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Local Government Partnership Meeting

October 13, 2009

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Welcome and Introductions

Cindi Holmstrom, DirectorDepartment of Revenue

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Announcements & Housekeeping Items

Miki Gearhart, Local Government Partnership Facilitator

Litigation PanelHomeStreet Bank; Dot Foods; GP Gypsum;

Tracfone; Lamtec; Getty Images; American Honda Import; Others

Cam Comfort, Senior Assistant Attorney GeneralPeter Gonick, Assistant Attorney General

Kent Meyer, Assistant City Attorney, Seattle

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BREAK

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Local Revitalization Financing (LRF)

Janetta Taylor

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Name of Revitalization Area

Sponsoring Government

Amount Requested

Date Received Status

Auburn Auburn $250,000 08/11/09 Approved

Park Plaza Bremerton $330,000 08/24/09 Approved

Town Center University Place $500,000 08/27/09 Approved

The Link Tacoma $500,000 08/28/09 Approved

Paradise Creek Whitman County $200,000 08/28/09 Approved

Columbia Waterfront Vancouver $220,000 08/31/09 Approved

Spokane University District Spokane $250,000 08/31/09 Approved

Demonstration Applications

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First Come Basis ApplicationsSept. 1st

Time StampName of Revitalization

AreaSponsoring Government

Amount Requested Status

9:00 02.658 Wenatchee Waterfront Wenatchee $500,000 Approved

9:00 02.940 179th Street Revitalization Area Clark County $500,000 Approved

9:00 03.397 Bellevue Revitalization Area RA#1 Bellevue $500,000 Approved

9:00 03.913 Southridge Revitalization Area Kennewick $500,000 Approved

9:00 04.393 Federal Way Village LRA Federal Way $100,000 Approved

9:00 04.460 Port Quendall Renton $500,000 Pending

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First Come Basis ApplicationsSept. 1st

Time Stamp Name of Revitalization Area Sponsoring Government

Amount Requested Status

9:00 06.272 Revitalization Area for Industry Science & Education Richland $330,000

9:00 07.241 Lacey Gateway Town Center Lacey $500,000

9:00 08.116 East Gateway Planned Urban Village Revitalization Area Mill Creek $319,286 Denied

9:00 11.659 River Road Revitalization Area, Phase 1 Puyallup $250,000

9:00 12.159 South Lake Washington Renton $500,000

9:00 15.413 Newcastle Downtown Project New Castle $35,100

Sept 10th 2:19 53.197

East Gateway Planned Urban Village Revitalization Area Mill Creek $330,000

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Next Steps

•Annual Reports

–Due March 31st of each year

•Tracking new construction and improvements

•Working with county assessors

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Feedback &Questions

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David SaavedraKathy BeithOctober 13, 2009

Property Tax

• What is the impact of a negative IPD on taxing districts?

•What’s happening to assessed values?

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Inflation equals the percentage change in the Implicit Price Deflator (IPD) and for taxes to be collected in 2010 is -.848%.

The limit factor for districts with a population less than 10,000 is 101%.

The limit factor for districts with a population of 10,000 or more is 100% + inflation. For taxes due in 2010, this equals 99.152%.

Local taxing districts with a population of 10,000 or more can increase the limit factor to a maximum of 101% with a finding of substantial need to do so.

Property Tax Limit Factor and Negative “Inflation”

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Taxing districts with a population of less than 10,000 must pass a resolution or ordinance stating the amount of increase in terms of dollars and percentage increase.

Taxing districts with a population of 10,000 or more must pass a resolution or ordinance stating the amount of increase in terms of dollars and percentage increase. This should be the total increase, other than increases for new construction and other authorized amounts.

Taxing districts with a population of 10,000 or more may authorize a limit factor in excess of 99.152% but no more than 101% with a finding of substantial need.

Requirements for increasing property tax levies

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A resolution or ordinance must indicate the substantial need and set the limit factor.

The resolution or ordinance must be signed by two-thirds of the governing board in districts with legislative authorities comprised of 4 members or less, and by a majority + one in districts with governing boards of more than 4 members.

The limit factor authorized by the resolution or ordinance may be used only for one year.

Substantial Need

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Language included in a substantial need resolution or ordinance may look something like this:

WHEREAS, the Board of Commissioners of ______ Taxing District has determined that, due to ___________________________________ (substantial need), the Board of Commissioners finds that there is a substantial need to increase the budget by 1 percent and to set the levy limit at 101 percent.

Substantial Need

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Main title

Sub heading title, descriptive

75%

80%

85%

90%

95%

100%

0%

5%

10%

15%

20%

Ass

esse

d Va

lue

as a

Per

cent

of

Mar

ket V

alue

Cha

nge

in P

rope

rty V

alue

s

When Property Values Rise Rapidly, Assessors have a hard time keeping up

Property Values Assessed Value Percent

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Main title

Sub heading title, descriptive

Average Ratio for Cyclical Counties

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

2003 2004 2005 2006 2007 2008

Statewide Average Ratio Cyclical Counties

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Main title

Sub heading title, descriptive

Counties on Annual Versus Cyclical Revaluation Cycles

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Main title

Sub heading title, descriptiveChanges in State Assessed and Residential Building Permits Statewide

-80.00%

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

2002 2003 2004 2005 2006 2007 2008 2009

% Change State Assessed % Change in Building Permits

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BREAK

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Rob Rice, October 13, 2009Reseller Permit

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Eliminates use of resale certificates

Effective January 1, 2010, businesses may no longer accept, honor or use resale certificates

Must use a permit issued by DOR

Permits are free

Issued only to businesses that make wholesale purchases

Senate Bill 6173

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Reasons for the change

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Misuse of self-issued resale certificates costs the state over $100 million dollars in lost revenue each year

Anyone can download a resale certificate, fill it out, and make purchases without paying sales tax

Some don’t know the law and use it to buy everything for their business

Bill provides better control and recovers revenue

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Inclusive process with stakeholders

Meetings in June, July & August

Business & trade associations

Contractors & construction organizations

Farmers & agricultural associations

Early rollout; auto-issued to many

Tested application process, permit, and letters with 20 state businesses

Implementation Approach

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Qualifying businesses that resell goods and services

Process changes from “an honor system with audits” to a managed system

Permits can be verified online (Jan. 2010)

Department will continue to examine wholesale activities during audits

The basics

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Retailers, Wholesalers & Manufacturers

Actively reporting income

No documented misuse of resale certificates

Eligibility

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Contractors

Special requirements for construction industry

Permits not auto-issued

Reporting retail or wholesale

25% or more of material and contract labor costs related to retail or wholesale construction activities

No documented misuse of resale certificates

Eligibility

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May apply by paper or online

Goal is to issue in 10 business days

Implementation

Auto-issued permits: 155,399

Notices mailed: 326,000

Application approval rate as of 10/5/09: 95%

Processing applications

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The permit

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4 years Businesses registered on or before 1/1/09

2 years Business registered after 1/1/09

Permits renewed every four years

1 year Qualifying contractors

Contractors reapply every year

How long are permits valid?

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Businesses that don’t qualify for a permit but sometimes buy goods to resell should pay sales tax.

They can recover tax paid by:

Taking a “Taxable Amount for Tax Paid at Source” deduction on returns

Requesting a refund from the Department

Deductions & refunds

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Web – http://dor.wa.gov/resellerpermit

Online video tutorial

News outlets statewide

PublicationsBrochurePostersSignsInformation cards

Outreach

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E-mail & PhoneTrade associations Commodities commissions Nonprofit groups

Association newsNewsletters Web pages E-mail list-servs

Business publicationsPuget Sound Business JournalKitsap Business JournalBusiness Examiner (Tacoma)

Other outreach

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Overview Sheet – translated into most common languages

Spanish, Tagalog, Vietnamese, Korean, Chinese, Russian

Telephone assistance in any language – Language Line

Hispanic – Radio, newspapers, local Chambers

Russian – Radio, newspapers

Korean – Grocery Assn, radio

Local Chambers & EDCs

Multilingual outreach

SST Mitigation UpdateMatthew J. Bryan, October 13, 2009

What is Mitigation?

background

•Washington switched to destination-based sales tax on July 1, 2008.

•Businesses report sales tax to the location where a good is delivered, instead of to the location from whence it shipped.

•Some jurisdictions with many warehouses and few residences were adversely impacted.

•The Mitigation program compensates them with State funds.

What is Mitigation?

background

•The Department of Revenue calculates the revenue lost by each taxing jurisdiction

•Based on tax reporting information

•A mathematical model is used

•Some amount of imperfection in the results

Why are losses hard to calculate?

difficulty estimating

•No data on deliveries per se

•This is a mathematical estimate

(hypothetical tax return)

Why are losses hard to calculate?

difficulty estimating

•Difficult to separate deliveries from other sorts of activities.

•Could there be no deliveries in this case? Perhaps a new storefront?

(hypothetical origin-based tax return) (hypothetical destination-based tax return)

Tell us what you know

how you can help

•Local jurisdictions know their businesses better than we do.

Better tracking of opening and closing establishmentsBetter idea of their activities and whether they are making deliveries.

•The Department of Revenue sends Mitigation data to you each quarter.

•Reviewing it is your opportunity to share your knowledge with us.

The Mitigation Data

how you can help

•The Department sends data to local jurisdictions each quarter.

•It details the deliveries we have estimated for each business.

•We also send a list of which businesses have been excluded because of jurisdictions asking questions.

In the future, we may show businesses excluded for other reasons.

The Mitigation Data

how you can help

Estimated deliveries

Level of sales in your jurisdiction

What are the most useful things for you to find?

pointing you in the right direction

1. A business you suspect is not making deliveries.

2. A business you suspect has always reported destination-based sales tax (or should have been).

3. A business that had a location open or close in your jurisdiction during the relevant periods of time.• July 1, 2007 – June 30, 2009 for most businesses• January 1, 2007 – December 31, 2009 for

businesses that report annually.

4. A business not included in the analysis which makes retail deliveries.

How can you send us your results?

getting back to us

•E-mail is not secure

•Send your results through the Secure Messaging Center.

•Open the Mitigation secure message from us and press “Reply.”

•Attach your response and send.

What is “annualization”?

annualization

•Starting December 31, 2009 payments will no longer be computed by comparing two quarters.

•They will be calculated by comparing two years worth of data and dividing by four.

Fiscal Year 2008 and 2009This estimate will be used for all future payments.Voluntary (out-of-state) sellers will continue to lower the payment amounts.

How is annualization different?

annualization

Payment Frequency

Adjustment Frequency

Analysis Based On

First four payments

Annualized payments

Quarterly Quarterly

Quarter-to-quarter

comparisons

Fiscal Year 2008 compared to Fiscal

Year 2009 divided by 4.

Quarterly Annually

Have further Mitigation questions?

getting back to us

Matthew J. BryanResearch DivisionWashington State Department of Revenue

Phone: (360) 570-6074E-Mail: MatthewBr@dor.wa.gov

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Questions?

Reseller Permit

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Closing Comments