BP BHEAD INT S

AN ACT Relating to health reform; amending RCW 70.47.010, 70.47.020, 70.47.030, 70.47.060, 70.47.080, 70.47.120, 82.03.130 and 82.03.140; adding a new section to chapter 74.09 RCW; adding a new chapter to Title 48 RCW; adding a new title to the Revised Code of Washington to be numbered Title 82A RCW; creating new sections; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

PART I

A. HEALTH SERVICES COMMISSION

NEW SECTION. Sec. 101. CITIZENS' FINDINGS. The legislature finds that our citizens' health and financial security are jeopardized by current health insurance and health system practices. These practices result in unaffordable costs and cost increases that far exceed ordinary inflation. Total health care expenditures as a percentage of our state's economy should be sufficient to provide access to all within a reformed, efficient system.

The legislature finds that too many of our state's residents are without health insurance, that each year many individuals and families are forced into poverty because of serious illness and that many must leave gainful employment to be eligible for publicly funded health services. Additionally, thousands of us are at risk of losing adequate health insurance, have had insurance canceled in the past year, or cannot afford to renew existing coverage.

We find that businesses can no longer afford to pay for health insurance and remain competitive in a global economy, and that individuals and small businesses bear an inequitable insurance burden.

NEW SECTION. Sec. 102. PURPOSES, GOALS, AND INTENT. The legislature intends to establish health care policy to stabilize costs, assure access for all residents, improve the public's health, and ensure that health care cost increases do not endanger nonhealth care business viability.

The legislature intends that:

Total health care costs be stabilized and kept within increases similar to the rates of general economic inflation by encouraging consumers, providers, and insurers to make more cost-effective health care decisions.

All state residents be enrolled in an insurance plan of their choice so long as the plan offers affordable, accessible, cost-effective, and comprehensive health services.

Individuals and businesses have the option to purchase any health services they may choose in addition to those defined in the benefits package referenced in this chapter.

All state residents, all businesses, employees, and government participate in payment for health services, and that individual premium costs and access to service fees be on a sliding scale based on income with the lowest-income citizens exempt from premium payments.

These goals be accomplished within a reformed system using available private providers and facilities, and that consumers be free to choose among competing plans operating within total budget limits.

NEW SECTION. Sec. 103. ENROLLMENT IN A CERTIFIED INSURANCE PLAN REQUIRED. By November 1, 1997, all Washington residents shall be enrolled in the certified insurance plan of their choice. "Washington resident" means a person who intends to reside in the state permanently or indefinitely and who did not move to Washington for the primary purpose of securing health services under this chapter. "Washington resident" also includes people and their accompanying family members who are residing in the state for the purpose of engaging in employment for at least one month, who did not enter the state for the primary purpose of obtaining health services, and who lack necessary and sufficient health care. The confinement of a person in a nursing home, hospital, or other medical institution in the state shall not by itself by sufficient to qualify such person as a resident.

NEW SECTION. Sec. 104. HEALTH CARE AUTHORITY. The governor shall designate a single state agency such as the health care authority as the state sponsor for health care. By November 1, 1997, no state funds used to subsidize the purchase of health care for state residents shall be expended without the approval of the principal administrator of the state sponsor for health care. By January 1, 1998, no state funds may be expended to subsidize health benefit packages for state residents that are not expended with certified insurance plans. The governor may submit legislation necessary to place any state-subsidized health care program under the direct administrative control of the state sponsor for health care including the medical assistance programs within the department of social and health services, the basic health plan, the medical aid fund portion of the workers' compensation program, and state expenditures for health benefits for K-12 employees and retirees.

NEW SECTION. Sec. 105. CREATION OF COMMISSION‑-MEMBERSHIP‑-TERMS OF OFFICE‑-VACANCIES‑-SALARIES. (1) There is created an agency of state government to be known as the Washington health services commission. The commission shall consist of the state insurance commissioner and four members appointed by the governor by January 1, 1994, with the consent of the senate. One member shall be designated by the governor as chair and shall serve at the pleasure of the governor. The four members shall serve five-year terms. Of the initial members, one shall be appointed to a term of three years, one shall be appointed to a term of four years, and two shall be appointed to a term of five years. Thereafter, members shall be appointed to five-year terms. Vacancies shall be filled by appointment for the remainder of the unexpired term of the position being vacated.

(2) Members of the commission shall have no pecuniary interest in any business subject to regulation by the commission and shall be subject to chapter 42.18 RCW, the executive branch conflict of interest act.

(3) With the exception of the state insurance commissioner, members of the commission shall occupy their positions on a full-time basis and are exempt from the provisions of chapter 41.06 RCW. Commission members and the professional commission staff are subject to the public disclosure provisions of chapter 42.17 RCW. Except for the state insurance commissioner, members shall be paid a salary to be fixed by the governor in accordance with RCW 43.03.040. A majority of the members of the commission constitutes a quorum for the conduct of business.

NEW SECTION. Sec. 106. POWERS AND DUTIES OF THE CHAIR. The chair shall be the chief administrative officer and the appointing authority of the commission and has the following powers and duties:

(1) Direct and supervise the commission's administrative and technical activities in accordance with the provisions of this chapter and rules and policies adopted by the commission;

(2) Employ personnel of the commission, in accordance with chapter 41.06 RCW, and prescribe their duties. No more than twenty-five new staff may be employed to implement this chapter. With the approval of a majority of the commission, the chair may appoint persons to administer any entity established pursuant to subsection (8) of this section, and up to seven additional employees all of whom shall be exempt from the provisions of chapter 41.06 RCW;

(3) Enter into contracts on behalf of the commission;

(4) Accept and expend gifts, donations, grants, and other funds received by the commission;

(5) Delegate administrative functions of the commission to employees of the commission as the chair deems necessary to ensure efficient administration;

(6) Subject to approval of the commission, appoint advisory committees and undertake studies, research, and analysis necessary to support activities of the commission;

(7) Preside at meetings of the commission;

(8) Consistent with policies and rules established by the commission, establish such administrative divisions, offices, or programs as are necessary to carry out the purposes of this chapter; and

(9) Perform such other administrative and technical duties as are consistent with this chapter and the rules and policies of the commission.

NEW SECTION. Sec. 107. POWERS OF THE COMMISSION. The commission shall:

(1) By January 1, 1995, determine in rule a comprehensive package of cost-effective health and long-term care services that shall be known as "the benefits package." In determining the benefits package, the health services offered to Washington state employees through the state health care authority during 1992 shall be used as an example, and the benefits package recommendations of the health care commission shall also be considered. The benefits package shall include, but not be limited to, inpatient services, outpatient services, preventive services, and community residential and in-home support services for physical, mental, and developmental illnesses and disabilities.

(2) By July 1, 1996, establish and make public the maximum total funds that a certified insurance plan may receive per enrollee during each year for the benefits package. In establishing these maximum levels, all Washington state residents must be considered as a single community. The annual increase in the per enrollee costs of the benefits package may not exceed one and one-half times the percentage increase in the annual average wage in the state over the period of the previous three years. Annual average wage shall mean that wage calculated by the employment security department for unemployment insurance contributions purposes as defined in RCW 50.04.355.

(3) Prohibit payments by a state resident for the benefits package for his or her family in excess of ten percent of that resident's annual family income.

(4) After consultation with the medical community and health outcomes research experts, adopt practice parameters and standards for informed consent for use by certified insurance plans in making reimbursement decisions. A certified health plan health care provider shall not be subject to liability for harm under this chapter for health care provided in accordance with a practice parameter adopted by the health services commission unless the claimant establishes by a preponderance of the evidence that the provider's application or execution of the practice parameter was a failure to follow the accepted standard of care.

(5) Ensure that an amount equal to at least five percent of total funds received by certified insurance plans for the benefits package is allocated to state and local public health departments to provide public health status assessment, policy development, and other services to protect the public health, including vital records, infectious and contagious disease control, assurance of the safety of food and drinking water, and protection from contamination by pollutants or toxic substances.

(6) Negotiate with congress and federal agencies to obtain waivers or exemptions from federal rules or statutes as needed to implement this chapter without losing federal funds that now come to the state.

(7) Establish rules, appoint advisory commissions, conduct research, receive grants or gifts, convene task forces, or engage in any other actions that may be needed to implement this chapter.

(8) Establish, if certified plans are insufficient or unable to meet a populations's health service needs, contracts with local health departments, community or migrant health centers, or other nonprofit health service entities for all or part of the benefits package, and recognize the unique ability of community and migrant health centers to serve populations within their communities.

(9) Apply all mechanisms as necessary, including those recommended by the health care commission, to control costs and assure quality of care consistent with this chapter.

(10) Appoint a standing technical advisory committee with balanced representation of physicians, hospitals, retired persons, researchers, allied health professions, business, labor, insurers, and consumers. The commission may appoint ad hoc technical advisory task forces to provide advice on specific issues.

(11) Appoint a "service effectiveness advisory committee" to provide technical guidance to the commission. The advisory committee shall be composed of ten to fifteen technical experts, such as general practitioners, specialty physicians, health service researchers, health ethicists, epidemiologists, and other public health experts. The advisory committee shall perform several functions, such as assessing the effectiveness of the uniform set and package based on the health status of the population.

NEW SECTION. Sec. 108. REQUIREMENTS FOR CERTIFIED INSURANCE PLANS. A health maintenance organization, health care service contractor, group disability insurer, or other entity is qualified to be a certified insurance plan if they meet requirements established by the commission in consultation with the insurance commissioner.

These requirements must include that a certified insurance plan:

(1) Accept enrollment from any Washington state resident regardless of preexisting health condition, employment, or income.

(2) Provide the benefits package to all of its enrollees.

(3) Receive payments for the benefits package only in the form of fixed, prepaid, per capita payments, and access to service fees so long as these limited fees do not become a barrier to appropriate and timely access.

(4) Receive from all sources no more than the maximum funding levels per enrollee established by the state for the benefits package and prohibit balance billing or unauthorized cost sharing.

(5) Comply with uniform billing, reporting, and inspection requirements, monitoring processes and standards for continuous quality improvement and total quality management as determined by the commission rule.

(6) Promote community health education to increase awareness of injury and illness prevention; encourage enrollees to take responsibility for protecting their own health; and stimulate community discussion about the use and limits of medical care in improving the health of individuals and communities.

(7) Comply with rules established by the commission for freedom of choice of plans and providers, consumer participation in policy development, portability of benefits, enrollee grievance procedures, uniform billing procedures, avoidance or elimination of barriers to access, and other rules, all of which shall be established through an open, public process.

NEW SECTION. Sec. 109. CERTIFIED INSURANCE PLANS. (1) The insurance commissioner shall issue certificates to a health care service contractor, health maintenance organizations, or disability insurer who, upon application, review, and inspection, the commissioner finds in conformance with the requirements of a certified insurance plan under this chapter.

(2) The commissioner shall develop a program of active review, inspection, licensing, monitoring, and sanctions to ensure compliance with the requirements of this chapter by certified health plans.

(3) If the insurance commissioner determines that a certified insurance plan is in imminent danger of failing to meet its contractual obligations to enrollees, the insurance commissioner may intervene and assume those functions that are necessary to protect the interests of the plan's enrollees. The actions may include administration of contract functions, including establishing provider payment levels.

NEW SECTION. Sec. 110. PROHIBITIONS AGAINST NONCERTIFIED ENTITIES RECEIVING PAYMENT FOR BENEFITS PACKAGE SERVICES‑-NO RESTRICTION ON SERVICES NOT INCLUDED WITHIN THE BENEFITS PACKAGE. It is unlawful for a person or corporation to receive payments for services for an enrollee covered within the benefits package unless they are within a certified plan or qualify as an exception, established in rule, under section 107(8) of this act. However nothing in this chapter precludes an entity from insuring, providing, contracting, or receiving payment for health services not included in the benefits package, nor does anything in this chapter restrict an employer from offering, and an employee representative from negotiating for, or an individual from purchasing, services not included in the benefits package.

NEW SECTION. Sec. 111. PUBLIC REPORTS AND DETAILED PLAN REQUIRED; MORE SWIFT ACTION NOT PROHIBITED. Quarterly, beginning in July 1994, the health services commission shall report to the people on progress in implementing this chapter by making presentations to local boards of health in public meetings. Local boards may convene joint, regional meetings for this purpose.

By January 1995, the commission shall present to the public a detailed plan to implement this chapter. All rules proposed for implementation of this chapter must be adopted in accordance with statues that ensure public scrutiny and an ability for public response and must conform to the requirements of chapter 34.05 RCW. Nothing in this chapter prevents the government from taking action to contain health care costs, or to expand access more quickly than required in this chapter, or to adopt recommendations of the health care commission, so long as these actions are consistent with sections 103 through 110 of this act, and do not conflict with the intent of this chapter.

B. BASIC HEALTH PLAN EXPANSION

Sec. 112. RCW 70.47.010 and 1987 1st ex.s. c 5 s 3 are each amended to read as follows:

(1) The legislature finds that:

(a) A significant percentage of the population of this state does not have reasonably available insurance or other coverage of the costs of necessary basic health care services;

(b) This lack of basic health care coverage is detrimental to the health of the individuals lacking coverage and to the public welfare, and results in substantial expenditures for emergency and remedial health care, often at the expense of health care providers, health care facilities, and all purchasers of health care, including the state; and

(c) The use of managed health care systems has significant potential to reduce the growth of health care costs incurred by the people of this state generally, and by low-income pregnant women who are an especially vulnerable population, along with their children, and who need greater access to managed health care.

(2) The purpose of this chapter is to provide necessary basic health care services in an appropriate setting to working persons and others who lack coverage, at a cost to these persons that does not create barriers to the utilization of necessary health care services. To that end, this chapter establishes a program to be made available to those residents under sixty-five years of age not otherwise eligible for medicare with gross family income at or below ((~~two~~)) three hundred percent of the federal poverty guidelines who share in the cost of receiving basic health care services from a managed health care system.

(3) It is not the intent of this chapter to provide health care services for those persons who are presently covered to their satisfaction through private employer-based health plans((~~, nor to replace employer-based health plans~~)). Further, it is the intent of the legislature to expand, wherever possible, the availability of private health care coverage and to discourage the decline of employer-based coverage by offering a cost-effective alternative plan that may be purchased by employers at its full cost for employees whose incomes exceed three hundred percent of the federal poverty level.

(4) ((The program authorized under this chapter is strictly limited in respect to the total number of individuals who may be allowed to participate and the specific areas within the state where it may be established. All such restrictions or limitations shall remain in full force and effect until quantifiable evidence based upon the actual operation of the program, including detailed cost benefit analysis, has been presented to the legislature and the legislature, by specific act at that time, may then modify such limitations)) (a) It is the purpose of this chapter to acknowledge the initial success of this program that has (i) assisted thousands of families in their search for affordable health care; (ii) demonstrated that low-income uninsured families are willing to pay for their own health care coverage to the extent of their ability to pay; and (iii) proved that local health care providers are willing to enter into a public/private partnership as they configure their own professional and business relationships into a managed care system.

(b) As a consequence, the legislature intends to make the program available to individuals in the state with incomes above three hundred percent of federal poverty level, who reside in communities where the plan is operational, and who collectively or individually wish to exercise the opportunity to purchase health care coverage through the program if it is done at no cost to the state. It is also the intent of the legislature to allow employers and other financial sponsors to financially assist such individuals to purchase health care through the program.

Sec. 113. RCW 70.47.020 and 1987 1st ex.s. c 5 s 4 are each amended to read as follows:

As used in this chapter:

(1) "Washington basic health plan" or "plan" means the system of enrollment and payment on a prepaid capitated basis for basic health care services, administered by the plan administrator through participating managed health care systems, created by this chapter.

(2) "Administrator" means the Washington basic health plan administrator.

(3) "Managed health care system" means any health care organization, including health care providers, insurers, health care service contractors, health maintenance organizations, or any combination thereof, that provides directly or by contract basic health care services, as defined by the administrator and rendered by duly licensed providers, on a prepaid capitated basis to a defined patient population enrolled in the plan and in the managed health care system. On July 1, 1997, "managed health care system" under this chapter shall mean "certified insurance plan" under chapter 48.-- RCW (sections 101 through 111 of this act).

(4) "Enrollee" means an individual, or an individual plus the individual's spouse and/or dependent children, all under the age of sixty-five and not otherwise eligible for medicare, who resides in an area of the state served by a managed health care system participating in the plan, ((whose gross family income at the time of enrollment does not exceed twice the federal poverty level as adjusted for family size and determined annually by the federal department of health and human services,)) who chooses to obtain basic health care coverage from a particular managed health care system in return for periodic payments to the plan. Nonsubsidized enrollees shall be considered enrollees unless otherwise specified.

(5) "Nonsubsidized enrollee" means an enrollee for whom the premium for participation in the plan is paid by the individual, their employer, or other financial sponsor and who shall not be eligible for any subsidy from the plan.

(6) "Subsidy" means the difference between the amount of periodic payment the administrator makes, from funds appropriated from the basic health plan trust account, to a managed health care system on behalf of an enrollee plus the administrative cost to the plan of providing the plan to that enrollee, and the amount determined to be the enrollee's responsibility under RCW 70.47.060(2).

((~~(6)~~)) (7) "Premium" means a periodic payment, based upon gross family income and determined under RCW 70.47.060(2), which an enrollee, their employer or other financial sponsor makes to the plan as consideration for enrollment in the plan.

((~~(7)~~)) (8) "Rate" means the per capita amount, negotiated by the administrator with and paid to a participating managed health care system, that is based upon the enrollment of enrollees in the plan and in that system.

Sec. 114. RCW 70.47.030 and 1992 c 232 s 907 are each amended to read as follows:

(1) The basic health plan trust account is hereby established in the state treasury. ((~~All~~)) Any nongeneral fund-state funds collected for this program shall be deposited in the basic health plan trust account and may be expended without further appropriation. Moneys in the account shall be used exclusively for the purposes of this chapter, including payments to participating managed health care systems on behalf of enrollees in the plan and payment of costs of administering the plan. After July 1, 1993, the administrator shall not expend or encumber for an ensuing fiscal period amounts exceeding ((~~ninety-five~~)) ninety-seven percent of the amount anticipated to be spent for purchased services during the fiscal year.

(2) The basic health plan subscription account is created in the custody of the state treasurer. All receipts from amounts due under RCW 70.47.060(10) (a) and (b) shall be deposited into the account. Funds in the account shall be used exclusively for the purposes of this chapter, including payments to participating managed health care systems on behalf of enrollees in the plan and payment of costs of administrating the plan. The account is subject to allotment procedures under chapter 43.88 RCW, but no appropriation is required for expenditures.

(3) The administrator shall take every precaution to see that none of the funds in the separate accounts created in this section or that any premiums paid either by subsidized or nonsubsidized enrollees are commingled in any way, except that the administrator may combine funds designated for administration of the plan into a single administrative account.

Sec. 115. RCW 70.47.060 and 1992 c 232 s 908 are each amended to read as follows:

The administrator has the following powers and duties:

(1) To design and from time to time revise a schedule of covered basic health care services, including physician services, inpatient and outpatient hospital services, and other services that may be necessary for basic health care, which enrollees in any participating managed health care system under the Washington basic health plan shall be entitled to receive in return for premium payments to the plan. The schedule of services shall emphasize proven preventive and primary health care and shall include all services necessary for prenatal, postnatal, and well-child care. ((~~However, for the period ending June 30, 1993,~~)) With respect to coverage for groups of subsidized enrollees, the administrator shall not contract for prenatal or postnatal services that are provided under the medical assistance program under chapter 74.09 RCW except to the extent that such services are necessary over not more than a one-month period in order to maintain continuity of care after diagnosis of pregnancy by the managed care provider, or except to provide any such services associated with pregnancies diagnosed by the managed care provider before July 1, 1992. The schedule of services shall also include a separate schedule of basic health care services for children, eighteen years of age and younger, for those enrollees who choose to secure basic coverage through the plan only for their dependent children. In designing and revising the schedule of services, the administrator shall consider the guidelines for assessing health services under the mandated benefits act of 1984, RCW 48.42.080, and such other factors as the administrator deems appropriate. After July 1, 1997, services offered under chapter . . ., Laws of 1993 (this act) shall equal the uniform benefit package and may only be purchased from certified insurance plans.

(2) To design and implement a structure of periodic premiums due the administrator from enrollees that is based upon gross family income, giving appropriate consideration to family size as well as the ages of all family members. The enrollment of children shall not require the enrollment of their parent or parents who are eligible for the plan.

(a) An employer or other financial sponsor may, with the approval of the administrator, pay the premium on behalf of any enrollee, by arrangement with the enrollee and through a mechanism acceptable to the administrator, but in no case shall the payment made on behalf of the enrollee exceed eighty percent of total premiums due from the enrollee.

(b) Premiums due from nonsubsidized enrollees, who are not otherwise eligible to be enrollees, shall be in an amount equal to the cost charged by the managed health care system provider to the state for the plan plus the administrative cost of providing the plan to those enrollees.

(3) To design and implement a structure of nominal copayments due a managed health care system from enrollees. The structure shall discourage inappropriate enrollee utilization of health care services, but shall not be so costly to enrollees as to constitute a barrier to appropriate utilization of necessary health care services.

(4) ((To design and implement, in concert with a sufficient number of potential providers in a discrete area, an enrollee financial participation structure, separate from that otherwise established under this chapter, that has the following characteristics:

~~(a) Nominal premiums that are based upon ability to pay, but not set at a level that would discourage enrollment;~~

~~(b) A modified fee-for-services payment schedule for providers;~~

(c) Coinsurance rates that are established based on specific service and procedure costs and the enrollee's ability to pay for the care. However, coinsurance rates for families with incomes below one hundred twenty percent of the federal poverty level shall be nominal. No coinsurance shall be required for specific proven prevention programs, such as prenatal care. The coinsurance rate levels shall not have a measurable negative effect upon the enrollee's health status; and

(d) A case management system that fosters a provider-enrollee relationship whereby, in an effort to control cost, maintain or improve the health status of the enrollee, and maximize patient involvement in her or his health care decision-making process, every effort is made by the provider to inform the enrollee of the cost of the specific services and procedures and related health benefits.

The potential financial liability of the plan to any such providers shall not exceed in the aggregate an amount greater than that which might otherwise have been incurred by the plan on the basis of the number of enrollees multiplied by the average of the prepaid capitated rates negotiated with participating managed health care systems under RCW 70.47.100 and reduced by any sums charged enrollees on the basis of the coinsurance rates that are established under this subsection.

~~(5)~~)) To limit enrollment of persons who qualify for subsidies so as to prevent an overexpenditure of appropriations for such purposes. Whenever the administrator finds that there is danger of such an overexpenditure, the administrator shall close enrollment until the administrator finds the danger no longer exists.

((~~(6)~~)) (5) To limit the payment of a subsidy to an enrollee, as defined in RCW 70.47.020, whose gross family income at the time of enrollment does not exceed three times the federal poverty level adjusted for family size and determined annually by the federal department of health and human services.

(6) To adopt a schedule for the orderly development of the delivery of services and availability of the plan to residents of the state, subject to the limitations contained in RCW 70.47.080.

In the selection of any area of the state for the initial operation of the plan, the administrator shall take into account the levels and rates of unemployment in different areas of the state, the need to provide basic health care coverage to a population reasonably representative of the portion of the state's population that lacks such coverage, and the need for geographic, demographic, and economic diversity.

((~~Before July 1, 1988, the administrator shall endeavor to secure participation contracts with managed health care systems in discrete geographic areas within at least five congressional districts.~~))

(7) To solicit and accept applications from managed health care systems, as defined in this chapter, for inclusion as eligible basic health care providers under the plan. The administrator shall endeavor to assure that covered basic health care services are available to any enrollee of the plan from among a selection of two or more participating managed health care systems. In adopting any rules or procedures applicable to managed health care systems and in its dealings with such systems, the administrator shall consider and make suitable allowance for the need for health care services and the differences in local availability of health care resources, along with other resources, within and among the several areas of the state.

(8) To receive periodic premiums from enrollees, deposit them in the basic health plan operating account, keep records of enrollee status, and authorize periodic payments to managed health care systems on the basis of the number of enrollees participating in the respective managed health care systems.

(9) To accept applications from individuals residing in areas served by the plan, on behalf of themselves and their spouses and dependent children, for enrollment in the Washington basic health plan, to establish appropriate minimum-enrollment periods for enrollees as may be necessary, and to determine, upon application and at least annually thereafter, or at the request of any enrollee, eligibility due to current gross family income for sliding scale premiums. An enrollee who remains current in payment of the sliding-scale premium, as determined under subsection (2) of this section, and whose gross family income has risen above ((~~twice~~)) three times the federal poverty level, may continue enrollment ((~~unless and until the enrollee's gross family income has remained above twice the poverty level for six consecutive months,~~)) by making payment at the unsubsidized rate required for the managed health care system in which he or she may be enrolled plus the administrative cost of providing the plan to that enrollee. No subsidy may be paid with respect to any enrollee whose current gross family income exceeds ((~~twice~~)) three times the federal poverty level or, subject to RCW 70.47.110, who is a recipient of medical assistance or medical care services under chapter 74.09 RCW. If a number of enrollees drop their enrollment for no apparent good cause, the administrator may establish appropriate rules or requirements that are applicable to such individuals before they will be allowed to re-enroll in the plan.

(10)(a) To accept applications from business owners on behalf of themselves and their employees, spouses, and dependent children who reside in an area served by the plan. The administrator may require all or the substantial majority of the eligible employees of such businesses to enroll in the plan and establish those procedures necessary to facilitate the orderly enrollment of groups in the plan and into a managed health care system. For the purposes of this subsection, an employee means an individual who works for the employer. Enrollment under this subsection shall be limited to those not otherwise eligible for medicare, whose gross family income is greater than three hundred percent of the federal poverty level, who wish to enroll in the plan at no cost to the state and choose to obtain the basic health care coverage and services from a managed health care system participating in the plan. The administrator shall adjust the amount determined to be due on behalf of or from all such enrollees whenever the amount negotiated by the administrator with the participating managed health care system or systems is modified or the administrative cost of providing the plan to such enrollees changes. No enrollee of a business group enrolled according to this subsection shall be eligible for any subsidy from the plan and at no time shall the administrator allow the credit of the state or funds from the trust account to be used or extended on their behalf.

(b) To accept applications from individuals residing in areas serviced by the plan, on behalf of themselves and their spouses and dependent children, under sixty-five years of age and not otherwise eligible for medicare, whose gross family income at the time of enrollment exceeds three times the federal poverty level, who wish to enroll in the plan at no cost to the state and choose to obtain the basic health care coverage and services from a managed health care system participating in the plan. Any such nonsubsidized enrollees must pay the amount negotiated by the administrator with the participating managed health care system and the administrative cost of providing the plan to such nonsubsidized enrollees and shall not be eligible for any subsidy from the plan.

(11) To determine the rate to be paid to each participating managed health care system in return for the provision of covered basic health care services to enrollees in the system. ((~~Although the schedule of covered basic health care services will be the same for similar enrollees,~~)) The rates negotiated with participating managed health care systems may vary among the systems. In negotiating rates with participating systems, the administrator shall consider the characteristics of the populations served by the respective systems, economic circumstances of the local area, the need to conserve the resources of the basic health plan trust account, and other factors the administrator finds relevant. In determining the rate to be paid on behalf of nonsubsidized enrollees, the administrator shall pay no more than the cost of the lowest priced quality provider in the area of the state served by the plan.

((~~(11)~~)) (12) To monitor the provision of covered services to enrollees by participating managed health care systems in order to assure enrollee access to good quality basic health care, to require periodic data reports concerning the utilization of health care services rendered to enrollees in order to provide adequate information for evaluation, and to inspect the books and records of participating managed health care systems to assure compliance with the purposes of this chapter. In requiring reports from participating managed health care systems, including data on services rendered enrollees, the administrator shall endeavor to minimize costs, both to the managed health care systems and to the administrator. The administrator shall coordinate any such reporting requirements with other state agencies, such as the insurance commissioner and the department of health, to minimize duplication of effort.

((~~(12)~~)) (13) To monitor the access that state residents have to adequate and necessary health care services, determine the extent of any unmet needs for such services or lack of access that may exist from time to time, and make such reports and recommendations to the legislature as the administrator deems appropriate.

((~~(13)~~)) (14) To evaluate the effects this chapter has on private employer-based health care coverage and to take appropriate measures consistent with state and federal statutes that will discourage the reduction of such coverage in the state.

((~~(14)~~)) (15) To develop a program of proven preventive health measures and to integrate it into the plan wherever possible and consistent with this chapter.

((~~(15)~~)) (16) To provide, consistent with available resources, technical assistance for rural health activities that endeavor to develop needed health care services in rural parts of the state.

Sec. 116. RCW 70.47.080 and 1987 1st ex.s. c 5 s 10 are each amended to read as follows:

On and after July 1, 1988, the administrator shall accept for enrollment applicants eligible to receive covered basic health care services from the respective managed health care systems which are then participating in the plan. ((~~The administrator shall not allow the total enrollment of those eligible for subsidies to exceed thirty thousand.~~))

Thereafter, ((~~total~~)) the average monthly enrollment of those eligible for subsidies during any biennium shall not exceed the number established by the legislature in any act appropriating funds to the plan, and total subsidized enrollment shall not result in expenditures that exceed the total amount that has been made available by the legislature in any act appropriating funds to the plan. The legislature may establish income limits for enrollees in the omnibus appropriations act to ensure the orderly development of the plan. The legislature intends however, to offer subsidized enrollment to all state residents whose family incomes fall below two hundred percent of the federal poverty level by July 1995, and to offer subsidized enrollment to all state residents whose family incomes fall below three hundred percent of the federal poverty level by July 1997. Subsidized enrollees shall receive first dollar coverage, meaning the enrollees shall not be required to pay a deductible.

((Before July 1, 1988, the administrator shall endeavor to secure participation contracts from managed health care systems in discrete geographic areas within at least five congressional districts of the state and in such manner as to allow residents of both urban and rural areas access to enrollment in the plan. The administrator shall make a special effort to secure agreements with health care providers in one such area that meets the requirements set forth in RCW 70.47.060(4).))

The administrator shall at all times closely monitor growth patterns of enrollment so as not to exceed that consistent with the orderly development of the plan as a whole, in any area of the state or in any participating managed health care system. The annual or biennial enrollment limitations derived from operation of the plan under this section do not apply to nonsubsidized enrollees as defined in RCW 70.47.020(5).

Sec. 117. RCW 70.47.120 and 1987 1st ex.s. c 5 s 14 are each amended to read as follows:

In addition to the powers and duties specified in RCW 70.47.040 and 70.47.060, the administrator has the power to enter into contracts for the following functions and services:

(1) With public or private agencies, to assist the administrator in her or his duties to design or revise the schedule of covered basic health care services, and/or to monitor or evaluate the performance of participating managed health care systems.

(2) With public or private agencies, to provide technical or professional assistance to health care providers, particularly public or private nonprofit organizations and providers serving rural areas, who show serious intent and apparent capability to participate in the plan as managed health care systems.

(3) With public or private agencies, including health care service contractors registered under RCW 48.44.015, and doing business in the state, for marketing and administrative services in connection with participation of managed health care systems, enrollment of enrollees, billing and collection services to the administrator, and other administrative functions ordinarily performed by health care service contractors, other than insurance except that the administrator may purchase or arrange for the purchase of reinsurance, or self-insure for reinsurance, on behalf of its participating managed health care systems. Any activities of a health care service contractor pursuant to a contract with the administrator under this section shall be exempt from the provisions and requirements of Title 48 RCW.

NEW SECTION. Sec. 118. A new section is added to chapter 74.09 RCW to read as follows:

FEDERAL WAIVER FOR STATE MEDICAID PROGRAM. (1) The department shall negotiate with the United States congress and the federal department of health and human services to obtain a waiver of provisions of the medicaid statute, Title XIX of the federal social security act to permit medicaid-eligible individuals to:

(a) Enroll in the state basic health plan and receive the benefits offered to basic health plan enrollees; and

(b) Participate financially in purchasing health care benefits through such means as premium sharing, copayments, and deductibles provided that such contributions will be implemented in a manner to encourage the appropriate use of effective medical care services and do not serve as a barrier to receiving necessary medical care services.

(2) The department shall report to the appropriate policy and fiscal standing committees of the senate and house of representatives by October 31, 1994, on the progress of such negotiations.

PART II

INCOME TAX

A. GENERAL PROVISIONS

NEW SECTION. Sec. 201. INTENT. It is the intent of the legislature in adopting this act to provide the necessary revenues for the support of health care for citizens of this state.

B. DEFINITIONS

NEW SECTION. Sec. 202. INTRODUCTORY. Unless the context clearly requires otherwise, the definitions in sections 203 through 213 of this act apply throughout this title.

NEW SECTION. Sec. 203. ADJUSTED GROSS INCOME. "Adjusted gross income" means adjusted gross income as determined under the Internal Revenue Code.

NEW SECTION. Sec. 204. DEPARTMENT. "Department" means the state department of revenue.

NEW SECTION. Sec. 205. FEDERAL BASE INCOME. "Federal base income" means adjusted gross income.

NEW SECTION. Sec. 206. INDIVIDUAL. "Individual" means a natural person.

NEW SECTION. Sec. 207. INTERNAL REVENUE CODE. "Internal Revenue Code" means the United States Internal Revenue Code of 1986 and amendments thereto, as existing on January 1, 1992.

NEW SECTION. Sec. 208. PERSON. "Person" includes individuals.

NEW SECTION. Sec. 209. RESIDENT. "Resident" includes an individual who:

(1) Has resided in this state for the entire tax year;

(2) Is domiciled in this state unless the individual:

(a) Maintains no permanent place of abode in this state;

(b) Does not maintain a permanent place of abode elsewhere; and

(3) Is not domiciled in this state, but maintains a permanent place of abode in this state and spends in the aggregate more than one hundred eighty-three days of the tax year in this state unless the individual proves that the individual is in the state only for temporary or transitory purposes; or

(4) Claims the state of Washington as the individual's tax home for federal income tax purposes.

NEW SECTION. Sec. 210. TAXABLE INCOME. "Taxable income" means federal base income as modified under sections 220 through 226 of this act.

NEW SECTION. Sec. 211. TAXABLE YEAR. "Taxable year" means the taxpayer's taxable year as defined under the Internal Revenue Code.

NEW SECTION. Sec. 212. TAXPAYER. "Taxpayer" means a person receiving income subject to tax under this title.

NEW SECTION. Sec. 213. DEFINITION OF TERMS GENERALLY. Except as provided in sections 202 through 212 of this act, any term used in this title has the same meaning as when used in a comparable context in the Internal Revenue Code.

C. DETERMINATION OF TAX

NEW SECTION. Sec. 214. TAX IMPOSED‑-RATE. A tax is imposed at the rate of one percent on all taxable income of individuals for each taxable year.

The tax under this title shall be phased in using the following schedule: For the period beginning January 1, 1994, to December 31, 1994, persons with income of five hundred thousand dollars and below are exempt from the tax under this title. For the period beginning January 1, 1995, to December 31, 1995, persons with income of seventy thousand dollars and below are exempt from the tax under this title. For the period beginning January 1, 1996, to December 31, 1996, persons with income of sixty thousand dollars and below are exempt from the tax under this title. For the period beginning January 1, 1997, to December 31, 1997, persons with income of fifty-five thousand dollars and below are exempt from the tax under this title. From January 1, 1998, to December 31, 1998, persons with income of fifty thousand dollars and below are exempt from the tax under this title. From January 1, 1999, and thereafter, persons with income of forty-five thousand dollars and below are exempt from the tax under this title.

NEW SECTION. Sec. 215. EXEMPTION. The tax imposed by section 214 of this act shall not apply to an individual for a taxable year in which the adjusted gross income of the individual is less than forty-five thousand dollars.

NEW SECTION. Sec. 216. CREDIT FOR INCOME TAXES DUE ANOTHER JURISDICTION. (1) A resident individual is allowed a credit against the tax imposed under this title for the amount of any income tax imposed by another state, foreign country, or political subdivision of another state or foreign country on income taxed under this title, subject to the following conditions:

(a) The credit is allowed only for taxes imposed by the other jurisdiction on net income from sources within that jurisdiction.

(b) The amount of the credit shall not exceed the smaller of:

(i) The amount of tax paid to the other jurisdiction on net income from sources within the other jurisdiction; or

(ii) The amount of tax due under this title multiplied by a fraction. The numerator of the fraction is the portion of the taxpayer's adjusted gross income subject to tax in the other jurisdiction. The denominator of the fraction is the taxpayer's taxable income. The fraction shall never be greater than one.

(2) If, in lieu of a credit similar to the credit allowed under subsection (1) of this section, the laws of the taxpayer's place of residence contain a provision exempting a resident of this state from liability for the payment of income taxes on income earned for personal services performed in that place, then the director is authorized to enter into a reciprocal agreement with that place providing a similar tax exemption for its residents on income earned for personal services performed in this state.

NEW SECTION. Sec. 217. DUAL RESIDENCE. If an individual is regarded as a resident both of this state and another jurisdiction for personal income tax purposes, the department shall reduce the tax on that portion of the taxpayer's income that is subjected to tax in both jurisdictions solely by virtue of dual residence, if the other taxing jurisdiction allows a similar reduction. The reduction shall equal the lower of the two taxes applicable to the income taxed twice multiplied by a fraction. The numerator of the fraction is the tax imposed by this state on the income taxed twice. The denominator of the fraction is the tax imposed by both jurisdictions on the income taxed twice. The fraction shall never be greater than one.

NEW SECTION. Sec. 218. BUSINESS AND OCCUPATION TAX CREDIT. (1) There shall be allowed a credit against the tax imposed by this title in the amount of the state of Washington business and occupation tax paid by the taxpayer in the tax year subject to the limitation of subsection (2) of this section.

(2) The credit shall not exceed the smaller of:

(a) The amount of business and occupation tax paid; or

(b) The amount of tax of the taxpayer imposed by this title before the application of the credits allowed by this title, multiplied by a fraction:

(i) The numerator is the amount of taxpayer's adjusted gross income attributable to activities subject to business and occupation tax; and

(ii) The denominator being the taxpayer's adjusted gross income as modified by this title. The fraction shall never be greater than one.

NEW SECTION. Sec. 219. PUBLIC UTILITY TAX CREDIT. (1) There shall be allowed a credit against the tax imposed by this title in the amount of the state of Washington public utility tax paid by the taxpayer in the tax year subject to the limitation of subsection (2) of this section.

(2) The credit shall not exceed the smaller of:

(a) The amount of public utility tax paid; or

(b) The amount of tax of the taxpayer imposed by this title before the application of the credits allowed by this title, multiplied by a fraction:

(i) The numerator is the amount of taxpayer's adjusted gross income attributable to activities subject to public utility tax; and

(ii) The denominator being the taxpayer's adjusted gross income as modified by this title. The fraction shall never be greater than one.

D. TAXABLE INCOME MODIFICATIONS

NEW SECTION. Sec. 220. INTRODUCTORY. In computing taxable income, modifications shall be made to the taxpayer's adjusted gross income as required under sections 220 through 228 of this act, unless the modification has the effect of duplicating an item of income or deduction.

NEW SECTION. Sec. 221. STATE AND LOCAL BONDS. To adjusted gross income, add income that has been excluded under section 103 of the Internal Revenue Code in computing adjusted gross income, except interest on obligations of the state of Washington or political subdivisions of the state of Washington.

NEW SECTION. Sec. 222. STATE AND LOCAL INCOME TAXES‑-BUSINESS AND OCCUPATION, PUBLIC UTILITY TAXES‑-NET OPERATING LOSS. To adjusted gross income, add:

(1) Taxes on or measured by net income which have been deducted under the Internal Revenue Code in computing federal base income;

(2) The amount of taxes paid which are deductible for federal purposes, but for which a business and occupation tax credit or public utility tax credit, or both, is allowed.

NEW SECTION. Sec. 223. NET OPERATING LOSS. There shall be allowed as a deduction from federal base income the amount of net operating loss as allowed in section 172 of the Internal Revenue Code. The calculation of the loss amount shall reflect the modifications to federal base income as provided in this title and a net operating loss deduction may include a loss carried forward to the tax year but shall not include a loss carried back from a future year.

NEW SECTION. Sec. 224. CARRY‑OVERS. To adjusted gross income, add amounts which have been deducted in computing adjusted gross income to the extent the amounts have been carried over from taxable years ending before the effective date of this act.

NEW SECTION. Sec. 225. FEDERAL BONDS. From adjusted gross income, deduct, to the extent included in adjusted gross income, income derived from obligations of the United States that this state is prohibited by federal law from subjecting to a net income tax. However, the amount deducted under this section shall be reduced by any expense, including amortizable bond premium, incurred in the production of such income to the extent the expense has been deducted in calculating adjusted gross income.

NEW SECTION. Sec. 226. TAX RETURNS FOR FRACTIONAL YEAR. If the first taxable year of any taxpayer with respect to which a tax is imposed by this title ends before December 31st of the calendar year in which this title becomes effective, referred to in this section as a fractional taxable year, the taxable income for the fractional taxable year shall be the taxpayer's taxable income for the entire taxable year, adjusted by one of the following methods, at the taxpayer's election:

(1) The taxable income shall be multiplied by a fraction. The numerator of the fraction is the number of days in the fractional taxable year. The denominator of the fraction is the number of days in the entire taxable year.

(2) The taxable income shall be adjusted, in accordance with rules of the department, so as to include only such income and be reduced only by such deductions as can be clearly determined from the permanent records of the taxpayer to be attributable to the fractional taxable year.

E. DIVISION OF INCOME, MODIFICATIONS, AND CREDITS

NEW SECTION. Sec. 227. APPORTIONMENT AND ALLOCATION OF INCOME. (1) For resident individuals all income shall be apportioned and allocated to this state.

(2) For nonresident individuals income derived from sources within this state shall be apportioned and allocated to this state. For purposes of this title:

(a) The adjusted gross income of a nonresident derived from sources within this state is the net amount of income, gain, loss, and deduction of the nonresident's federal adjusted gross income that are derived from or connected with sources in this state including any distributive share of partnership income and deductions, and share of estate or trust income and deductions, including any unrelated business income of an otherwise tax exempt trust or organization.

(b) Items of income, gain, loss, and deductions derived from or connected with sources within this state are those items attributable to the ownership or disposition of any interest in real or tangible personal property in this state, and a business, trade, profession, or occupation carried on within this state. The department shall issue rules to provide consistency of this section with the excise tax provisions.

(c) Deduction with respect to expenses, capital losses, and net operating losses shall be based solely on income, gains, losses, and deductions derived from or connected with sources in this state but shall otherwise be determined in the same manner as the corresponding federal deduction except as provided in this title.

(d) Income from intangible personal property, including annuities, dividends, interest, and gains from the disposition of intangible personal property, constitutes income derived from sources within the state of Washington only to the extent such income is from property employed in a business, trade, profession, or occupation carried on within this state. Distributed and undistributed income of electing S corporations for federal tax purposes derived from or connected with sources within this state is income derived from sources within this state for a nonresident shareholder. A net operating loss of such corporation does constitute a loss or deduction connected with sources within this state for a nonresident shareholder.

(e) Compensation paid by the United States for service in the armed forces of the United States performed in this state by a nonresident does not constitute income derived from sources within this state.

(f) If a business, trade, profession, or occupation is carried on partly within and partly without this state, the determination of net income derived or connected with sources within this state as provided in this section, shall be made by apportionment and allocation of chapter 82.56 RCW.

NEW SECTION. Sec. 228. PARTNERSHIPS AND S CORPORATIONS. (1) Partnerships are not subject to tax under this title. Partners are subject to tax in their separate or individual capacities.

(2) S corporations are not subject to tax under this title. Shareholders of S corporations are subject to tax in their separate or individual capacities.

(3) The taxable incomes of partners shall be computed by including a share of the modifications under sections 221 through 225 of this act and the credits allowed under sections 215, 217, and 218 of this act, if the modification or credit relates to the income of the partnership. Each partner's share of a modification or credit is the amount of modification or credit multiplied by a fraction. The numerator of the fraction is the partner's distributive share of partnership income. The denominator of the fraction is the total partnership income. The fraction shall never be greater than one.

(4) The taxable incomes of shareholders shall be computed by including a share of the modifications under sections 221 through 225 of this act and the credits allowed under sections 215, 217, and 218 of this act, if the modification or credit relates to the income of the S corporation. Each shareholder's share of a modification or credit is the amount of modification or credit multiplied by a fraction. The numerator of the fraction is the shareholder's pro rata share of S corporation income. The denominator of the fraction is the total S corporation income. The fraction shall never be greater than one.

(5) As used in this section:

(a) "Shareholder" means a shareholder of an S corporation.

(b) "S corporation income" includes both distributed and undistributed federal taxable income of the S corporation.

F. INCOME TAX‑-WITHHOLDING‑-ESTIMATED TAX

NEW SECTION. Sec. 229. EMPLOYER WITHHOLDING‑-REQUIREMENTS. (1) Every employer making a payment of wages or salaries earned in this state, regardless of the place where the payment is made, and who is required by the Internal Revenue Code to withhold taxes, shall deduct and withhold a tax as prescribed by the department by rule. The rules prescribed shall reasonably reflect the annual tax liability of the employee under this title. Every employer making such a deduction and withholding shall furnish to the employee a record of the amount of tax deducted and withheld from the employee on forms provided by the department.

(2) If the employee is a resident of this state and earns income from personal services entirely performed in another state which imposes an income tax on the income, and the employer withholds income taxes under the laws of the state in which the income is earned, the employer is not required to withhold any tax imposed by this title on the income if the laws of the state in which the income is earned allow a similar exemption for its residents who earn income in this state.

NEW SECTION. Sec. 230. LIABILITY OF EMPLOYER FOR TAX WITHHELD. Any person required to deduct and withhold the tax imposed by this title is liable for the payment of the amount deducted and withheld to the department, and is not liable to any other person for the amount of tax deducted and withheld under this title. The amount of tax so deducted and withheld shall be held to be a special fund in trust for this state.

NEW SECTION. Sec. 231. WITHHOLDING BY GOVERNMENTAL ENTITY. If the employer is the United States, a foreign country, or this state, or any political subdivision thereof, or an agency or instrumentality of any one or more of the foregoing, then the return of the amount deducted and withheld upon any wages or salaries may be made by any officer of the employer having control of the payment of the wages and salaries or appropriately designated for that purpose.

NEW SECTION. Sec. 232. CREDIT FOR TAX WITHHELD‑-HOW CLAIMED. The amount deducted and withheld as tax under sections 214 through 216 of this act during any taxable year shall be allowed as a credit against the tax imposed for the taxable year by this title. If the tax liability of any individual for taxes, interest, penalties, or other amounts due the state of Washington is less than the total amount of the credit that the individual is entitled under this section, the individual is entitled to a refund in the amount of the excess of the credit over the tax otherwise due. If any individual entitled to claim a credit under this section is not otherwise required by this title to file a return, a refund may be obtained in the amount of the credit by filing a return, with applicable sections completed, to claim the refund. No credit or refund is allowed under this section unless the credit or refund is claimed on a return filed for the taxable year for which the amount was deducted and withheld.

NEW SECTION. Sec. 233. WITHHOLDING‑-EXEMPTION DECLARATIONS. An employee shall be entitled to use and an employer shall use the withholding declaration on file with the employer for federal income tax purposes. The department may redetermine the number of withholding exemptions to which the employee is entitled, and the department may require an additional withholding exemption declaration to be filed on a form prescribed by the department where the department finds that the exemption declaration filed for federal income tax purposes does not properly reflect the number of withholding exemptions to which the employee is entitled.

NEW SECTION. Sec. 234. WITHHOLDING‑-FAILURE TO PAY OR COLLECT‑-PENALTIES. (1) The tax required to be collected by this chapter by the employer shall be deemed to be held in trust by the employer until paid to the department.

(2) In case any employer, or responsible person within the meaning of Internal Revenue Code 6672, fails to collect the tax imposed in this title or having collected the tax, fails to pay it to the department, the employer or responsible person shall, nevertheless, be personally liable to the state for the amount of the tax. The interest and penalty provisions or chapter 82.32 RCW shall apply to this section.

NEW SECTION. Sec. 235. ESTIMATED TAX IMPOSED‑-DUE DATE OF ESTIMATED TAXES‑-AMOUNT OF ESTIMATED TAX‑-UNDERPAYMENT PENALTY. (1)

Each individual subject to taxation by this title who is required by the Internal Revenue Code to make payment of estimated taxes shall pay to the department on forms prescribed by the department the estimated taxes due under this title.

(2) The provisions of the Internal Revenue Code relating to the determination of reporting periods and due dates of payments of estimated tax applies to the estimated tax payments due under this section.

(3) The amount of the estimated tax shall be the annualized tax divided by the number of months in the reporting period. No estimated tax shall be due if the annualized tax is less than five hundred dollars. The provisions of RCW 82.32.050 and 82.32.090 shall apply to underpayments of estimated tax, but shall not apply to underpayments, as defined by the Internal Revenue Code, if the tax remitted to the department is either ninety percent of the tax shown on the return or one hundred percent of the tax shown on the previous year's tax return.

(4) For purposes of this section, the annualized tax is the taxpayer's projected tax liability for the tax year as computed pursuant to Internal Revenue Code section 6654 and the regulations under section 6654.

G. CRIMES

NEW SECTION. Sec. 236. CRIMES. (1) A person who knowingly attempts to evade or defeat the tax imposed under this title or payment of the tax is guilty of a class C felony as provided in chapter 9A.20 RCW.

(2) A person required to collect tax imposed under this title who knowingly fails to collect, truthfully account for, or pay over the tax is guilty of a class C felony as provided in chapter 9A.20 RCW.

(3) A person who knowingly fails to pay tax, pay estimated tax, make returns, keep records, or supply information, as required under this title, is guilty of a gross misdemeanor as provided in chapter 9A.20 RCW.

H. ADMINISTRATIVE PROVISIONS

NEW SECTION. Sec. 237. METHOD OF ACCOUNTING. (1) A taxpayer's method of accounting for purposes of the tax imposed under this title shall be the same as the taxpayer's method of accounting for federal income tax purposes. If no method of accounting has been regularly used by a taxpayer for federal income tax purposes, tax due under this title shall be computed by a method of accounting that in the opinion of the department fairly reflects income.

(2) If a person's method of accounting is changed for federal income tax purposes, it shall be similarly changed for purposes of this title.

NEW SECTION. Sec. 238. PERSONS REQUIRED TO FILE RETURNS. (1) All taxpayers shall file with the department, on forms prescribed by the department, an income tax return for each tax year. Each person required to file a return under this title shall, without assessment, notice, or demand, pay any tax due thereon, to the department on or before the date fixed for filing the return.

(2) The department may by rule require that certain taxpayers file, on forms prescribed by the department, informational returns for any period. Each person required by rule to file an informational return shall, without assessment, notice, or demand, pay any tax due thereon, to the department on or before the date fixed for filing of the informational return.

(3) In the event an adjustment to a taxpayer's federal return is made by the taxpayer or the internal revenue service, the taxpayer shall, within ninety days of the final determination of the adjustment by the internal revenue service or within thirty days of the filing of a federal return adjusted by the taxpayer, file a corrected return reflecting the adjustments as finally determined or returned. The taxpayer shall pay any additional tax resulting from the finally determined internal revenue service adjustment or a taxpayer adjustment without notice and assessment. Notwithstanding any provision of this title or any other title to the contrary, the period of limitations for the correction of an additional tax, interest, and penalty due as a result of an adjustment by a taxpayer or a finally determined internal revenue service adjustment shall begin at the later of thirty days following the final determination of the adjustment or the date of the filing of the corrected return.

NEW SECTION. Sec. 239. DUE DATE FOR FILING A RETURN‑-EXTENSIONS‑-INTEREST AND PENALTIES. The due date of a return required to be filed with the department shall be the due date of the federal income tax return or informational return for federal income tax purposes. The department shall have the authority to grant extensions of times by which returns required to be filed by this title may be submitted. The department shall also have the authority to grant extensions of time to pay tax with regard to taxes imposed by this title. Interest at the rate specified in RCW 82.32.050 shall accrue during any extension period and the interest and penalty provisions of chapter 82.32 RCW shall apply to late payments and deficiencies. Notwithstanding the limitation of RCW 82.32.090, in the case of the late filing of an informational return, there shall be imposed a penalty, the amount of which shall be established by the department by rule. The penalty shall not exceed fifty dollars per month for a maximum of ten months. RCW 82.32.105 shall apply to this section.

NEW SECTION. Sec. 240. JOINT RETURN. (1) If the federal income tax liabilities of both spouses are determined on a joint federal return for the taxable year, they shall file a joint return under this title unless one spouse is a resident and the other is a nonresident.

(2) If neither spouse is required to file a federal income tax return for the taxable year, a joint return may be filed under this title under the same conditions under which a joint return may be filed for purposes of the federal income tax.

(3) If the federal income tax liability of either spouse is determined on a separate federal return for the taxable year, they shall file separate returns under this title.

(4) If one spouse is a resident and the other is a nonresident, they shall file separate returns under this title, unless they elect to determine their tax liabilities under this title on a joint return as if they were both residents, and:

(a) Their federal tax liability for the taxable year was determined on a joint federal return; or

(b) Neither spouse has filed a federal income tax return for the taxable year and they would be permitted to file a joint federal return for the taxable year.

(5) In any case in which a joint return is filed under this section, the liability of the husband and wife is joint and several, unless the spouse is relieved of liability under section 6013 of the Internal Revenue Code.

NEW SECTION. Sec. 241. RECORDS‑-RETURNS. (1) Every taxpayer and every person required to deduct and withhold the tax imposed under this title shall keep records, render statements, make returns, file reports, and perform other acts, as the department requires by rule. Each return shall be made under penalty of perjury and on forms prescribed by the department. The department may require other statements and reports be made under penalty of perjury and on forms prescribed by the department. The department may require any taxpayer and any person required to deduct and withhold the tax imposed under this title to furnish to the department a correct copy of any return or document which the taxpayer has filed with the internal revenue service or received from the internal revenue service.

(2) All books and records and other papers and documents required to be kept under this title are subject to inspection by the department at all times during business hours of the day.

NEW SECTION. Sec. 242. ESTIMATION AGREEMENTS. The department may reasonably estimate the items of business or nonbusiness income of a taxpayer having an office within the state and one or more other states or foreign countries which may be apportioned or allocated to the state and may enter into estimation agreements with such taxpayers for the determination of their liability for the tax imposed by this title.

NEW SECTION. Sec. 243. PROVISIONS OF INTERNAL REVENUE CODE CONTROL. (1) To the extent possible without being inconsistent with this title, all of the provisions of the Internal Revenue Code relating to the following subjects apply to the taxes imposed under this title:

(a) Time and manner of payment of tax imposed under this title, including tax withheld under sections 229 through 231 of this act;

(b) Liability of transferees;

(c) Time and manner of making returns, extensions of time for filing returns, verification of returns, and the time when a return is deemed filed.

(2) The department by rule may provide modifications and exceptions to the provisions listed in subsection (1) of this section if reasonably necessary to facilitate the prompt, efficient, and equitable collection of tax under this title.

NEW SECTION. Sec. 244. REFUNDS OF OVERPAYMENTS‑-OTHER ADMINISTRATIVE PROVISIONS. (1) The department shall refund all taxes improperly paid or collected.

(2) The following sections shall apply to the administration of the taxes imposed under this title: RCW 82.32.020, 82.32.050, 82.32.060, 82.32.070, 82.32.090, 82.32.100, 82.32.105, 82.32.110, 82.32.120, 82.32.130, 82.32.140, 82.32.150, 82.32.160, 82.32.170, 82.32.180, 82.32.190, 82.32.200, 82.32.210, 82.32.220, 82.32.230, 82.32.235, 82.32.237, 82.32.240, 82.32.245, 82.32.265, 82.32.300, 82.32.310, 82.32.320, 82.32.330, 82.32.340, 82.32.350, 82.32.360, and 82.32.380.

NEW SECTION. Sec. 245. RULES. The department may adopt rules under chapter 34.05 RCW for the administration and enforcement of this title. The rules, to the extent possible without being inconsistent with this title, shall follow the Internal Revenue Code, and the regulations and rulings of the United States treasury department with respect to the federal income tax. The department may adopt as a part of these rules any portions of the Internal Revenue Code and treasury department regulations and rulings, in whole or in part.

I. APPEALS

Sec. 246. RCW 82.03.130 and 1992 c 206 s 9 are each amended to read as follows:

The board shall have jurisdiction to decide the following types of appeals:

(1) Appeals taken pursuant to RCW 82.03.190.

(2) Appeals from a county board of equalization pursuant to RCW 84.08.130.

(3) Appeals by an assessor or landowner from an order of the director of revenue made pursuant to RCW 84.08.010 and 84.08.060, if filed with the board of tax appeals within thirty days after the mailing of the order, the right to such an appeal being hereby established.

(4) Appeals by an assessor or owner of an intercounty public utility or private car company from determinations by the director of revenue of equalized assessed valuation of property and the apportionment thereof to a county made pursuant to chapter 84.12 RCW and 84.16 RCW, if filed with the board of tax appeals within thirty days after mailing of the determination, the right to such appeal being hereby established.

(5) Appeals by an assessor, landowner, or owner of an intercounty public utility or private car company from a determination of any county indicated ratio for such county compiled by the department of revenue pursuant to RCW 84.48.075: PROVIDED, That

(a) Said appeal be filed after review of the ratio under RCW 84.48.075(3) and not later than fifteen days after the mailing of the certification; and

(b) The hearing before the board shall be expeditiously held in accordance with rules prescribed by the board and shall take precedence over all matters of the same character.

(6) Appeals from the decisions of sale price of second class shorelands on navigable lakes by the department of natural resources pursuant to RCW 79.94.210.

(7) Appeals from urban redevelopment property tax apportionment district proposals established by governmental ordinances pursuant to RCW 39.88.060.

(8) Appeals from interest rates as determined by the department of revenue for use in valuing farmland under current use assessment pursuant to RCW 84.34.065.

(9) Appeals from revisions to stumpage value tables used to determine value by the department of revenue pursuant to RCW 84.33.091.

(10) Appeals from denial of tax exemption application by the department of revenue pursuant to RCW 84.36.850.

(11) Appeals pursuant to RCW 84.40.038(2).

(12) Appeals relating to income tax deficiencies and refunds including penalties and interest under Title 82A RCW (sections 201 through 245 of this act).

Sec. 247. RCW 82.03.140 and 1988 c 222 s 4 are each amended to read as follows:

In all appeals over which the board has jurisdiction under RCW 82.03.130, a party taking an appeal may elect either a formal or an informal hearing, such election to be made according to rules of practice and procedure to be promulgated by the board: PROVIDED, That nothing shall prevent the assessor or taxpayer, as a party to an appeal pursuant to RCW 84.08.130, within twenty days from the date of the receipt of the notice of appeal, from filing with the clerk of the board notice of intention that the hearing be a formal one: PROVIDED, HOWEVER, That nothing herein shall be construed to modify the provisions of RCW 82.03.190: AND PROVIDED FURTHER, That upon an appeal under RCW 82.03.130 (5) or (12), the director of revenue may, within ten days from the date of its receipt of the notice of appeal, file with the clerk of the board notice of its ((~~intention that the hearing be held pursuant to chapter 34.05 RCW~~)) election of a formal hearing. In the event that appeals are taken from the same decision, order, or determination, as the case may be, by different parties and only one of such parties elects a formal hearing, a formal hearing shall be granted.

J. CONSTRUCTION‑-CODIFICATION‑-EFFECTIVE DATE

NEW SECTION. Sec. 248. SEVERABILITY. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 249. CODIFICATION. (1) Sections 101 through 111 of this act constitute a new chapter in Title 48 RCW.

(2) Sections 201 through 245 of this act shall be codified as a new title in the Revised Code of Washington, to be numbered Title 82A RCW.

NEW SECTION. Sec. 250. CAPTIONS AND PART HEADINGS. Section captions and part headings as used in this act constitute no part of the law.

NEW SECTION. Sec. 251. EFFECTIVE DATE. Sections 201 through 250 of this act shall take effect on January 1, 1994.

PART III

ALTERNATIVE TO INITIATIVE MEASURE NO. 141

NEW SECTION. Sec. 301. ALTERNATIVE TO INITIATIVE MEASURE NO. 141‑-PLACEMENT ON BALLOT-‑FORCE AND EFFECT OF CHAPTER. This act constitutes an alternative to Initiative Measure No. 141. The secretary of state is directed to place this act on the ballot in conjunction with Initiative Measure No. 141 at the next general election to be held in this state.

This act shall continue in force and effect until the secretary of state certifies the election results on this act. If affirmatively approved at the general election, this act shall continue in effect thereafter.