HOUSE BILL REPORT

                 ESHB 2933

                    As Passed Legislature

Title:  An act relating to the business and occupation taxation of warehousing and reselling of pharmaceutical drugs subject to regulation by the federal drug enforcement administration and the state board of pharmacy.

Brief Description:  Prescribing the taxation of businesses warehousing and selling pharmaceutical drugs.

Sponsors:  By House Committee on Finance (originally sponsored by Representatives Radcliff, Cooper, Cooke, Morris, Doumit, Dyer, L. Thomas, Zellinsky, Grant and Thompson).

Brief History:

  Committee Activity:

Finance:  2/4/98, 2/9/98 [DPS].

Floor Activity:

Passed House:  2/25/98, 96-0.

Passed Legislature.

HOUSE COMMITTEE ON FINANCE

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  Signed by 11 members:  Representatives Carrell, Vice Chairman; Mulliken, Vice Chairman; Dunshee, Ranking Minority Member; Boldt; Conway; Mason; Morris; Pennington; Schoesler; Thompson and Van Luven.

Staff:  Rick Peterson (786-7150).

Background:  The business and occupation tax (B&O) is levied for the privilege of doing business in Washington.  The tax is levied on 100 percent of the gross receipts of all business activities (except utility activities) conducted within the state.

Although there are several different rates, beginning July 1, 1998, the principal rates will be as follows:

     Manufacturing/wholesaling    0.484percent

     Retailing        0.471percent

     Services         1.5percent 

Wholesalers that sell goods to retailers pay wholesaling B&O (0.484 percent) on the sales price of the goods sold.

Washington does not assess B&O tax on sales of goods which originate in Washington if the receipt of the goods occurs outside Washington.  Washington does not apply B&O tax on sales of goods which originate outside the state unless the goods are received by the purchaser in this state and the out-of-state seller is legally considered to be doing business in Washington. 

Out-of-state wholesalers may use direct seller's representatives or take orders by telephone or mail and avoid B&O tax.

Summary of Bill:  Wholesalers of prescription drugs are provided a tax reduction.  The tax rate is reduced from 0.484 percent of gross income to 0.138 percent of gross income.

Appropriation:  None.

Fiscal Note:  Available.

Effective Date:  The bill takes effect on July 1, 2001.

Testimony For:  Competition from out-of-state firms and mail order companies is hurting Washington distributors of pharmaceutical products.  These competitors use their out-of-state location to avoid the B&O tax.  The B&O tax averages roughly 25 percent of the profit of Washington firms. The proposed tax treatment applies only to pharmaceutical drugs that are regulated by the Federal Drug Enforcement Administration and Washington State Board of Pharmacy.  It would make Washington companies competitive with out-of-state sellers.

Testimony Against:  None.

Testified:  Representative Radcliff, sponsor; and Hubie McMorrow, Washington Wholesale Druggists' Association (pro).