SENATE BILL REPORT

SB 6440

BYSenators von Reichbauer, Rasmussen, Matson, Smitherman, Johnson, Stratton, West, Patrick, Sellar, Bauer, Saling, McCaslin, Metcalf, Bailey, Craswell, Moore, Owen, Williams, Sutherland, McMullen, Conner, Kreidler, Lee, Nelson, Amondson, Gaspard, Hansen, Anderson, Barr, Bluechel, Wojahn, Newhouse, Madsen and Hayner

Providing amnesty and tax credits for insurance agents, brokers, and solutions.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):January 25, 1990; January 26, 1990

Majority Report:  That Substitute Senate Bill 6440 be substituted therefor, and the substitute bill do pass.

      Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; Fleming, McCaslin, McMullen, Moore, Rasmussen, Sellar, Smitherman, West.

Senate Staff:Walt Corneille (786-7416)

                  January 31, 1990

Senate Committee on Ways & Means

Senate Hearing Date(s):February 5, 1990; February 6, 1990

Majority Report:  That Second Substitute Senate Bill No. 6440 be substituted therefor, and the second substitute bill do pass.

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

Senate Staff:Terry Wilson (786-7715)

                  February 7, 1990

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 6, 1990

BACKGROUND:

Insurance agents, brokers and solicitors who operate as independent contractors must pay business and occupation tax on their gross income.  Insurance agents who function as employees are not subject to the business and occupation tax.  At times it has been unclear when an insurance agent is an employee or an independent contractor.

The Department of Revenue discovered through audits that there was confusion among agents about when they were independent contractors.  The Department of Revenue entered into negotiations with the Washington State Association of Life Underwriters in an attempt to resolve this confusion.  The result of that negotiation was a letter, dated March 24, 1989, that was sent to insurance agents in the State of Washington which set forth five clarifying criteria to be used in determining if an agent was an independent contractor or an employee.  Under those clarifying criteria any agent who qualified as an independent contractor had to register with the Department of Revenue.  Any agent who registered prior to June 1, 1989, was given partial amnesty for back taxes.  An agent registering within that time period would have to pay four years back taxes with interest, but would not have to pay penalties.  Any agent who did not register during that period and was later determined by audit to be an independent contractor would be required to pay seven years back taxes with interest and penalties.

SUMMARY:

Any insurance agent, insurance broker or insurance solicitor who is an independent contractor and registered with the department between March 24, 1989 and June 1, 1989 is not subject to back taxes, interest or penalties.  Any agent who has been assessed back taxes, interest or penalties prior to June 1, 1989, is entitled to a tax credit for the amount assessed.

EFFECT OF PROPOSED SUBSTITUTE:

The tax credit for agents, brokers and solicitors applies only to those who have been assessed back taxes between March 24, 1989, and June 1, 1989.

If an agent, broker or solicitor is not subject to pay the business and occupation tax on the effective date of the act, the agent, broker or solicitor is entitled to a refund of back taxes paid in an amount no greater than four years back taxes.

EFFECT OF PROPOSED SECOND SUBSTITUTE:

The tax credit applies to those insurance agents, brokers, and solicitors who registered between March 24, 1989 and June 1, 1989, and were assessed back taxes, interest, and penalties for taxes due before June 1, 1989.

Appropriation:    none

Revenue:    none

Fiscal Note:      available

Senate Committee - Testified: FINANCIAL INSTITUTIONS & INSURANCE:  Russ Brubaker, Dept. of Revenue; Will Rice, Dept. of Revenue; Carol Sorsdahl

Senate Committee - Testified: WAYS & MEANS:  Russ Brubaker, Dept. of Revenue; Will Rice, Dept. of Revenue; Floyd Watkins, WA State Association of Life Underwriters; Fred Rapp, Agents and Brokers Legislative Council