2010 Legislative Session Update
Most of the Washington Legislature’s 2010 session’s taxes are now in effect and filing for public office positions took place last week. Because of the projected $5.8 billion deficit to be faced by the next Legislature, you will want to be heavily involved in knowing and supporting your choices among those who filed for the 98 House and 25 Senate races…or at least those in your district or districts. The viability of your business may depend on the forthcoming session in January and the people you send to make the important decisions.
You can judge some of that importance by looking back at the issues from last session that the Washington Lodging Association (WLA) worked on and followed on behalf of its members. The session and many of its decision makers were not friendly to businesses as you can read in the following summary.
Setting aside Initiative 960 and the super majority needed for a tax vote, slightly more than half of Washington’s legislators finally agreed on a mix of federal money, cuts, account transfers and tax increases to balance its budget. Faced with a $2.8 billion deficit, spending was cut by only $500 million. While the majority party said increased taxes were only 8 percent of the solution, a lot of the tax package will impact lodging operators.
A primary goal of WLA’s was to protect lodging tax revenues for tourism and marketing purposes. That was difficult as the state, counties and cities tried in earnest to divert these dollars for general fund purposes.
Our members and lobbyist worked well together calling, testifying and lobbying against the use of marketing funds for public safety programs . . . with success! No bills to change the use of the revenues generated from transient accommodations taxes passed.
SHB 3027 passed, which amends the current public facilities district (PFD) law to allow the Washington State Convention Center to become a PFD, similar to other convention centers in our state. Passage of this law is intended to promote a more stable financial position for our state’s flagship convention center and provide the opportunity to explore a future, much-needed expansion. It allows for:
• Debt issuance by the new convention center PFD to pay off existing bonds and certificates of participation
• The new convention center PFD will impose taxes on hotels in Seattle and King County, however the amounts imposed remain the same
• Payment to the state of $10-14 million per year from funds generated by the 2 percent tax credit
• Settlement of Tourism Alliance et al. v. State of Washington and James McIntire, State Treasurer – a pending lawsuit by Seattle hotels that challenges the transfer of $57 million in King County-generated special hotel taxes to the state general fund; passage of this legislation results in the Tourism Alliance relinquishing its claim to these funds
Funding for the State’s relatively new Tourism Commission has been slashedfrom $7 million to a bare $1.003 million. The decrease in funding is a result of the passage of SHB 3027 (the Commission had been funded with an annual $4 million transfer from the Convention Center; with the Convention Center’s change to a PFD, this transfer will no longer be made) and cuts from the general fund. Members of the Tourism Commission are now working on a plan to create new sources of revenue to market Washington as a destination.
Business and Industry’s Retrospective Rating Program for Workers’ Compensation programs was under heavy attack last year but was not a topic for conflict this sessionwith legislators trying to concentrate on fiscal issues of the State. And perhaps part of that lack of attention grew from a business coalition effort to oppose premium increases and push for complete reform of the workers’ compensation system. The Legislative majority chose to ignore all aspects of the program, even another study proposed by Sen. Kohl-Welles.
Other previous WLA hot buttons were ignored by the Legislature this session! They were Family Leave, Worker Privacy, Minimum Wage, Immigration Reform, Universal Health Care, and increased Liquor Taxes.
A strong effort by the Washington Restaurant Association to reduce the State’s liquor markup to retailers failed due to the State’s fiscal crisis. However, the issue of privatization seemed to gain more strength and may result in a statewide initiative. ESHB 2790, which would add holders of hotel licenses to the list of industry members and retailers who may have a financial interest in a separately licensed legal entity, passed the House but died on the Senate calendar due to expiration of the session.
Perhaps the biggest disappointment of the 2010 session, according to the Association of Washington Business, was the failure of lawmakers to address the state's workers' compensation system. Businesses were hit this year by an average 7.6 percent increase in workers' comp insurance premiums, and more increases will likely be needed as officials try to keep the system solvent.
Lodging operators watching for activity in the area of enhanced 911 emergency communications servicessaw one bill, SB 6846, emerge in the final days that will increase the tax on telephone lines to benefit 911 operations; however, no service mandates were included. Beginning Jan. 1, 2011 counties may assess an excise tax of 70 cents and the State may assess a tax of 25 cents on all types of telephone service lines. The Department of Revenue may keep 2 percent of the county revenue collected.
While we continue to look for opportunities to include our Tax Fairness Act for lodging operators, this year was not an opportunity with the $2.8 billion State deficit looming.
The real test is determining all taxes and new language implications for lodging operators brought about by 2ESSB 6143. (Check WLA’s website or call WLAfor a copy of this bill; we recommend your attorney’s review for implications for your business.) Legislators went looking for all sorts of methods to raise the necessary dollars to fill the gap between existing revenues and spending. This created extensive friction between members of the Democratic majority, with some not willing to buy into all of the proposed tax increases but many willing to agree that Sen. Lisa Brown’s state income tax proposal is not palatable nor was a general increase in sales tax.
One aspect of this bill we hated to lose is the repeal of the B&O tax exemption for amounts received by property management companiesif the payments are received from a property management trust account for payment of wages and benefits to on-site personnel. That will be harmful to numerous lodging companies in the state.
Service providers you hire will be trying to make up for the 20 percent increase in their B&O tax for three yearswhile your customers will have to decide if they are really going to have that newly taxed bottle of pop, beer, water, pack of gum or bar of candy. Additionally, the small business tax credit for these service businesses is doubled to be worth a maximum of $70 a month from $35 a month. The small business tax credit is a permanent change. While many of these taxes are temporary to 2013, EHB 2561, an act relating to creating jobs by funding construction of energy cost-saving improvements to public facilities, raises revenue through provisions making the bottled water tax permanent.
The bill also establishes nexus standards in statute for the B&O tax.With respect to nexus, Washington has not imposed B&O tax on businesses that conduct business in this state unless they have a physical presence in the state, such as tangible personal property or real property, or have either employees or non-employee representatives enter the state for business reasons. However, under the bill, a person has nexus if:
- The person is an individual, who is a resident or domiciliary of this state,
- The person is a business entity that is organized or commercially domiciled in this state, or
- The person is a nonresident individual or a business entity that is organized or commercially domiciled outside of this state and in any tax year the business has:
- More than $50,000 dollars of property in this state,
- More than $50,000 of payroll in this state,
- More than $250,000 of receipts from this state, or
- At least 25 percent of the business's total property, total payroll, or total receipts are in this state.
It may cost more to go out of business. Currently, certain individuals can be held personally liable for collected but unremitted sales tax when a corporation or limited liability company goes out of business. This part of the bill would extend the same personal liability to B&O tax, use tax, and any other state or local excise collected by the Department. In addition, personal liability would apply to the chief executive and chief financial officer regardless of fault or whether those individuals were aware of the unpaid tax liability.
The Department of Revenue also is directed to conduct a review of the state's tax policy with respect to the taxation of intercompany transactionsto be certain these transactions were not designed solely or primarily to minimize the tax effects of intercompany transactions.
Several changes were made to real estate transactions, one is for the sole purpose of determining whether, pursuant to the exercise of an option, a controlling interest was transferred or acquired within a twelve-month period. The date that the option agreement was executed is the date on which the transfer or acquisition of the controlling interest is deemed to occur. For all other purposes the date upon which the option is exercised is the date of the transfer or acquisition of the controlling interest. Members may want to research other changes in the law.
The PUDs in Clark and Grays Harbor Counties that generate, transmit, or distribute electricity are now subject to the PUD privilege tax as other PUDs have been.The tax is intended to be in lieu of property tax, since public utility districts are governmental entities and do not pay property taxes. The tax is based on the amount received from the sale of electricity. This may result in increased rates for members served by those PUDs.
After July 1, 2010, fees paid to members of corporate boards of directors will not be exempt under the exemption for wages and salaries for employees. They will be subject to a 1.5 percent tax rate.
While ESSB 6444, an act making 2010 supplemental operating appropriations, gives the Department of Health permission to raise fees there does not appear to be any specific language giving them authority to address transient accommodations fees.
We did not get all the victories we had hoped – particularly related to funding the Commission that markets Washington as a destination. However, with the efforts of our lobbyist and our members we were able to accomplish a number of the objectives we identified going into the session . . . the new ones that emerged in the final days and hours of the session proved most problematic. Still, our partnership with our members made a significant difference, and we thank them for working with WLA.
Please be involved in the upcoming campaigns for state-wide offices, your future may depend on it!
