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Suzan DelBene, Director
June 9, 2011
Local Government Partnership
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Topics for Today
Amnesty Program
Master License Service
Tax Simplification
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Amnesty Results
Program ran February 1 – April 30
Waived penalties and interest on certain unpaid taxes due before February 1, 2011
$343 million in back taxes collected
• $282 million state general fund
• $61 million local tax
• $500,000 in dedicated funds
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Amnesty in the News
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Amnesty- Local Sales Tax Distribution
The majority of the local sales tax dollars received from amnesty were distributed to local governments in May
May 2011 distributions were 12% higher than last year
Local jurisdictions may be able to identify sales tax related to amnesty by:
• Accounts that did not report before
• Accounts with tax reporting periods prior to Feb. 1, 2011
• “Pool” funds*
*$15.6 million in local sales tax that could not be coded to a specific jurisdiction was distributed proportionally across the state based on jurisdictions’ distribution amounts.
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Transfer of the Master License Service Effective July 1, 2011
Name changes to Business Licensing Service (BLS)
New website launched - business.wa.gov/BLS
Goal – A smooth transition for current MLS partners
Next steps – We will be seeking your input to improve BLS starting in early July
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New BLS Location
The new physical location for BLS will be:
6500 Linderson Way, Suite 102, Tumwater, WA 98501
This change will allow us to assist businesses with both their licensing and tax needs from the same convenient location
Service delivery to BLS customers will continue in all existing locations outside Olympia
Services provided by Employment Security and L&I at their offices throughout the state will also continue
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How Does This Move Affect You?Our goal is to make this transition as smooth as possible for MLS partners and the business community.
DOR staff has contacted staff in partner cities about the following changes needed by July 1st:
Transfer the current MLS contract from DOL to DORUpdate the contact names, phone numbers, address and name references
on your websitesStart using new DOR MLS TPX system logons Use new forms and toss out the old
If you have questions or concerns about the MLS transfer, please contact Jan Shaak at [email protected] or (360) 664-6578.
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Direction provided by Governor’s Executive Order 10-05
Project Statement: Evaluate ways to reduce the complexity of Washington’s tax system for small
businesses Provide findings and recommendations to the Governor by June 30, 2011
Objectives:Involve key stakeholdersIdentify the burdens imposed on small businessesCommunicate findings and recommendations
More information is available at: http://www.dor.wa.gov/TaxSimplification
Tax Simplification – Overview
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The Department used the following methods to
solicit over 1,100 comments and suggestions from small
businesses Face-to-face meetings with small businesses, business associations
and tax practitionersSurvey of small businessesSurvey and focus groups with the Department’s front-line employees
The Department also met with local governments and
associations across the state to:Share the businesses feedback and major findingsUnderstand the priorities and concerns of local government
Tax Simplification – Outreach Efforts
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Having one place to go and one return to file for all state and local business taxes is the #1 item for small business
Other priorities we heard from small business:
Increased consistency of:Business and Occupation (B&O) tax definitions, deductions, exemptions and credits across jurisdictionsFiling thresholds, requirements and frequencies across jurisdictionsAudit process and records requirements
Reduction in the number of:B&O reporting classificationsLocal sales tax rates and codesTax incentives, exemptions and deductions
Tax Simplification – Business Feedback
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It was very clear that any tax simplification recommendations must:
Be revenue neutral Maintain local authority and flexibility
Local governments pointed out the following possible benefits from centralized business tax reporting:
Reduced city administrative costs Increased statewide economic data Increased compliance An opportunity for a holistic approach to state and local
business taxes
Tax Simplification – Local Government Feedback
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Draft the final report for the Governor, due June 30th, that will include our findings and recommendations
Publish the final report on our website at: http://www.dor.wa.gov/TaxSimplification
Proceed based on feedback from the Governor
Attend annual Association of Washington Cities meeting in Spokane on June 22nd
Tax Simplification – Next Steps
2011 Legislative SessionDrew Shirk, Legislative Liaison
Agency Request Bills
• SHB 2017 – Master License Service
• SB 5763 – Narrowing the nonresident exemption
• HB 1347 – Sales and use tax M&E exemption
• EHB 1357 – Quarterly Efile/Epay
Agency Request Bills
SHB 2017 – Transferring the MLS program to DOR
• Transfers administration of the Master License Service (MLS) program from the Department of Licensing to the Department of Revenue (DOR).
• MLS staff will join DOR by July 1, 2011.
• Responsibilities transferred include:
– Administering 300 state and local business licenses.
– Establishing applications and renewals fees by rule, subject to new statutory maximums ($19 and $11 respectively).
– Administering a grant program to provide funding assistance to counties and cities that issue business licenses and want to join the MLS. The annual amount of grants may not exceed $750,000.
• Effective July 1, 2011.
• Chapter 298, Laws of 2011.
Agency Request Bills
SB 5763 – Narrowing the nonresident exemption
• Addresses the lawsuit the City of Bellingham and Whatcom County brought against the Department in 2010.
• Disqualifies residents of British Columbia, other provinces or territories of Canada, and any state with a tax at retail of three percent or greater from the nonresident sales tax exemption.
• Clarifies that a value added tax, harmonized sales tax, or any tax at retail that exceeds three percent, is the equivalent of a sales tax for purposes of the nonresident exemption.
• Effective July 1, 2011.
• Chapter 7, Laws of 2011.
Agency Request BillsHB 1347 – M&E sales and use tax exemption
• Addresses issues raised in the lawsuit King County brought against the Department (Brightwater).
• Clarifies that the existing manufacturing machinery and equipment (M&E) exemption only applies to M&E used in activities that are considered to be manufacturing for B&O tax purposes.
• Clarifies that the state and its departments and institutions are not eligible for the M&E exemption.
• The above clarifications apply both prospectively and retroactively.
• Creates a new sales and use tax exemption for public research institutions for M&E used primarily in a technological research and development operation.
• Effective April 11, 2011.
• Chapter 23, Laws of 2011.
Agency Request Bills
EHB 1357 – Quarterly Efile/Epay
• Authorizes the Department to expand electronic filing and payment of taxes to all taxpayers.
• Allows the Department to waive requirement for annual filers and businesses with extenuating circumstances.
• Extends the ten percent “disregard specific written instructions” penalty if the taxpayer willfully fails to file and pay electronically.
• Quarterly filers will no longer receive paper tax returns, tax rate flyers, or other publications by mail, after the Quarter 2 tax return, unless granted a waiver.
• Effective July 22, 2011.
• Chapter 24, Laws of 2011.
Bills of Interest
• HB 1239 - Allowing the Department to issue a notice of lien to secure payment of delinquent taxes in lieu of a warrant
• SHB 1384 – Relating to retainage of Federally funded transportation projects
• SB 5501 – Exemption for employee meals
• ESSB 5834 – Distribution and use of local hotel/motel taxes
Bills of Interest
HB 1239 – Notice of lien to secure payment of delinquent taxes in lieu of a warrant
• For warrants that exceed $25,000, the Department may issue a notice of lien against any real property in which the taxpayer has ownership.
• Provides additional flexibility for the Department; is not a requirement.
• Effective January 1, 2012.
• Chapter 131, Laws of 2011.
Bills of Interest
SHB 1384 – Relating to retainage of federally funded transportation projects
• WSDOT request legislation.
• Exempts public improvement contracts for highway, road, and street projects funded by federal transportation funds from the retainage requirement.
• Contract bonds are used instead in the event of claims or unpaid taxes.
• Effective July 22, 2011.
• Chapter 231, Laws of 2011.
Bills of Interest
SB 5501 – Exemption for employee meals
• Creates a B&O tax and sales and use tax exemption for restaurants that provide meals to employees without a specific charge.
• The term “restaurant” is defined in the bill and excludes grocery stores, mini-marts and convenience stores.
• Effective July 1, 2011.
• Chapter 55, Laws of 2011.
Bills of InterestESSB 5834 – Distribution and use of local hotel/motel taxes
• Makes a number of changes to the state-shared lodging tax statute to redirect how the money is distributed and used including:
– Yakima County hotel/motel tax distributions from within the city is extended from January 1, 2021 to 2035.
– King County distribution formulas are changed and new recipients (such as public housing) and services for homeless youth) are added.
• In lieu of the city parking tax, the Washington State Major League Baseball Stadium Public Facilities District is authorized to impose a ten percent parking tax at a park facility owned or leased by the district without voter approval.
• The prohibition for cities in King County imposing the state shared hotel/motel tax is extended permanently.
• Effective 90 days after the end of the 1st special session (pending Governor’s signature).
Property Tax Bills
• ESHB 1826 - Additional appeal protections for property tax value changes
• ESSB 5253 – Tax increment financing for landscape conservation
• ESSB 5359 – Family farms under current use open space property tax programs
Property Tax Bills
ESHB 1826 - Additional appeal protections for property tax value changes
• Requires the county Board of Equalization to waive the appeal deadline if:
– a taxpayer’s property was in a revaluation area,
– the property value did not change from the previous year,
– the taxpayer was not sent a notice and
– the taxpayer did not file an appeal prior to July 1 of the assessment year.
• This change first applies to taxes levied for collection in 2012.
• Effective July 22, 2011.
• Chapter 84, Laws of 2011.
Property Tax BillsESSB 5253 – Tax increment financing for landscape conservation
• Provides qualifying cities within the King, Pierce, and Snohomish counties with a tax increment financing program to fund infrastructure improvements.
• To qualify, cities must participate in a transfer of development rights program and meet certain requirements.
• A portion of incremental increases in regular property tax revenue that results from the new construction in a specified area will be used by the sponsoring city to fund the local public infrastructure projects in that same area.
• Taxing districts other than the cities and counties are not impacted.
• Effective July 22, 2011.
• Chapter 318, Laws of 2011.
Property Tax BillsSSB 5359 – Family farms under current use open space property tax
programs
• Expands the definition of “same ownership” to include parcels owned by different people that are managed as a single operation and owned by:
– Members of the same immediate family(defined in the bill),
– Legal entities wholly owned by members of the same immediate family, or
– An individual who owns at least one of the parcels and/or a legal entity or entities that own the other parcel or parcels if the entity or entities are wholly owned by that individual, members of his or her immediate family, or that individual and members of his or her immediate family.
• Adds the definition of “contiguous” to the forest land current use program.
• Effective July 22, 2011.
• Chapter 101, Laws of 2011.
League Fees
• Senate Bill 5422/House Bill 1452 did not pass this legislative session.
• Stakeholder work begins this month (June 2011)
• New ETA to be issued
• Rulemaking will follow
Break
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Department of RevenueLocal Government Partnership Meeting
June 9, 2011
Ashley Probart Legislative & Policy Advocate
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2011 LEGISLATIVE OUTCOMES
State budget
State-shared revenues reduced by 3.4% including: -Liquor Excise Tax -Liquor Revolving Fund (profits) -Streamlined Sales Tax Mitigation Account -Municipal Criminal Justice Account -City-County Assistance Account (6050)
Included in about $10 million of local government state-shared revenues transferred to the state’s general fund.
Basic Law Enforcement Academy-Requires locals to pay 25%.-Cost to cities will be approximately $750 per student.-Also requires agencies to supply their own ammunition.
Liquor privatization
ESSB 5942: Warehousing and distribution of liquor - Provides competitive bidding process.- Does not impact state liquor stores.- Proposals must demonstrate a net positive financial benefit to
state and local governments.- OFM to conduct fiscal impact statement on all proposals. - Upfront payment in 2011–2013 biennium required; if more than
$100 million, state may only receive 1/6 each fiscal year.
Land use & infrastructure
ESHB 1478: Fiscal relief- Allows impact fees to be held for up to 10 years rather than six years.- Effective date July 21, 2011.- Also enables the second-quarter REET to be used for debt service (counties
only).
HB 1953: Real Estate Excise Tax (REET) flexibility - Enables cities and counties to use REET for operations and maintenance
within eligible REET categories.- All cities and counties may use the greater of $100,000 or 35 percent of
funds, max. $1 million per year.- Also enables the second-quarter REET to be used for debt service. - Provisions sunset in 2016.
ESHB 1332: Joint provision and management of municipal utilities- Allows for the creation of a joint municipal utility services authority by two
or more entities for: the provision of water supply and conservation; wastewater, sewage or septic collection; or management and handling of stormwater.
Pensions & personnel
HB 2123: Workers’ compensation reform-A voluntary structured settlement system for older injured workers (beginning at age 55 and moving to age 50 by 2016).-A “Stay at Work” program that would provide a subsidy for state fund employers who provide light-duty options for injured employers to keep them on the job.-A one year COLA freeze on pension benefits.-Creation of a rainy day fund.-Study provisions in areas like fraud prevention and occupational disease.
Pensions & personnel (continued)
HB 2021: Limiting the annual increase in PERS 1 & TERS 1 - Governor request legislation.- Eliminates automatic COLA increase for PERS 1 retirees.- Decreases employer contribution for PERS 1 liability from 5.25%
to 3.5%.- Estimated $501 million state savings in 2011–2013.- Estimated $370million local government savings in 2011–2013.
HB 2070: Determining average salary for pensions- Would include any forgone compensation in final average salary
due to reduced work hours, mandatory leave without pay, temporary layoff, and pay reductions if due to employer budget cuts.
- Would require certification as part of employer plan.- Would not include elimination of previously agreed upon salary
increases.
Other fiscal-related bills
SSB 5722: Modification of mental health and chemical dependency sales & use tax- The temporary suspension of the non-supplant requirement for the
local mental health/chemical dependency sales and use tax is extended and modified for all jurisdictions authorized to impose the tax.
EHB 1730: Bond issuance flexibility- Clarifies how cities can delegate bond purchase and refinance
authority to a designated official.
SHB 1596: Ambulance utility- Gives cities that operate an ambulance utility the option of using city
general funds to support an ambulance utility. Current law has minimum general fund requirements when operating an ambulance utility.
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National IssuesTim Jennrich, June 9, 2011
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May 2011 Streamlined Governing Board meeting highlights:
Georgia admitted as a full member effective August 1.
Candy Rule and Illustrative Appendix adopted.
Personal care services Rule adopted.
Employee points/sales price Rule adopted.
Voluntary registrants and amnesty discussions.
Continuing workgroup projects: other communications taxes, credit for taxes paid, services sourcing, and sales price.
Streamlined Sales and Use Tax Project - Update
Main Street Fairness Act
• All remaining technical issues are sufficiently resolved, and the Main Street Fairness Act is ready for introduction and hearing.
• Senator Dick Durbin of Illinois is expected to introduce the Main Street Fairness Act in 2011. However, the date of introduction is not yet certain.
• Durbin continues to seek bipartisan support.
• Prospects for this bill in 2011?
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Other Federal Legislation
Business Activity Tax Simplification Act of 2011
• The bill would impose complex new physical presence nexus standards for Washington state and local privilege taxes.
• Estimated fiscal impact is over $329 million in the first year and $1.4 billion over the next five years.
• The bill is making its way to the House and Senate.
• DOR’s proactive education efforts.
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Other Federal Legislation – cont.
Digital Goods and Services Fairness Act of 2011
• The stated purpose of the bill is to prohibit multiple and discriminatory taxation of digital products (taxes impacted include sales and gross receipts taxes).
• The bill represents a solution looking for a nonexistent problem and has fiscal impacts for the state and local governments.
• The bill is making its way to the House and Senate.
• DOR’s proactive education efforts.
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Other federal legislation – cont.
State Video Tax Fairness Act of 2011
• Requires multi-channel video programming to have the same net tax rate regardless of channel, e.g., cable and satellite must be taxed the same.
• The bill doe not appear to impact Washington in its current form because it does not apply to taxes imposed before January 1, 2011.
• We continue to monitor the bill.
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SST MitigationDon Gutmann, June 9, 2011
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FY 2012 - $25,720,000
FY 2013 - $25,656,000
2011 – 2013 Biennium - $51,376,000
2011 Legislature reduced the SST mitigation payments by 3.4% - a reduction of $1,746,784.
Annual SST Advisory Committee Meeting is July 15, 2011 from 10:00-2:00
SST Mitigation Payments
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Andy Van Gerpen, June 9, 2011
Local Tax Distribution Data
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The Department is moving the distribution of local reports from paper to electronic formats
The goal is to phase out paper reports by March 2012
This will include reports for the local sales and use, lodging, E911, transportation, and brokered natural gas taxes.
What is happening?
What is the status?
Report Type Electronic Paper
Local Sales and Use
Lodging
Transportation
E911
156
2
6
39
154
226
0
0
48
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Ease of use and analysis
Simplicity of storage and transfer
Received timely
Free
Why change?
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Send email to DOR with contact, phone, and email
Receive logon and password from DOR
Receive email notification reports are available
Access reports on secure site and save reports
How to access the reports?
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Andy Van Gerpen; [email protected]
Include in email:
Name
Phone Number
Email address
Secrecy Clause Affidavit
Contact Information
Questions?
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Gary Davis and Ken Krous, June 9, 2011
Utility Taxes & Fire Districts
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Many cities also impose a municipal utility tax on the providers of certain utility services.
The municipal utility tax also applies to a department of the city that provides utility services.
If a city itself operates a department that provides utility services directly to its citizens, the municipal utility tax also applies to those services.
The entire amount charged to and collected from customers is gross revenue to the utility provider.
This amount cannot be reduced by the amount of recovered taxes when the utility provider computes its state public utility tax or business and occupation tax liability, even if the city itself provides the utility service.
Local Utility Taxes are Part of Gross Income
Reimbursements for Fire Services Performed for Other Fire Districts
• Fire protection districts are subject to the business and occupation (B&O) tax on certain income. However, they are not subject to the B&O tax on amounts derived from activities that are exclusively governmental.
• Fire protection districts were created to provide fire protection for citizens and property within their geographic district. However, there needed to be a plan in place to deal with disasters beyond the resources of a single fire district. Thus, RCW 52.12.111 permits a fire protection district to use its equipment and personnel beyond the boundaries of the district. The law goes on to say that “any such use made of the equipment or personnel will constitute an exercise of a governmental function of the district.”
• Since the use of equipment and personnel by a fire protection district beyond the boundaries of the district constitutes a governmental function, income received for such services are not subject to B&O tax. Refer to RCW 82.04.419 and WAC 458-20-189.
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Cindy Autuchovich and Miki Gearhart, June 9, 2011
DOR Website and Web Pagefor Local Governments
What’s New on dor.wa.gov
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•Refreshed website launched December 2010Updated website features new colors and graphics, along with a reorganized home page.
•“What’s New” webpageFeatures new forms, publications, news releases, job postings, and other web updates.RSS feed available.
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Local Government Web Page
dor.wa.gov/localgovernment
Or
localgovernment.dor.wa.gov
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Link to Tax Simplification Project page
Instructions for Accessing Local Reports via SFT
Notice Regarding Confidential Tax Information
Information on types of tax increment financing (TIF) programs in WA
Table on Annexation Services Tax
Local Government Web Page
What is new?
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2011 Legislative Summary
2011 Legislation Page (see 2010 Legislation Page for example)
Link to Business License Service (BLS) information
Suggestions for “presentation ready” material on certain local taxes
– Complete form in today’s packet
– Send suggestions to Miki Gearhart at [email protected]
Local Government Web Page
What is coming?
Closing RemarksMiki Gearhart
Local Government Partnership Facilitator
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