BILL REQ. #:  H-2762.2 

READ FIRST TIME 05/16/11.   

     AN ACT Relating to funding K-3 class size reductions by narrowing and repealing certain tax exemptions; amending RCW 82.04.4292 and 83.100.230; adding a new section to chapter 82.32 RCW; creating a new section; providing an effective date; and declaring an emergency.

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

NEW SECTION.  Sec. 1   (1) The legislature finds that Washington's best opportunity for long-term success rests with the further development of our public educational system. The legislature further finds that smaller classes in the early grades can significantly increase the amount of learning that takes place in the classroom. The legislature further finds that a primary focus of Initiative Measure No. 728, which passed with over seventy-one percent approval in November 2000, was to allocate additional moneys to class size reductions.
     (2) It is the intent of the legislature to fully fund critical K-3 class size reductions by significantly narrowing a tax deduction for banks and other financial institutions.

Sec. 2   RCW 82.04.4292 and 2010 1st sp.s. c 23 s 301 are each amended to read as follows:
     (1) In computing tax there may be deducted from the measure of tax by those engaged in banking, loan, security or other financial businesses, interest received on investments or loans primarily secured by first mortgages or trust deeds on nontransient residential properties.
     (2) Interest deductible under this section includes the portion of fees charged to borrowers, including points and loan origination fees, that is recognized over the life of the loan as an adjustment to yield in the taxpayer's books and records according to generally accepted accounting principles.
     (3) Subsections (1) and (2) of this section notwithstanding, the following is a nonexclusive list of items that are not deductible under this section:
     (a) Fees for specific services such as: Document preparation fees; finder fees; brokerage fees; title examination fees; fees for credit checks; notary fees; loan application fees; interest lock-in fees if the loan is not made; servicing fees; and similar fees or amounts;
     (b) Fees received in consideration for an agreement to make funds available for a specific period of time at specified terms, commonly referred to as commitment fees;
     (c) Any other fees, or portion of a fee, that is not recognized over the life of the loan as an adjustment to yield in the taxpayer's books and records according to generally accepted accounting principles;
     (d) Gains on the sale of valuable rights such as service release premiums, which are amounts received when servicing rights are sold; and
     (e) Gains on the sale of loans, except deferred loan origination fees and points deductible under subsection (2) of this section, are not to be considered part of the proceeds of sale of the loan.
     (4) Notwithstanding subsection (3) of this section, in computing tax there may be deducted from the measure of tax by those engaged in banking, loan, security, or other financial businesses, amounts received for servicing loans primarily secured by first mortgages or trust deeds on nontransient residential properties, including such loans that secure mortgage-backed or mortgage-related securities, but only if:
     (a)(i) The loans were originated by the person claiming a deduction under this subsection (4) and that person either sold the loans on the secondary market or securitized the loans and sold the securities on the secondary market; or
     (ii)(A) The person claiming a deduction under this subsection (4) acquired the loans from the person that originated the loans through a merger or acquisition of substantially all of the assets of the person who originated the loans, or the person claiming a deduction under this subsection (4) is affiliated with the person that originated the loans. For purposes of this subsection, "affiliated" means under common control. "Control" means the possession, directly or indirectly, of more than fifty percent of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise; and
     (B) Either the person who originated the loans or the person claiming a deduction under this subsection (4) sold the loans on the secondary market or securitized the loans and sold the securities on the secondary market; and
     (b) The amounts received for servicing the loans are determined by a percentage of the interest paid by the borrower and are only received if the borrower makes interest payments.
     (5)(a) The deductions provided in this section are not available to any person that is located in more than ten states.
     (b) For the purposes of this subsection:
     (i) A person is located in a state if:
     (A) The person or an affiliate of the person maintains a branch, office, or one or more employees or representatives in the state; and
     (B) Such in-state presence allows borrowers or potential borrowers to contact the branch, office, employee, or representative concerning the acquiring, negotiating, renegotiating, or restructuring of, or making payments on, mortgages issued or to be issued by the person or an affiliate of the person.
     (ii) "Affiliate" means a person is "affiliated," as defined in subsection (4) of this section, with another person.

NEW SECTION.  Sec. 3   A new section is added to chapter 82.32 RCW to read as follows:
     By June 1, 2012, and by June 1st of every year thereafter, the department must annually estimate the increase in state revenue for the current fiscal year resulting from the changes made to the deduction for banks and other financial institutions under section 2 of this act, and certify the estimated amounts to the state treasurer. By July 1, 2012, and by July 1st of every year thereafter, the state treasurer must transfer the certified amount into the education legacy trust account created in RCW 83.100.230.

Sec. 4   RCW 83.100.230 and 2010 1st sp.s. c 37 s 953 are each amended to read as follows:
     The education legacy trust account is created in the state treasury. Money in the account may be spent only after appropriation. Except as otherwise provided in this section, expenditures from the account may be used only for ((deposit into the student achievement fund)) the support of the common schools and for expanding access to higher education through funding for new enrollments and financial aid, and other educational improvement efforts. ((During the 2009-2011 fiscal biennium, moneys in the account may also be transferred into the state general fund.)) Money deposited into the account as required in section 3 of this act must be used only for K-3 class size reductions.

NEW SECTION.  Sec. 5   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 August 1, 2011.