SENATE BILL REPORT

SB 6859

BYSenators McDonald, Gaspard, Hayner, Vognild, Bluechel, Sellar, Warnke, Saling, Owen, Cantu, Amondson, Johnson, Moore, Newhouse, Smith, Bauer and Sutherland

Clarifying the tax status of computer software.

Senate Committee on Ways & Means

Senate Hearing Date(s):February 1, 1990; February 5, 1990

Majority Report:     That Substitute Senate Bill No. 6859 be substituted therefor, and the substitute bill do pass.

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

Senate Staff:Terry Wilson (786-7715)

                February 6, 1990

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 5, 1990

BACKGROUND:

All property, both real and personal, is subject to property taxation unless specifically exempted.  Personal property is defined to include all goods, chattels, stocks, estates or moneys and all property of whatever kind, name, nature and description which the law may define or the courts declare to be personal property for purposes of taxation.  This includes both tangible and intangible property.

Tangible property are things having a physical existence such as desks, file cabinets, and equipment.  Intangible property are things not having a physical existence, such as copyrights and patents.  Current law exempts some intangible property, including money, mortgages, certificates of deposit, and judgments.

While acknowledging that courts in nearly all states considering the subject have held computer software to be intangible, the State Board of Tax Appeals ruled in 1989 that computer software was taxable because it did not fall within the list of exempted intangibles.

SUMMARY:

"Real property" and "personal property" are redefined to exclude computer software except when it is included in the cost of an item of tangible personal property without being separately stated.

EFFECT OF PROPOSED SUBSTITUTE:

The exemption for software and the effective date for taxes due in 1991 are removed.  For 1991 taxes, county assessors are directed to collect taxes on computer software in the same manner and to the same extent as they did in 1989.

The Department of Revenue is directed to establish a committee to study the taxation of computer software to determine if and to what extent it should be subject to property tax.

Appropriation:  none

Revenue:   yes

Fiscal Note:    requested

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

Senate Committee - Testified:   Enid Layes, AWB (pro); Susan Duffy, Davis, Wright, et.al (pro); Sam Eazor, Weyerhaeuser (pro); Ian McGowan, Microsoft (pro); Ben Gassanay, Clark County Assessor (con); Ray Ryan, Cowlitz County Assessor (con); Bernie Ryan, King County Assessor (con); Will Rice, Department of Revenue (con)