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Tax Amnesty Program: Results and Partnership Updates

Stay updated on the tax amnesty program and partnership changes. Learn about the collected back taxes, local sales tax distribution, transfer of Master License Service, and tax simplification initiatives.

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Tax Amnesty Program: Results and Partnership Updates

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  1. Local Government Partnership Suzan DelBene, Director June 9, 2011

  2. Topics for Today • Amnesty Program • Master License Service • Tax Simplification

  3. 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

  4. Amnestyin the News

  5. 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.

  6. 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

  7. 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

  8. 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 DOR • Update the contact names, phone numbers, address and name references on your websites • Start 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 jshaak@dol.wa.gov or (360) 664-6578.

  9. Tax Simplification – Overview 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 stakeholders • Identify the burdens imposed on small businesses • Communicate findings and recommendations More information is available at: http://www.dor.wa.gov/TaxSimplification

  10. Tax Simplification – Outreach Efforts 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 practitioners • Survey of small businesses • Survey 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 findings • Understand the priorities and concerns of local government

  11. Tax Simplification – Business Feedback 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 jurisdictions • Filing thresholds, requirements and frequencies across jurisdictions • Audit process and records requirements Reduction in the number of: • B&O reporting classifications • Local sales tax rates and codes • Tax incentives, exemptions and deductions

  12. Tax Simplification – Local Government Feedback 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

  13. Tax Simplification – Next Steps • 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

  14. 2011 Legislative SessionDrew Shirk, Legislative Liaison

  15. 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

  16. 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.

  17. 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.

  18. Agency Request Bills HB 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.

  19. 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.

  20. 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

  21. 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.

  22. 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.

  23. 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.

  24. Bills of Interest ESSB 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).

  25. 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

  26. 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.

  27. Property Tax Bills ESSB 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. 

  28. Property Tax Bills SSB 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.

  29. 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

  30. Break

  31. Department of RevenueLocal Government Partnership MeetingJune 9, 2011Ashley Probart Legislative & Policy Advocate`````````` 2011 Legislative Outcomes

  32. 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. State budget

  33. 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. Liquor privatization

  34. 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.

  35. 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

  36. 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. Pensions & personnel (continued)

  37. 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. Other fiscal-related bills

  38. National Issues Tim Jennrich, June 9, 2011

  39. Streamlined Sales and Use Tax Project - Update • 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.

  40. 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?

  41. 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.

  42. 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.

  43. 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.

  44. SST Mitigation Don Gutmann, June 9, 2011

  45. SST Mitigation Payments • 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

  46. Local Tax Distribution Data Andy Van Gerpen, June 9, 2011

  47. What is happening? • 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.

  48. What is the status?

  49. Why change? • Ease of use and analysis • Simplicity of storage and transfer • Received timely • Free

  50. How to access the reports? • 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

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