HOUSE BILL REPORT

SSB 6859

BYSenate Committee on Ways & Means (originally sponsored by Senators McDonald, Gaspard, Hayner, Vognild, Bluechel, Sellar, Warnke, Saling, Owen, Cantu, Amondson, Johnson, Moore, Newhouse, Smith, Bauer and Sutherland)

Clarifying the tax status of computer software.

House Committe on Revenue

Majority Report:  Do pass as amended.  (17)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair; Holland, Ranking Republican Member; Horn, Assistant Ranking Republican Member, Appelwick, Basich, Brumsickle, Fraser, Fuhrman, Grant, Haugen, Morris, Phillips, Rust, Silver, H. Sommers and Van Luven.

House Staff:Rick Wickman (786-7150)

AS PASSED HOUSE FEBRUARY 27, 1990

BACKGROUND:

All property, both real and personal, is subject to property taxation unless specifically exempted.  Personal property is defined to include all goods, chattels, stocks, estates or moneys and all property of whatever kind, name, nature and description which the law may define or the courts declare to be personal property for purposes of taxation.  This includes both tangible and intangible property.

Tangible property are things having a physical existence such as desks, file cabinets, and equipment.  Intangible property are things not having a physical existence, such as copyrights and patents.  Current law exempts some intangible property, including money, mortgages, certificates of deposit, and judgments.

While acknowledging that courts in nearly all states considering the subject have held computer software to be intangible, the State Board of Tax Appeals ruled in 1989 that computer software was taxable because it did not fall within the list of exempted intangibles.

SUMMARY:

The Legislature acknowledges the expansion of the computer software industry, the importance of resolving public policy issues, and the necessity of developing definitions of computer software and standards for any potential taxation.

For property taxes due in 1991, county assessors must tax each taxpayer's computer software in the same manner as that taxpayer's software was taxed in 1989.  If an assessor adds software to the tax rolls for 1991 taxes, the assessor has the burden of proving the software is taxable within the intent of this act.

The Department of Revenue is directed to form a committee to study the taxation of computer software to determine to what extent computer software should be subject to taxation.  Elements of the study are specified including membership of the committee.  The chair of the committee shall be an individual from the private sector.

The Department of Revenue is directed to report the findings of the committee to the legislative committees on revenue by November 30, 1990.

Revenue:    The bill has a revenue impact.

Fiscal Note:      Requested February 22, 1990.

Effective Date:The bill contains an emergency clause and takes effect immediately.

House Committee ‑ Testified For:    Enid Layes, Association of Washington Business; Tony Andino, Microsoft and Garry Fujita, A. W. A. Bankers.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    A study bill is needed with direction as to elements of the study to resolve the issue of computer software taxation.

House Committee - Testimony Against:      None.