04.12.2012

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Updates

2012 Washington Legislative Session: State Taxes

In double overtime, the Washington State Legislature ended the 2012 legislative session Wednesday morning, April 11, closing a roughly half-billion dollar shortfall for the two-year budget cycle.  The budget largely relies on a change in the state's accounting of state and local retail sales tax, the elimination of the first mortgage interest deduction for multi-state banks, and an increase in taxes on roll-your-own cigarettes.  There are a handful of favorable provisions, including an extension of the B&O exemptions for fruit, vegetable, dairy and seafood processing businesses and an extension of the sales and use tax exemption for equipment used in qualifying computer data centers.

Notable omissions from this session include an increase in the state retail sales and use tax rate.  Governor Gregoire initially proposed a temporary increase of the state retail sales and use tax rate by a half a cent to 7 percent.  This effort failed to get support.  In addition, efforts to simplify local B&O taxes failed to materialize.  Two bills, introduced in the regular session (SB 6176 and HB 2490), required local B&O taxes to be collected by the Department of Revenue, similar to the manner in which sales taxes are collected.  Both bills failed to pass out of committee.

Sales and Use Tax Accounting

The legislature hopes to raise $238 million from a change in the accounting of state and local tax revenues.  Under HB 2822, the Department of Revenue will deposit local sales tax revenues from the general fund into a separate local account on a monthly (as opposed to a daily) basis.  This change allows the state to increase investment earnings on combined revenues, which the state estimates will raise $238 million, despite currently low interest rates.

Elimination of First Mortgage Interest Deduction for Multi-State Banks

Effective July 1, 2012, the state will eliminate the B&O tax deduction for first mortgage interest received by banks and their affiliates that are "located in more than ten states."  See ESB 6635 § 101.  The state estimates that it will raise $14.5 million in fiscal year 2013 and $32.4 million in the 2013-2015 biennium, although the multi-state limitation may be subject to constitutional challenge.

Roll-Your-Own Cigarettes

The legislature modified the definition of "cigarette," for purposes of the cigarette excise tax, to explicitly include "roll-your-own cigarettes."  See 3 E2SHB 2565.  Based on the 65 existing retail establishments providing access to roll-your-own cigarette-making machines, the state estimates this change will realize $12 million in Fiscal Year 2013.

Extending the B&O Exemption for Fruit, Vegetable, Dairy and Seafood Processing

ESB 6635 § 201-204, extends the expiration date of B&O tax exemptions for manufacturing of fruits and vegetables (RCW 82.04.4266), dairy (RCW 82.04.4268), and seafood (82.04.4269) processing businesses from July 1, 2012 to July 1, 2015.

Amending the Sales and Use Tax Exemption for Equipment Used in Data Centers

The sales and use tax exemption for server equipment and power infrastructure used in an eligible computer data center was extended.  Under ESB 6635 § 301-304, the exemption is now available for construction commencing on or after April 1, 2012 and before July 1, 2015.  In addition, the length of time that a new qualifying business or a qualifying tenant may take the exemption is extended from April 1, 2018 to April 1, 2020.  This extension does not apply to computer data center owners currently receiving the exemption.

Newspaper B&O Tax

The legislature created a single B&O tax rate for revenues derived from both printed and online versions of a newspaper.  Currently, the rate for revenue derived from the online business was taxed at 1.8 percent. Revenue derived from the paper version was taxed at .2904 percent.  Through June 30, 2013, the new rate is .365 percent, decreasing to .35 percent effective July 1, 2013.  See ESB 6635 § 602.

Port Lease Agreements

The Department of Revenue previously advised the ports that it will begin enforcing payment of the leasehold excise tax effective July 1, 2012.  ESB 6635 § 501 provides an exemption from leasehold excise tax for agreements granting preferential use of publicly owned cargo cranes, docks and associated areas used in the loading and discharging of cargo located at a port district marine facility.

© 2012 Perkins Coie LLP


 

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