HOUSE BILL REPORT

HB 67

BYRepresentatives Rayburn, Nealey, Prince, Kremen, McLean, C. Smith, Fuhrman, Betrozoff, Amondson, P. King, Chandler, Hargrove, Lewis and Doty

Exempting the conditioning of seed for out-of-state sales from business and occupation taxation.

House Committe on Agriculture & Rural Development

Majority Report:     Do pass.  (13)

     Signed by Representatives Rayburn, Chair; Kremen, Vice Chair; Baugher, Brooks, Chandler, Doty, Grant, Holm, Jacobsen, McLean, Moyer, Nealey and Rasmussen.

House Staff:Kenneth Hirst (786-7105)

Rereferred House Committee on Ways & Means/Revenue

Majority Report:     Do pass.  (9)

     Signed by Representatives Appelwick, Chair; Basich, Grimm, Holland, Madsen, Rust, Schoon, Valle and Winsley.

House Staff:    Susan Kavanaugh (786-7145)

AS PASSED HOUSE MARCH 13, 1987

BACKGROUND:

State law imposes a business and occupation (B & O) tax on manufacturing activities at a rate equal to 0.484 percent of the value of the products manufactured.  The rate is composed of a base rate of 0.44 percent plus a 10 percent tax surcharge.

The activities that qualify as manufacturing activities for the purpose of that tax are defined broadly by statute.  In 1985, the State Board of Tax Appeals upheld a determination by the Department of Revenue that the conditioning of vegetable seeds by a seed company constituted "manufacturing" for B & O tax purposes. Certain exemptions from the definition and reduced rates for certain categories of manufacturing are provided by statute.

State law also imposes the B & O tax on certain wholesale and retail sales.

SUMMARY:

Conditioning of seed for use in planting is exempted from the definition of manufacturing for business and occupation taxation purposes.

Revenue:   An exemption for the conditioning of certain seed from the B & O tax on manufacturing activities is provided.

Fiscal Note:    Attached.

House Committee ‑ Testified For:     (Agriculture & Rural Development)  Michael Veith, Alf Christianson Seed Company; Les Clemons, Washington Seed Council.

(Ways & Means/Revenue)  Representative Rayburn.

House Committee - Testified Against: (Agriculture & Rural Development)  None Presented.

(Ways & Means/Revenue)  None Presented.

House Committee - Testimony For:     (Agriculture & Rural Development)  (1) A seed company has been paying taxes as a wholesaler under state audit instructions; the state has now applied the "manufacturing" B & O tax rate for seed conditioning which places the company at a competitive disadvantage for its export sales.  (2) Seed used in planting is a living organism.  It is a part of the process of growing the final product.

(Ways & Means/Revenue)  Seed conditioning is a part of the process of growing the final product.

House Committee - Testimony Against: (Agriculture & Rural Development)  None Presented.

(Ways & Means/Revenue)  None Presented.