent.

In 1965, exported power was expressly made subject to tax under the manufacturing classification of the business and occupation tax, at a rate of 0.44 percent.  The current manufacturing rate is 0.484 percent.

In 1982, the public utility tax was extended to exported power. The legislation also defined gross income for light and power companies to include "those amounts or value accruing to a taxpayer from the last distribution of electrical energy which is a taxable event within this state."  The legislation was an attempt to tax any power delivered within Washington for subsequent transmission beyond its borders.

In 1986, the Thurston County Superior Court decided that the 1982 legislation was unconstitutionally vague.  The court stated that it was unclear whether the Legislature intended to tax energy at the point of the last taxable event within the state or whether it only intended to tax final consumption within the state.  The court thus invalidated the 1982 legislation and reinstated the business and occupation tax on export power.

The department filed an appeal of the superior court decision. While the appeal was pending, settlement negotiations began between the department and taxpayers.  Upon advice of counsel, the department reached a settlement with most of the affected taxpayers.  The utilities agreed to forego a portion of the refunds to which they were entitled, and agreed to work with the department on proposed legislation that would provide a constitutional replacement for the 1982 amendments.

SUMMARY:

The intent section states that the purpose of the bill is 1) to recognize the effect of the 1986 court decision and to amend the statutes to exclude the 1982 amendments to the law, and 2) to provide a constitutional means of replacing revenue lost as a result of the Washington Water Power decision.

Part 1 of the bill restores the language in the statutes that existed prior to the 1982 amendments.  In this language, export power is subject to the business and occupation tax at the manufacturing rate.  Electricity distributed in-state is taxed under the public utility tax.

Part II of the bill increases the public utility tax rate for power and light companies to 3.74 percent.  With the current 7 percent surtax the total rate will be 4.0 percent.  This rate is necessary to replace revenues lost as a result of the 1986 superior court decision.  The business and occupation tax on export power is eliminated and it is clarified that export power is not subject to the public utility tax.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

Effective Date:The bill contains an emergency clause and takes effect immediately.

SUMMARY OF PROPOSED ENERGY & UTILITIES AMENDMENTS:

The section increasing the public utility tax is deleted.  Changes are made in the intent section related to replacing lost revenue.

Sales of electricity by light and power businesses for the purposes of resale within the state are exempt from the public utility tax.

SUMMARY OF PROPOSED WAYS & MEANS AMENDMENT:

The public utility tax rate is decreased to 3.87 percent.

Sales of electricity by light and power businesses for the purposes of resale within the state are exempt from the public utility tax.

Senate Committee - Testified: ENERGY & UTILITIES:  Barney McClure, Department of Revenue (pro); Tom Paine, Washington Water Power (pro); Mike Tracy, Puget Power (pro); Jerry Rupke, Grant County PUD (pro); J. Boldt, WPUDA (pro); Ron Gjerde, Weyerhaeuser (pro)

Senate Committee - Testified: WAYS & MEANS:  Ron Gjerde, Weyerhaeuser (pro); Tom Paine, Washington Water Power (pro); Mike Tracy, Puget Power (pro)