Retail Sales and Use Tax.
Retail sales taxes are imposed on retail sales of most articles of tangible personal property, digital products, and some services. A retail sale is a sale to the final consumer or end user of the property, digital product, or service. If retail sales taxes are not collected when the user acquires the property, digital product, or service, then use tax applies to the value of property, digital product, or service when used in this state. The state, all counties, and all cities levy retail sales and use taxes. The state sales and use tax rate is 6.5 percent; local sales and use tax rates vary from 0.5 percent to 4.1 percent, depending on the location.
Local Sales and Use Taxes.
Counties, cities, and towns were first granted the authority to impose a local sales and use tax in 1970. There is a basic 0.5 percent sales and use tax and an optional 0.5 percent sales and use tax. The revenues from these two sales and use taxes are unrestricted and may be used for any lawful government purpose.
When both the city and the county impose the basic sales and use tax, the county must credit back the full amount of the city's basic sales and use tax so that the combined rate does not exceed 0.5 percent. However, the first 15 percent of the basic sales and use tax collected within the city must be distributed to the county. This is also the case with the optional sales and use tax.
There are other optional sales and use taxes that may be imposed; however, the revenues from these sales and use taxes are restricted to specific purposes. For example, the Cultural Access Program sales and use tax of 0.1 percent must be used to benefit or expand access to nonprofit cultural organizations. Many of the optional local sales and use taxes require voter approval.
Streamlined Sales and Use Tax Agreement.
In 2007 legislation was enacted fully adopting the Streamlined Sales and Use Tax Agreement (SSUTA). The SSUTA includes provisions for determining where a sale is deemed to occur, for local sales and use tax purposes. As part of the legislation, local streamlined sales tax mitigation payments were authorized to mitigate the negative impact on local jurisdictions caused by the change in sourcing rules. Each July 1, the State Treasurer transferred an amount determined by the Department of Revenue (DOR) to fully mitigate negatively impacted local jurisdictions. The DOR determined each local jurisdiction's annual losses. Distributions were made quarterly representing one-fourth of a jurisdiction's annual losses less voluntary compliance revenue from the previous quarter.
In 2017 the Legislature repealed local mitigation payments, effective October 1, 2019. The payments were adjusted to reflect the impact of marketplace fairness on local tax revenues and were made only to cities, counties, and public facilities districts. Selected jurisdictions may have qualified for mitigation payments under the 2019-2021 Omnibus Operating Budget.
In 2021 the Legislature enacted Engrossed Substitute House Bill 1521 which provided that qualified local taxing districts negatively impacted by the SSUTA may receive annual mitigation payments each July 1. To qualify, a local taxing district must be a city and have received a quarterly streamlined sales tax mitigation payment of at least $60,000 on June 30, 2020.
The quarterly mitigation payment is equal to the payment that was provided to that taxing district on June 30, 2020. The amount of the quarterly mitigation payments is reduced annually by 20 percent from the previous year's payment that same quarter for each qualified local taxing district. Payments will end July 1, 2026.
The legislative body of an authorized city may impose an additional sales and use tax of up to 0.3 percent of the selling price or value of the article used. The revenues from this tax may be used for any purpose that improves the vitality of the community in the same manner that general fund revenues may be used.
An authorized city means a city that has a population of greater than 120,000 in a county with a population of 1.5 million or greater and has at least 25 percent of its total property assessed value derived from industrial and warehousing industries. The ordinance or resolution to impose the tax must include the attestation that the city meets these requirements.
An authorized city that imposes this tax must comply with three public process requirements as part of its biennial budget process. Cities must:
The substitute bill includes a requirement that the ordinance or resolution to impose the tax include an attestation that the city meets all the requirements of the act. In addition, the substitute bill removes the emergency clause and adds an effective date of January 1, 2026.
(In support) The City of Kent was the community harmed the most by SSUTA as it has more commercial and industrial land than the surrounding area combined. The loss of revenues makes it challenging to maintain the quality of life and meet the community's needs. The industrial valley benefits all of Puget Sound by warehousing the goods that get delivered to other cities and generate sales tax revenues for those jurisdictions. It also is home to several manufacturing businesses that take advantage of the access to highways and rail.
As industrial land near the Puget Sound ports is converted to other uses, it is critical that Kent has the tax revenues to maintain their part in the supply chain. This bill allows Kent to have a tool that will ensure this.
There is a need to continue to invest in the infrastructure that allows Kent to be this hub for Puget Sound. The city has tightened its fiscal belt, but still is falling short on the necessary funds to solve this legislatively created problem.
(Opposed) The City of Kent has a combined sales tax of almost 11 percent and this bill would only add to this extremely high rate. Sales taxes are regressive taxes and any effort to raise the sales tax rate should go to a vote of the people.
(Other) There are administrative concerns with the proposal. First, it is difficult to determine if the city meets the assessed value threshold contained in the bill. It is recommended that an attestation requirement be included. Moreover, due to the changes necessary to implement a local sales and use tax rate the emergency clause should be removed.
(In support) Representative Chris Stearns, prime sponsor; Nick Streuli, Port of Seattle; Dana Ralph, Mayor, City of Kent; Satwinder Kaur, Council President, City of Kent; Bill Boyce, Councilmember, City of Kent; Tahmina Martelly; Charlie Brown, Fred Meyer; Sean Eagan, The Northwest Seaport Alliance; and Michael Transue, City of Fife.