Category: Uncategorized

Tax Policy for the Internet Age

Tax downloads? What is he talking about?

Let me explain. Today if you buy a copy of “Gladiator” at Barnes and Noble you pay sales tax on it. If you rent it from Blockbuster you pay sales tax. Rent from Netflix? Pay the tax. Download it from Amazon? Pay the tax. However, if you watch the same movie as a stream that doesn’t stay on your hard drive you don’t. Why?

The same thing happens with games. Buy a game at a local store and pay the tax. Download the game from Amazon and pay the tax. Many new games have a significant on-line component. My son is a very serious pirate in “Eve Online,” a massively multiplayer online game. He pays $15 a month for this game experience which isn’t taxed, but a similar game he would download would be.

More concerning is the amount of data a corporation buys today that is a key element of how they run their business. The department of revenue and the business community disagree somewhat on how this will be taxed. This generates uncertainty and lawsuits.

This is crazy. There needs to a simple way to figure out what’s taxable and what’s not, and however we do it we shouldn’t have some business models create a loophole that other ways of buying the product don’t have. We all want to avoid paying taxes, but I would think we could agree that people buying the same product should pay the same tax, regardless of the form they acquire it.

The last time the section of law in Washington that defines sales tax for software was substantively overhauled is about 30 years ago, long before Al Gore thought up the Internet. The world has changed significantly since then. Currently we pretend that downloadable music is a “tangible personal product” in the tax law, something that is becoming more intellectually difficult to defend.

I’ve been working with the business community, including major game manufacturers, to try to simplify the tax treatment of “digital products” as they become more important in the future. A task force met for 18 months to try to resolve the issue and create a bill we could all agree on. We have that agreement today. The key goals we all agreed on were:

  • Revenue-neutral. The bill is not an attempt to raise money – it’s a balancing act to have a better-working tax system.
  • Technology-neutral. A product should either be taxable or not, and the tax treatment shouldn’t depend on the specific business model in which it’s distributed.
  • Protect Washington businesses. Whatever we do should not disadvantage Washington businesses, particularly our high-tech industry which generates many jobs.
  • Durable. The bill should be able deal with changes in technology over the next 20 years without big re-writes every few years.

House Bill 2075 mostly moves things around in the tax code – for example moving books, music and videos from the “tangible personal product” category to the “digital goods” category. The bill is designed to create a durable platform for taxation in the future. It creates as many things that are not taxed as things that are, and the current fiscal note shows that for the next ten years the bill actually reduces taxes slightly. It is not an attempt to raise new revenue.

Washington is a sales-tax state. We don’t have an income tax, and aren’t likely to have one any time soon. A successful sales tax program taxes products broadly so that the rate can stay as low as possible. This keeps the tax from affecting decisions consumers and businesses make. It’s not fair if a game that has a disk costs less than a game that’s accessed on-line, only because of the business model. Trying to keep this platform technology-neutral helps keep rates low statewide.

HB 2075 creates a sales tax platform for the 21st century, or at least for the next 20 years until the world changes again.

Differences between the House and Senate versions of Ed Finance Reform

The House and Seante passed VERY different versions of the reform legislation. Below is a staff summary of the differences in language that’s reasonably easy to understand, though still somewhat “inside baseball.” The Spokesman-Review in Spokane captures it in language that makes more sense to the casual reader when they say

What’s emerged in the Senate is a “We Love Education” bumper sticker.

The hollowed-out bill states an intent to really, really do something about this issue in the next biennium. The following have been removed: Core 24 (the state board of education’s wish to increase the number of required graduation credits from 19 to 24), all-day kindergarten, preschool for low-income children, an increase in transportation dollars, school accountability and changes in teacher certification, assessments and pay. Spokesman-Review full editorial

It’s too easy to demonize one side or the other in this debate, and difficult to come to an agreement about the most important thing we do as a state government. We’ll keep working on the overall plan and try to get to a final agreement that makes sense and does more than just move the ball forward.

quick-comparison-house-senate-march-10

Important Bills

The Legislature is a cyclical activity. We go through a phase where everyone creates proposed new laws and files them. This is call “dropping” bills, because you drop the signed pieces of paper into a basket called the “hopper.” The bills are heard in committee, and the ones that are not patently ridiculous are passed out of committee.

They are then referred to the rules committee, which approves bills that are uncontroversial (and therefore tend not to do anything) or that are IMPORTANT, and usually controversial.

We are now passing the bills in the first category. These are important to someone, but in aggregate this seems like a silly way to do work. As an example, we are now working our way through the following bills:

  1. Minimum passing distances from bicycles. (I’ve been buzzed more often than I would like, so it’s important to some people.) The bills defines what “reasonable” means in the current code as 3 feet. There were 7 amendments, and the bill was argued for an hour. The amendments were what I would call “dilatory,” or designed to waste time. It worked.
  2. Impounding the cars (or bicycles) of people involved in prostitution. I was a little concerned about the civil liberties implications of this, but it’s pretty carefully worked out. If a person isn’t charged they get all their money (and their car) back. This took a bunch of time too.
  3. Creating a lottery fishing program at Spirit Lake. It seems that some people snuck a load of trout into Spirit Lake at Mt. St. Helens and have been sneaking in to fish for them. We passed a bill that creates a lottery program to give fishing license for the lake, and added a requirement that they sterilize their fishing equipment. This seems hard to enforce to me, but all the fishing people seem enthused about it.

I don’t want you to think that we spend all of our time working on small bills. It’s just that at 9:00 at night, on a Friday, it seems like we spend forever working on these bills. While this is going on though, I have been working with other members to work out details on larger issues, like our school funding bills and the proposal I have to work on city/county finance issues, digital goods taxation, and the other bills I’m responsible for in the tax arena. Of course, I recognize that other people may put the bills I care about in the “small bill” category.

Most of the substantive bills will be worked out next week.

Local Government Financing Plan

Final Report of the Washington State Local Governance Study Commission.

…the underlying structural problem for King County budgeting is the mismatch between tax base and service costs in the unincorporated areas. The solution to this, which is encouraged by the Growth Management Act, is to ensure that the remaining unincorporated areas within the urban growth area get annexed to an adjacent city

King County Budget Brief 2009 – Washington Research Council

The state has established a significant number of requirements for cities and counties over the years, but has not delivered a reasonable set of alternatives for them to raise the funds necessary to deliver on those requirements. The plight of cities and counties has been exacerbated by the recent changes in tax policy driven by initiatives that have reduced the growth of property tax and eliminated most of the money from the MVET, most of which was distributed to counties as revenue sharing.

In this 2009 legislative session I will not be able to deliver a broad, well-thought-through set of policies on this topic that balances the responsibilities of local governments with their taxing authority or other revenue sources. I will take this up in the interim when we have more time and fewer distractions. In the meantime, the state needs to provide some options for local governments to avoid fiscal disasters.

My strategy here is to propose a number of changes, some permanent and some temporary, that provide local governments with the ability to respond to this temporary fiscal crisis. In some cases this is the ability to generate additional local revenue, in other cases it’s the removal of rules about supplantation that provide additional flexibility to these governments so that they can respond to the needs of their citizens in these difficult times.

Continue reading “Local Government Financing Plan”

WACOPS Legislator of the Year

Ross is presented the WACOPS Legislator of the Year award.
Ross is presented the WACOPS Legislator of the Year award.

For some reason the Washington Council of Police and Sheriffs has named me their “legislator of the year.”

I’m always happy to be recognized for the work I do, and these guys are an important part of the fabric of our community. I’m receiving the award from Mike Pentony and Steve Lynch, two of Bellevue’s finest.

HB 1410 Introduced – Basic Ed Funding

Rep. Pat Sullivan (D-47), Rep. Skip Priest (R-30), Rep. Glenn Anderson (R-5) and I released HB 1410 today. We have 38 co-sponsors at this point. It’s scheduled for a hearing next week. The bill is a huge effort – 110 pages that completely re-write school funding formulas, teacher compensation plans, and almost everything else about how we fund schools. The Senate companion bill will be introduced tomorrow, and should be identical. Click here for official bill information.

We expect there will be many amendments, but we’re announcing our first big one at the hearing next week. In reaction to a series of studies on the achievement gap between white kids and kids from a variety of other ethnic groups we found some common themes, and want to start the work with help with outreach to parents and the community, improvements in the preparation of teachers to deal with diverse classrooms (something we hear about from young teachers all the time) and quicker routes for bilingual adults from immigrant communities to enter the teaching force. We have so few teachers in many language groups that we should work hard to attract more, and growing our own seems like the most effective strategy.

We’ve published a few documents to help explain the bill. Most readable is our 4 page intro pamphlet. Next is the 17-page outline of the bill’s changes to law, section by section. We’ll add more as we develop them.

Unwinding the Stadiums

Lo these many years ago the Kingdome was created, and it was good… but only if you liked watching baseball in a concrete mausoleum. Since then we’ve built Safeco Field, Qwest, the remodel of Key Arena, and a convention center. The Kingdome was blown up, but the taxes that paid for its new roof are still going on. Sometime in the middle of this timeframe funds were carved out to support the arts in King County.

All these taxes end in the next 10-15 years and a large crowd of people who think they know exactly how to spend the money has formed. Some of the taxes expire, some continue, and some should expire, but don’t.

I co-chair a committee responsible for working our way through the swamp and making a proposal of what we should do. I don’t have consensus on the committee yet, but my personal preferences are pretty simple.

  • The state should not be funding special projects in King County with statewide taxes, unless the facilities are really of value to voters in the rest of the state.
  • The jurisdiction in which the taxes are collected should make decisions about the taxes — should they continue being collected and if so, what should they be spent on?
  • We should be good landlords for the buildings the public owns, making sure that enough money is dedicated to maintenance to avoid the problems we’re having with Key Arena.
  • Some of these taxes should end. Every decision we make here will sunset and require renewal by the legislature at some point in the future.

I’ll try to build some consensus in the committee before we get back to Olympia in January, but it’s a difficult project. I’m open to feedback — should we fund:

  • Husky Stadium remodel ($150 mil)
  • Community preservation in the international district ($3 mill/year)
  • Key Arena ($75 mil)
  • Federal Way Performing Arts Center ($25-30 mil)
  • Convention Center expansion (lots)
  • Continuing support for Arts in King County ($10 mil/year)