BILL REQ. #:  H-2947.4 

Read first time 04/17/2003.   Referred to Committee on Finance.

     AN ACT Relating to revenue for dedicated accounts; amending RCW 82.08.020, 82.04.4282, 82.08.0293, 82.12.0293, 82.32.090, and 82.08.064; adding a new section to chapter 82.08 RCW; adding a new section to chapter 82.24 RCW; adding a new section to chapter 82.32 RCW; adding a new section to chapter 43.135 RCW; creating new sections; repealing RCW 82.04.4283; providing an effective date; and declaring an emergency.

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

NEW SECTION.  Sec. 1   (1)(a) The legislature finds that the people of Washington want their children to be healthy and well-educated. In 2000, the voters overwhelmingly passed Initiative Measure No. 728, creating the student achievement account. School districts around the state use critical Initiative Measure No. 728 funds to improve student achievement by reducing class size, providing early childhood education, and expanding before-and-after school programs. Education is the key to a vital economy and a prosperous future for our children.
     (b) This act improves funding for education by imposing an additional 0.2 percent retail sales and use tax that is dedicated for education purposes. The revenue from this tax will be deposited in the student achievement account and will provide three hundred sixteen dollars per pupil funding in school year 2005, better schools funding, promise scholarship funding, and high-demand enrollment in the higher education institutions.
     (2)(a) In order for children to succeed in school they also need adequate health care. Washington has been a national leader in providing medical insurance for children.
     (b) This act improves funding for health care by providing dedicated revenue from the following sources:
     (i) An additional tax on cigarettes of fifty cents per pack;
     (ii) An additional tax of five percent on retail sales of spirits (hard liquor) and beverages containing spirits;
     (iii) Limiting the business and occupation tax deduction for dues by excluding businesses that provide amusement, recreation, or physical fitness services in exchange for the dues;
     (iv) Repealing the sales and use tax exemptions for candy and gum;
     (v) Imposing penalties on businesses that underpay state excise taxes; and
     (vi) Repealing the business and occupation tax deduction for cash discounts.
     (c) The revenues from these sources are deposited in the health services account, and will provide funding for children's medical coverage up to two hundred fifty percent of federal poverty level and enrollment in the basic health plan.

Sec. 2   RCW 82.08.020 and 2000 2nd sp.s. c 4 s 1 are each amended to read as follows:
     (1) There is levied and there shall be collected a tax on each retail sale in this state equal to six and five-tenths percent of the selling price.
     (2) There is levied and there shall be collected an additional tax on each retail car rental, regardless of whether the vehicle is licensed in this state, equal to five and nine-tenths percent of the selling price. The revenue collected under this subsection shall be deposited in the multimodal transportation account created in RCW 47.66.070.
     (3) There is levied and there shall be collected an additional tax on each retail sale in this state equal to two-tenths percent of the selling price. The revenue collected under this subsection, and under RCW 82.12.020 attributable to the rate in this subsection, shall be deposited in the student achievement fund.
     (4) The taxes imposed under this chapter shall apply to successive retail sales of the same property.
     (((4))) (5) The rates provided in this section apply to taxes imposed under chapter 82.12 RCW as provided in RCW 82.12.020.

NEW SECTION.  Sec. 3   A new section is added to chapter 82.08 RCW to read as follows:
     (1) There is levied and shall be collected a tax upon each retail sale of spirits, strong beer, or beverage containing spirits, at the rate of five percent of the selling price. The tax imposed in this section applies to all such retail sales by the Washington state liquor stores, agencies, and other persons. For the purposes of this section, "retail sale" does not include sales by the Washington state liquor stores or agencies to spirits, beer, and wine restaurant licensees.
     (2) As used in this section, the terms, "spirits," "strong beer," and "package" have the meanings given in chapter 66.04 RCW.
     (3) The revenue collected under this section shall be deposited in the health services account.

NEW SECTION.  Sec. 4   A new section is added to chapter 82.24 RCW to read as follows:
     (1) There is hereby levied and there shall be collected by the department of revenue from the persons mentioned in and in the manner provided by this chapter, an additional tax upon the sale, use, consumption, handling, possession, or distribution of cigarettes in an amount equal to the rate of twenty-five mills per cigarette.
     (2) The revenue collected under this section shall be deposited as follows:
     (a) To ensure continued availability of previously dedicated revenues for existing programs, each fiscal year eight million five hundred thousand dollars shall be deposited in the general fund, two million nine hundred thousand dollars shall be deposited in the water quality account, and three million nine hundred thousand dollars shall be deposited in the violence reduction and drug enforcement account; and
     (b) The remainder shall be deposited in the health services account.

Sec. 5   RCW 82.04.4282 and 1994 c 124 s 3 are each amended to read as follows:
     In computing tax there may be deducted from the measure of tax amounts derived from bona fide (1) initiation fees, (2) dues, (3) contributions, (4) donations, (5) tuition fees, (6) charges made by a nonprofit trade or professional organization for attending or occupying space at a trade show, convention, or educational seminar sponsored by the nonprofit trade or professional organization, which trade show, convention, or educational seminar is not open to the general public, (7) charges made for operation of privately operated kindergartens, and (8) endowment funds. This section shall not be construed to exempt any person, association, or society from tax liability upon selling tangible personal property or upon providing facilities or services for which a special charge is made to members or others. If dues are in exchange for any significant amount of goods or services rendered by the recipient thereof to members without any additional charge to the member, or if the dues are graduated upon the amount of goods or services rendered, the value of such goods or services shall not be considered as a deduction under this section. The deduction under this section is not available to any person engaging in the business of providing any amusement and recreation service under RCW 82.04.050(3)(a) or fitness service under RCW 82.04.050(3)(g).

Sec. 6   RCW 82.08.0293 and 1988 c 103 s 1 are each amended to read as follows:
     (1) The tax levied by RCW 82.08.020 shall not apply to sales of food products for human consumption.
     "Food products" include cereals and cereal products, oleomargarine, meat and meat products including livestock sold for personal consumption, fish and fish products, eggs and egg products, vegetables and vegetable products, fruit and fruit products, spices and salt, sugar and sugar products, coffee and coffee substitutes, tea, cocoa and cocoa products.
     "Food products" include milk and milk products, milk shakes, malted milks, and any other similar type beverages which are composed at least in part of milk or a milk product and which require the use of milk or a milk product in their preparation.
     "Food products" include all fruit juices, vegetable juices, and other beverages except bottled water, spirituous, malt or vinous liquors or carbonated beverages, whether liquid or frozen.
     "Food products" do not include medicines and preparations in liquid, powdered, granular, tablet, capsule, lozenge, and pill form sold as dietary supplements or adjuncts.
     "Food products" do not include candy. "Candy" means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces. "Candy" does not include any preparation containing flour or any product that requires refrigeration.
     (2) The exemption of "food products" provided for in subsection (1) of this section shall not apply: (a) When the food products are ordinarily sold for immediate consumption on or near a location at which parking facilities are provided primarily for the use of patrons in consuming the products purchased at the location, even though such products are sold on a "takeout" or "to go" order and are actually packaged or wrapped and taken from the premises of the retailer, or (b) when the food products are sold for consumption within a place, the entrance to which is subject to an admission charge, except for national and state parks and monuments, or (c) to a food product, when sold by the retail vendor, which by law must be handled on the vendor's premises by a person with a food and beverage service worker's permit under RCW 69.06.010, including but not be limited to sandwiches prepared or chicken cooked on the premises, deli trays, home-delivered pizzas or meals, and salad bars but excluding:
     (i) Raw meat prepared by persons who slaughter animals, including fish and fowl, or dress or wrap slaughtered raw meat such as fish mongers, butchers, or meat wrappers;
     (ii) Meat and cheese sliced and/or wrapped, in any quantity determined by the buyer, sold by vendors such as meat markets, delicatessens, and grocery stores;
     (iii) Bakeries which only sell baked goods;
     (iv) Combination bakery businesses, as prescribed by rule of the department, to the extent that sales of baked goods are separately accounted for and the baked goods claimed for exemption are not sold as part of meals or with beverages in unsealed containers; or
     (v) Bulk food products sold from bins or barrels, including but not limited to flour, fruits, vegetables, sugar, salt, ((candy,)) chips, and cocoa.
     (3) Notwithstanding anything in this section to the contrary, the exemption of "food products" provided in this section shall apply to food products which are furnished, prepared, or served as meals:
     (a) Under a state administered nutrition program for the aged as provided for in the Older Americans Act (P.L. 95-478 Title III) and RCW 74.38.040(6); or
     (b) Which are provided to senior citizens, disabled persons, or low-income persons by a not-for-profit organization organized under chapter 24.03 or 24.12 RCW.
     (4) Subsection (1) of this section notwithstanding, the retail sale of food products is subject to sales tax under RCW 82.08.020 if the food products are sold through a vending machine, and in this case the selling price for purposes of RCW 82.08.020 is fifty-seven percent of the gross receipts.
     This subsection does not apply to hot prepared food products, other than food products which are heated after they have been dispensed from the vending machine.
     For tax collected under this subsection, the requirements that the tax be collected from the buyer and that the amount of tax be stated as a separate item are waived.

Sec. 7   RCW 82.12.0293 and 1988 c 103 s 2 are each amended to read as follows:
     (1) The provisions of this chapter shall not apply in respect to the use of food products for human consumption.
     "Food products" include cereals and cereal products, oleomargarine, meat and meat products including livestock sold for personal consumption, fish and fish products, eggs and egg products, vegetables and vegetable products, fruit and fruit products, spices and salt, sugar and sugar products, coffee and coffee substitutes, tea, cocoa and cocoa products.
     "Food products" include milk and milk products, milk shakes, malted milks, and any other similar type beverages which are composed at least in part of milk or a milk product and which require the use of milk or a milk product in their preparation.
     "Food products" include all fruit juices, vegetable juices, and other beverages except bottled water, spirituous, malt or vinous liquors or carbonated beverages, whether liquid or frozen.
     "Food products" do not include medicines and preparations in liquid, powdered, granular, tablet, capsule, lozenge, and pill form sold as dietary supplements or adjuncts.
     "Food products" do not include candy. "Candy" means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces. "Candy" does not include any preparation containing flour or any product that requires refrigeration.
     (2) The exemption of "food products" provided for in subsection (1) of this section shall not apply: (a) When the food products are ordinarily sold for immediate consumption on or near a location at which parking facilities are provided primarily for the use of patrons in consuming the products purchased at the location, even though such products are sold on a "takeout" or "to go" order and are actually packaged or wrapped and taken from the premises of the retailer, or (b) when the food products are sold for consumption within a place, the entrance to which is subject to an admission charge, except for national and state parks and monuments, or (c) to a food product, when sold by the retail vendor, which by law must be handled on the vendor's premises by a person with a food and beverage service worker's permit under RCW 69.06.010, including but not be limited to sandwiches prepared or chicken cooked on the premises, deli trays, home-delivered pizzas or meals, and salad bars but excluding:
     (i) Raw meat prepared by persons who slaughter animals, including fish and fowl, or dress or wrap slaughtered raw meat such as fish mongers, butchers, or meat wrappers;
     (ii) Meat and cheese sliced and/or wrapped, in any quantity determined by the buyer, sold by vendors such as meat markets, delicatessens, and grocery stores;
     (iii) Bakeries which only sell baked goods;
     (iv) Combination bakery businesses, as prescribed by rule of the department, to the extent that sales of baked goods are separately accounted for and the baked goods claimed for exemption are not sold as part of meals or with beverages in unsealed containers; or
     (v) Bulk food products sold from bins or barrels, including but not limited to flour, fruits, vegetables, sugar, salt, ((candy,)) chips, and cocoa.
     (3) Notwithstanding anything in this section to the contrary, the exemption of "food products" provided in this section shall apply to food products which are furnished, prepared, or served as meals:
     (a) Under a state administered nutrition program for the aged as provided for in the Older Americans Act (P.L. 95-478 Title III) and RCW 74.38.040(6); or
     (b) Which are provided to senior citizens, disabled persons, or low-income persons by a not-for-profit organization organized under chapter 24.03 or 24.12 RCW.

Sec. 8   RCW 82.32.090 and 2000 c 229 s 7 are each amended to read as follows:
     (1) If payment of any tax due ((on a return to be filed by a taxpayer)) is not received by the department of revenue by the due date, there shall be assessed a penalty of five percent of the amount of the tax; and if the tax is not received on or before the last day of the month following the due date, there shall be assessed a total penalty of ten percent of the amount of the tax; and if the tax is not received on or before the last day of the second month following the due date, there shall be assessed a total penalty of twenty percent of the amount of the tax. No penalty so added shall be less than five dollars.
     (2) If payment of any tax assessed by the department of revenue is not received by the department by the due date specified in the notice, or any extension thereof, the department shall add a penalty of ten percent of the amount of the additional tax found due. No penalty so added shall be less than five dollars.
     (3) If a warrant be issued by the department of revenue for the collection of taxes, increases, and penalties, there shall be added thereto a penalty of five percent of the amount of the tax, but not less than ten dollars.
     (4) If the department finds that all or any part of a deficiency resulted from the disregard of specific written instructions as to reporting or tax liabilities, the department shall add a penalty of ten percent of the amount of the additional tax found due because of the failure to follow the instructions. A taxpayer disregards specific written instructions when the department of revenue has informed the taxpayer in writing of the taxpayer's tax obligations and the taxpayer fails to act in accordance with those instructions unless the department has not issued final instructions because the matter is under appeal pursuant to this chapter or departmental regulations. The department shall not assess the penalty under this section upon any taxpayer who has made a good faith effort to comply with the specific written instructions provided by the department to that taxpayer. Specific written instructions may be given as a part of a tax assessment, audit, determination, or closing agreement, provided that such specific written instructions shall apply only to the taxpayer addressed or referenced on such documents. Any specific written instructions by the department of revenue shall be clearly identified as such and shall inform the taxpayer that failure to follow the instructions may subject the taxpayer to the penalties imposed by this subsection.
     (5) If the department finds that all or any part of the deficiency resulted from an intent to evade the tax payable hereunder, a further penalty of fifty percent of the additional tax found to be due shall be added.
     (6) The aggregate of penalties imposed under subsections (1), (2), and (3) of this section shall not exceed thirty-five percent of the tax due, or twenty dollars, whichever is greater. This subsection does not prohibit or restrict the application of other penalties authorized by law.
     (7) The department of revenue may not impose both the evasion penalty and the penalty for disregarding specific written instructions on the same tax found to be due.
     (8) For the purposes of this section, "return" means any document a person is required by the state of Washington to file to satisfy or establish a tax or fee obligation that is administered or collected by the department of revenue, and that has a statutorily defined due date.

NEW SECTION.  Sec. 9   Section 8 of this act applies to all assessments made after the effective date of section 8 of this act, regardless of the due date of the taxes subject to the assessment.

NEW SECTION.  Sec. 10   RCW 82.04.4283 (Deductions -- Cash discount taken by purchaser) and 1980 c 37 s 4 are each repealed.

NEW SECTION.  Sec. 11   A new section is added to chapter 82.32 RCW to read as follows:
     (1) The changes in sections 5 through 10 of this act are intended to provide dedicated revenue sources for the health services account. Since it is not practical to determine precisely the revenues derived from these changes, a fixed percentage of sales tax revenue is dedicated in lieu thereof.
     (2) Eight hundred and sixty-six thousandths of one percent of all revenue from the tax imposed in RCW 82.08.020(1) shall be deposited in the health services account.
     (3) On or before January 1st of each year, the department of revenue shall provide the legislature with an updated estimate of the percentage of sales tax revenue attributable as dedicated revenue under subsection (1) of this section. The updated estimate is not effective until adopted by the legislature.

NEW SECTION.  Sec. 12   A new section is added to chapter 43.135 RCW to read as follows:
     RCW 43.135.035(4) does not apply to section 11 of this act.

Sec. 13   RCW 82.08.064 and 2000 c 104 s 3 are each amended to read as follows:
     (1) A sales and use tax rate change under this chapter or chapter 82.12 RCW shall be imposed (1) no sooner than seventy-five days after its enactment into law and (2) only on the first day of January, April, July, or October.
     (2) Subsection (1) of this section does not apply to the tax rate changes in chapter ... Laws of 2003 (this act).

NEW SECTION.  Sec. 14   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2003.