Suzan DelBene, Director

October 3, 2011

Local Government Partnership Meeting

Agenda

Business Licensing Service Update

• Rob Rice, Assistant Director Audit Division• Eric Jones, Business Licensing• Jan Shaak, Business Licensing

Business Licensing Moves to Revenue

• More than 40 staff move offices

• Installed DOL systems on DOR desktops

• DOR & DOL interagency agreement completed

• Communicated with 11 agencies and 45 city partners

• Updated inter-local contracts with all partners

• Filled vacant positions for systems integration and processing

• Changed name from Master License Service (MLS) to Business Licensing Service (BLS)

• Created website

• Revised more than 120 forms including license, applications, and renewal forms

• Added toll-free business licensing help line: 1-800-451-7985

Business Licensing Moves to Revenue

Next Steps

• Systems migrations and enhancements

– Online services

• License Query System

• Business Application

• E-check

– Imaging system

– Mainframe segregation

– Enhanced report processes

Adds More Partners

• Since July 1:

– Cities of Selah, Washougal, Gold Bar, and Sedro Woolley joined BLS

– Architects program of DOL joined BLS

– Cities of Poulsbo, Enumclaw, and College Place will join by year end

– In discussions with other cities interested in joining BLS

– Collecting data for new business licensing models

Benefits to your City

Business Licensing Service:

• Initiates collection of missing, required information.

• Follows up on insufficient payment and NSF checks.

• Images and saves all documents.

• Offers Internet filing

More Benefits

• YOU retain control to approve or deny business licenses

• YOU get complete fees and application information

• YOU experience simplified licensing processes

• YOU get increased compliance with your business licensing requirements

• YOU get quality customer service from our BLS staff

More about Business Licensing Service

• BLS is self-funded

• Businesses pay a $15 application fee and a $9 renewal fee per location at the time of the application or renewal

• Credit card fees are charged to the city for online transactions

• Minor fees for non-standard BLS reports and BLS mainframe system usage

• Combined Licensing represents 11 state licensing programs, 48 cities, and more than 100 business license endorsements

• Nearly $50 million in revenues in FY 2011

How Does a City Become a Partner?

BLS has a standardized “Get-On-Board” process which includes:

Step 1: Education

Step 2: Review of your business license municipal ordinance

Step 3: Assessment form and business licensee database sample

Step 4: Inter-local contract agreement

Step 5: Business Rules review

Step 6: System access authorization

Step 7: Account conversion: complete licensee database

Questions?

Tax SimplificationPatti Wilson, Local Government Liaison

Tax Simplification – Background

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

The Department used various outreach efforts resulting in over 1,100 comments and suggestions from small businesses.

Tax Simplification – Small Business Findings

Comments and concerns fell into four main areas:

•Reporting B&O tax

•Reporting retail sales tax

•Understanding reporting and licensing requirements of multiple agencies

•Understanding tax administration processes

Other priorities we heard from small business

Increased consistency across jurisdictions of:

•B&O tax definitions, deductions, exemptions, and credits

•Filing thresholds, requirements, and frequencies

•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

Tax Simplification – Small Business Findings

Tax Simplification – Recommendations

Based on stakeholder feedback, the Department recommended consolidating state and local reporting of business taxes to achieve:

• A common model ordinance for state and local B&O

• A single state and local system for business– registration – licensing

• Consolidation of B&O tax classifications

• Centralized state and local B&O tax administration

Tax Simplification – Tax Administration Process Improvement

Information availability

• Search engine enhancements

• Website enhancements and usability testing

• Updating NAICS codes on taxpayer accounts

• Industry specific guides

• Sales tax exemption web page

• Credit and deduction explanations being updated

Tax Simplification – Next Steps

The Governor has directed the Department to work with stakeholders to develop plans for implementing the report recommendations. These plans will be considered for upcoming legislation.

Final report is available at: http://www.dor.wa.gov/TaxSimplification

2012 Legislative ProposalsDrew Shirk, Legislative Director

The proposed legislation would clarify that only a residential class of service that is offered under a tariff required to be filed with the Washington Utilities and Transportation Commission under Title 80 RCW qualifies for exemption from sales tax.

Clarifying residential phone service:

Clarifying when tax is separately stated:

This proposal clarifies that a seller advertising that the price includes the sales tax or that the seller is paying the sales tax must separately state the sales tax on any sales invoice or other instrument of sale given to the buyer.

Improving accountability for tax preferences:

To improve accountability for tax preferences, this proposed legislation would:

•Replace the annual report with the annual survey.•Expand the annual survey to request information about a taxpayer’s capital investment in this state.•Provide that all information reported on annual surveys require the Department to compute the relative tax burden, by tax type, for each taxpayer who is claiming a tax preference that requires an annual survey.

Break

Streamlined / Federal UpdateTim Jennrich, Tax Policy Specialist

Overview

• Main Street Fairness Act of 2011

• Business Activity Tax Simplification Act of 2011

• Digital Goods and Services Tax Fairness Act of 2011

• Streamlined Sales and Use Tax Agreement Update

Main Street Fairness Act (MSFA)(S.1452 and H.R. 2701)

Support for the MSFA

Institutional: The MSFA enjoys broad support, including the National Conference of State Legislators, the National Governors Association, the Federation of Tax Administrators, and over twenty SSUTA member states.

Business community: The MSFA is also supported by members of the business community, including representatives from the National Retail Federation and Retail Industry Leaders Association.

Washington fiscal impacts

• Estimated fiscal impact from Quill: $1.16 billion in lost sales tax revenue during 2013 – 2015 Biennium. This includes $320 million in local sales tax revenue.

• Estimated gains from the MSFA*: $445 million in sales tax revenue generated during the 2013 – 2015 Biennium. This includes $176 million in local sales tax revenue.

*The estimate includes adjustments for a presumed taxpayer compliance factor, the bill’s small seller exception, and vendor compensation. Additionally, the estimate assumes enactment of the MSFA in FY2012 and because of this, the 2013 – 2015 estimate may need to be revised.

MSFA – current status

• Introduction: Introduced in both the House and Senate on July 29, 2011.

• Sponsors: Dick Durbin and Tim Johnson in the Senate, and John Conyers in the House.

– While the Senate and House Sponsors are Democrats, they appear to have been carefully selected based upon their desire and willingness to craft a bipartisan proposal.

MSFA prospects in 2011?

• Bipartisan support: It will be critical to get bipartisan support to move the legislation forward as a stand-alone bill.

• Other potential opportunity: The Joint Select Committee on Deficit Reduction (the “Super Committee”).

• New positive development: California AB 155 – Under this legislation, California will allow Amazon to avoid sales/use tax collection under recently enacted legislation until July 31, 2012, while Amazon works for adoption of federal legislation.

Business Activity Tax Simplification Act of 2011 (BATSA)(H.R. 1439)

BATSA physical presence-lite standard

• 15 day limitation

• Representative exclusion

• Lobbying and news gathering limitation

• Limited or transient business limitation

BATSA Washington fiscal impacts

• Current biennium estimate: Approximately $203 million in state and local business activity taxes.

• Future period estimate*: $1.3 and $2.2 billion in the 2013 – 2015 and 2015 – 2017 bienniums respectively.

*The estimate assumes that some businesses will restructure to take advantage of safe harbors in the bill.

BATSA On-going efforts

• Department efforts aimed at education

• National Governors Association letter opposing BATSA (August 4, 2011)

• Multistate Tax Commission survey of fiscal impacts to the states

• Federation of Tax Administrators

BATSA prospects in 2011?

• Congressional Budget Office (CBO): The CBO has now scored the bill under the Unfunded Mandates Reform Act. Losses are estimated in the first year at a conservative $2.0 billion.

–The Multistate Tax Commission is working to augment the CBO score.

• The House: The house is widely expected to schedule a vote quickly. The bill is thought to have a good chance of passing the House; however, this is less clear now in light of CBO scoring.

• The Senate: The bill is not expected to pass as a stand- alone bill.

Digital Goods and Services Tax Fairness Act (DGSTFA)

(H.R 1860 and S. 971)

DGSTFA purpose and scope

Purported purpose: To promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services.

Scope:

– Digital goods and services.

– Practically all taxes and fees other than net income and ad valorem impositions.

DGSTFA provisions impacting state and local tax administration

The bill establishes:

• Definitions for and related to digital goods and services• Sourcing rules• Bundling rules• Tax exemption for seller intermediaries• Limitations on state administrative and interpretive

authority• Anti-discrimination provisions• Multiple taxation provisions• Federal concurrent jurisdictions

What are the fiscal impacts?

DGSTFA background and updates

• Heard in the House Judiciary Subcommittee on Courts, Commercial and Administrative Law held on May 23, 2011.

• Federation of Tax Administrators, represented by Russ Brubaker from the Washington Department of Revenue, provided testimony opposing the legislation.

• Congressional staffers, FTA, and bill proponents met July 20, 2011, to discuss concerns with the bill, including representation from Washington.

• The Streamlined Governing Board member states voted unanimously on a resolution opposing the bill in its current form.

• Bill proponents are working to change selected provisions that states have voiced concern with.

DGSTFA prospects in 2011

• Congressional staff appear to desire a markup of the bill and a House vote this year.

• It is increasingly looking like it will not be possible for the House to vote on this bill in 2011.

Streamlined Sales and Use Tax Agreement Update

What’s new?

• The Streamlined State and Local Advisory Council and the Governing Board are meeting in Seattle on October 4th, 5th, and 6th.

• The Governing Board will be considering the following substantive items:

– Sale price rule and amendment (taxes include in sales price);

– Prepaid calling services rule clarification (meaning of “units”);

– Cloud computing discussion; and

– Creation of a local government advisory council.

What else is happening?

• Sale price – vouchers and layaway fees

• Digital products sourcing

• Credits for taxes paid

• Communications services taxes

• Sourcing with respect to tangible personal property

Questions?

Contact Information:

Tim Jennrich, Tax Policy Specialist

Email: timje@dor.wa.gov

Phone: (360) 534-1578

Issues of Interest• League fees

• E911

• Litigation

League FeesBridget McBryde, Tax Policy Specialist

E911Cheryl Wack, Program Coordinator

Local E-911 Distributions

Amounts Distributed By County for the Periods of March 2011 – September 2011

Litigation UpdateDylan Waits, Tax Policy Specialist

Local Government Web Page

http://localgovernment.dor.wa.gov

Recent updates to Local Government site

Future Meetings

Closing