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Summary of 2011 Washington Tax Legislation

Posted Friday, June 3, 2011 by Michael A. Larson

alt text Taxpayers in Washington often express mixed feelings about Tim Eyman and the initiatives that he and his organizations have backed over the years. However, Initiative 1053 that was passed by voters in 2010 is primarily responsible for the significantly lower amount of tax increases passed by the Washington legislature in 2011. With a two thirds majority requirement for any new taxes, Washington lawmakers largely avoided tax increases and concentrated on spending reductions. Following is a summary of those tax related changes that were passed in 2011.

HB 1347 – Amend sales and use tax exemptions for certain property and services used in manufacturing, research and development, or testing operations.

Once again the Washington legislature attempts to retroactively change a statute in order to prevail in existing taxpayer disputes. Certain taxpayers have argued that the manufacturing exemption applies to machinery and equipment that they purchased that is used to manufacture tangible personal property for sale, including clean water and biosolids sold as fertilizer. This statute purports to retroactively prevent the application of the manufacturing machinery and equipment tax exemption to taxpayers whose activity is within the purview of a utility business, i.e., distributing electricity, providing water and sewer services, distributing natural gas, etc., despite prior DOR decisions allowing such treatment. One exception is allowed under the statute for utilities that are also engaged in manufacturing certain “class A or exceptional quality standard” biosolids.

The DOR has also had disputes with certain public research institutions regarding the application of the sales and use tax exemption for machinery and equipment used in research and development operations. The statute clarifies the application of the sales and use tax exemption for such equipment, but limits the institutions that would be eligible for the exemption and requires that such institutions file an annual survey with the Department of Revenue similar to that required of other companies using the research and development machinery and equipment sales and use tax exemption.

EHB 1357 – Requires all taxpayers to report and pay taxes electronically. The Department is authorized to waive the requirements for taxpayers filing on an annual basis and taxpayers with certain extenuating circumstances such as lack of access to the Internet, computer problems, or not having a bank account or credit card. The 10 percent penalty for disregarding specific written instructions is amended to apply where the Department has specifically required a taxpayer to electronically file or remit taxes and the taxpayer willfully disregards those instructions. Applies to tax returns and payments originally due after July 24, 2011.

ESHB 1826 - Requires a county board of equalization to waive the property tax valuation appeal deadline if a request is made within a reasonable time after the normal filing deadline where: the taxpayer’s property was in the revaluation area; the taxpayer was not sent a property value change notice; and the property value did not change from the previous year.

HB 1867 – Clarifies for purposes of application of unclaimed property rules that the definitions of “gift certificate” and “gift card” do not include prepaid telephone calling cards or prepaid commercial mobile radio services.

ESHB 1902 – Provides a deduction from the business and occupation (B&O) tax is provided to nonprofit health or social welfare organizations for amounts received as compensation for providing child welfare services provided under a government funded program. A deduction is also provided to taxpayers for amounts received from a government for distribution to a nonprofit health or social welfare organization for the provision of government funded child welfare services.

SB 5083 – Clarifies that each real estate firm that receives a commission at the time of closing on a real estate transaction need only pay the B&O tax on its respective share of the commission. Interestingly, the bill was originally structured as a clarification and would have applied retroactively. However, the Governor vetoed this provision deciding that no refunds could have been granted under the bill as that would have represented a gift of state funds and only “delinquent” taxpayers would have benefitted. As noted above the Governor and legislators have no such qualms about retroactively imposing taxes.

SB 5501 – Provides a new B&O tax and a sales and use tax exemption to restaurants for meals provided to employees without a specific charge to the employee.

SB 5763 – Revises the nonresident sales tax exemption rules to provide that a state’s residents are ineligible for the exemption if their state imposes not only a sales or use tax of 3 percent or more, but also if the state imposes a value added tax, gross receipts tax or similar generally applicable tax of 3 percent or more.

SB 5849 – Amends the estate tax rules to allow for the introduction of extrinsic evidence in order to determine what was the testator’s or grantor’s intent regarding a formula clause based on the federal estate tax or generation-skipping transfer tax exemptions. It also changes the time limit for bringing a judicial construction action to two years following the death of the decedent’s death, as opposed to one year and conforms the time to make a qualified disclaimer of property passing from an estate of decedent dying after December 31, 2009, and prior to December 18, 2010, to the later of nine months following the date of death or September 17, 2010 as is used for federal tax rules.

For more information, please contact Ron Bueing at 206-340-2008.

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