LEASEHOLD EXCISE TAX

35.21.755 PUBLIC HISTORICAL SITES

Description: Provides for exemption from leasehold excise tax for property on a federal or state historic register that is owned by a public corporation which was in existence before 1987 or is located in a special review district which was established by ordinance prior to 1976.

Purpose: To support the social benefits accruing from publicly owned historical sites.

Category/Year Enacted: Government; 1977.

Primary Beneficiaries: There are approximately ten properties exempt under this statute.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State taxes 163 168 174 180
Local taxes 143 148 153 158

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.020(1) ITEMS USED IN GOVERNMENT MANUFACTURING

Description: Excluded from the term "leasehold interest" is any interest in personal property owned by the U.S. government or a foreign government if the right to use such property is part of a contract to produce articles for sale to these governments.

Purpose: The apparent purpose is to minimize the cost of the articles produced, and not to tax government.

Category/Year Enacted: Government; 1976.

Primary Beneficiaries: Contractors for the federal government and foreign governments.

Conflict With Other Programs: Contractors are subject to personal property tax on equipment they own which is used to manufacture items for the federal or foreign governments.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State taxes 964 1,012 1,063 1,116
Local taxes 846 888 932 979

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.020(1) RIGHTS OF ACCESS FOR REMOVING PRODUCTS

Description: Permanent, long-term road and utility rights-of-way and temporary access, occupancy or use for the sole purpose of removing materials purchased from a public owner are exempt from leasehold excise tax.

Purpose: The exemption excludes from leasehold tax both long-term, permanent rights of access such as roads and utility easements, and short-term, temporary rights of access such as the use of logging roads on public lands for the removal of timber. The apparent purpose is to minimize costs to the private firms and individuals who enjoy such rights of access on public lands.

Category/Year Enacted: Other; 1976.

Primary Beneficiaries: Private utility companies, other businesses and individuals who must have long term rights of access across public lands and/or who use public roads on a temporary basis to remove timber, minerals, etc. purchased from public entities.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 165 170 175 181
Local taxes 145 149 154 158

If the exemption were repealed, would the estimated revenue be realized? Possibly; but administrative costs to collect the tax on easement holders could be high.

82.29A.020(2) HANFORD LEASES; EXCLUDE SPECIAL FEES

Description: The second paragraph of this statute concerns leases by the Department of Ecology of land contained within the Hanford reservation. It provides an exclusion from the tax for fees, assessments or charges levied upon or collected by the lessee. In such instances, the leasehold excise tax applies only to the actual cash rental payment.

Purpose: To clarify the treatment of special fees under the leasehold excise tax.

Category/Year Enacted: Economic development; 1991.

Primary Beneficiaries: Only one firm meets the special criteria of this exclusion.

Conflict With Other Programs: The tax for other lessees is based on fair market value which includes a determination of the total receipts to the lessee.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 14 14 12 12
Local taxes 13 13 11 11

If the exemption were repealed, would the estimated revenue be realized? Unlikely; this special treatment represents a negotiated settlement between the state and the firm.

82.29A.120(1) CREDIT FOR EXCESSIVE LEASEHOLD TAX

Description: A special credit against leasehold excise tax is allowed for two types of leases: (1) those executed after April 1, 1986, and (2) leases in which the Department of Revenue determines the amount of contract rent. The credit is equal to the amount that the computed leasehold tax exceeds what the leased property would otherwise pay in property taxes if the property were in private ownership.

Purpose: This credit assures that the leasehold tax does not exceed the equivalent property tax.

Category/Year Enacted: Economic development; 1986.

Primary Beneficiaries: All lessees of public property.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 140 148 154 162
Local taxes 123 129 135 142

If the credit were repealed, would the estimated revenue be realized? Yes.

82.29A.120(2) PRODUCT LEASES; 33 PERCENT CREDIT

Description: Allows a credit of 33 percent of the tax otherwise due on product leases; i.e., leases where the lessee pays the lessor a percentage of the value of crop produced on the land.

Purpose: The purpose is apparently to support agriculture and is consistent with other exemptions which constitute this legislative policy.

Category/Year Enacted: Agriculture; 1976. Definition of products expanded in 1999 to include natural products (foliage, bark, mushrooms, etc.), ores and minerals, natural gas, geothermal water and steam and forage removed via grazing of livestock.

Primary Beneficiaries: Farmers who produce crops or graze livestock on publicly owned land.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 235 240 245 250
Local taxes 205 209 213 218

If the credit were repealed, would the estimated revenue be realized? Yes.

82.29A.130(3) SUBSIDIZED HOUSING

Description: Excluded from leasehold excise tax are leases of subsidized housing where fee ownership is vested in the U.S. government, the state, or any political subdivision. There must be an income qualification for such housing in order for the exemption to apply.

Purpose: The purpose reflects legislative policy not to tax government operations and to assist public housing for low income individuals.

Category/Year Enacted: Individuals; 1976.

Primary Beneficiaries: Low income individuals who lease subsidized public housing.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 5,329 5,489 5,653 5,823
Local taxes 4,674 4,815 4,959 5,108

If the exemption were repealed, would the estimated revenue be realized? Yes; but subsidies to low income renters of public housing would have to be increased to maintain the same level of housing support.

82.29A.130(5) RESIDENCES OF PUBLIC EMPLOYEES

Description: When public employees are required by the terms of employment to live in a publicly owned residence (e.g., at state parks), the employee is not subject to leasehold tax.

Purpose: This exemption was enacted as part of legislative policy not to tax government. Also, the tax would in essence reduce employee compensation or increase government cost.

Category/Year Enacted: Government; 1976.

Primary Beneficiaries: Public employees who must live in government housing (e.g., state park rangers).

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 207 213 219 226
Local taxes 181 187 192 198

If the exemption were repealed, would the estimated revenue be realized? No.

82.29A.130(6) INTERESTS OF ENROLLED INDIANS IN INDIAN LANDS

82.29A.130(7) INDIAN PROPERTY HELD IN TRUST BY U.S.

Description: Leasehold interests in Indian lands by both Indians and non-Indians are exempted. Leases by non-Indians are qualified for exemption only when the contract rent paid is greater than or equal to 90 percent of fair market rental.

Purpose: The purpose is to recognize the federal prohibition against taxing such property.

Category/Year Enacted: Government; 1976.

Primary Beneficiaries: Indians and non-Indians with qualifying leases.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 158 166 175 183
Local taxes 139 146 153 161

If the exemption were repealed, would the estimated revenue be realized? No.

82.29A.130(8) ANNUAL RENT LESS THAN $250

82.29A.130(9) LEASES LESS THAN 30 DAYS

Description: Inexpensive and short-term leases of public property are exempt from leasehold tax if the total lease is less than $250 per year or the lease does not exceed 30 days.

Purpose: The purpose is evidently to support small business. However, leases of less than 30 days' duration apply to both small and large businesses, such as professional sports teams and sponsors of trade shows.

Category/Year Enacted: Economic development; 1976.

Primary Beneficiaries: Holders of qualifying leases, including professional sports teams which lease public stadium facilities and various events at convention/trade centers.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 867 893 920 947
Local taxes 760 783 807 831

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.130(10) RESIDENTIAL UNITS PENDING DESTRUCTION

Description: Leased residential units pending destruction or removal to construct a public highway or building are exempt from the leasehold tax.

Purpose: When private residential property is either condemned or purchased outright to make way for a public project, this exemption brings some tax relief during the transition to those homeowners who are forced to sell their homes and then rent them from a governmental entity until the property is demolished.

Category/Year Enacted: Government; 1976.

Primary Beneficiaries: Residents of units awaiting destruction or removal.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 26 28 29 30
Local taxes 23 24 25 27

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.130(11) PUBLIC WORKS CONTRACTS

Description: Exempts the leasehold interests of public works contractors who use public property while completing public works projects.

Purpose: To minimize the cost to government of public works construction projects.

Category/Year Enacted: Federal; 1976.

Primary Beneficiaries: Public works contractors and the governmental units for whom they are building public projects.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 22 23 24 26
Local taxes 19 20 21 22

If the exemption were repealed, would the estimated revenue be realized? No; most facilities leased to contractors are those owned by the federal government.

82.29A.130(12) INMATE EMPLOYMENT PROGRAMS

Description: Exempts from leasehold excise tax firms that use space in correctional facilities in conjunction with comprehensive inmate work programs.

Purpose: The exemption promotes inmate work programs and was also enacted in response to uncertainties concerning the applicability of leasehold excise tax and the rental value of space within a correctional institution.

Category/Year Enacted: Other; 1992.

Primary Beneficiaries: Approximately 15 firms that are involved with inmate employment programs.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 16 17 17 18
Local taxes 14 15 15 15

If the exemption were repealed, would the estimated revenue be realized?

Yes; but determination of market value of leases in correctional facilities might be difficult.

82.29A.130(13) CAMPS FOR DISABLED PERSONS

Description: Nonprofit entities that provide organized and supervised recreational activities for disabled persons of all ages in a camp facility and for public recreational purposes are exempt from leasehold excise tax.

Purpose: To support the activities of qualifying nonprofit organizations.

Category/Year Enacted: Nonprofit - health or social welfare; 1995.

Primary Beneficiaries: There is one known organization that operates a camp for disabled persons on leased public property.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 2 2 2 2
Local taxes 2 2 2 2

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.130(14) PROFESSIONAL BASEBALL STADIUM

Description: This exemption excludes from leasehold tax all interests in public or entertainment areas of a professional baseball stadium in Seattle. To qualify the facility must have natural turf and a retractable roof and be located in a county with population greater than 1 million persons. The facility must have a seating capacity of over 40,000 and construction must commence by January 1, 1995. The exemption does not extend to areas of the stadium which have no public access, such as locker rooms and private offices.

Purpose: To encourage construction of the facility and retention of professional baseball in Seattle.

Category/Year Enacted: Economic development; 1995.

Primary Beneficiaries: The owners of the professional baseball team which utilizes Safeco Field.

Conflict With Other Programs: Similar leases of other publicly owned sports facilities are subject to leasehold tax if the lessee has exclusive use. However, many leases of sports facilities are considered as a license to use the facility rather than an exclusive lease, and leasehold excise tax does not apply.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 41 41 41 41
Local taxes 36 36 36 36

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.130(15) PROFESSIONAL FOOTBALL STADIUM

Description: This exemption excludes from leasehold tax all interests located in the public or entertainment areas of a stadium constructed in Seattle for use by professional football and soccer teams and the exhibition center, as well as the adjacent parking facility.

Purpose: To facilitate funding of the football stadium and exhibition center.

Category/Year Enacted: Economic development; 1997. The parking facility is already completed and the stadium is expected to be operational by July, 2002.

Primary Beneficiaries: The public stadium authority which is developing the football stadium and exhibition center in Seattle and prospective lessees of the facility.

Conflict With Other Programs: A similar exemption applies for the adjacent professional baseball stadium. Leases of other publicly owned sports facilities are subject to leasehold tax if the lessee has exclusive use. However, many rentals of sports facilities are considered as a license to use the facility rather than an exclusive lease and leasehold excise tax does not apply.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 17 29 36 52
Local taxes 15 26 32 45

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.130(16) PUBLIC FACILITY DISTRICTS

Description: A blanket exemption for all leaseholds in property owned by a public facility district is exempt from leasehold excise tax. This includes any convention centers or sports facilities which are operated by a public facility district.

Purpose: To encourage the construction and utilization of convention, conference or special events centers, particularly in smaller communities.

Category/Year Enacted: Economic development; 1999.

Primary Beneficiaries: Public facilities districts and leasehold of their facilities.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 35 36 38 47
Local taxes 30 31 32 41

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.132 2ND NARROWS BRIDGE

Description: Upon completion of the new Tacoma Narrows bridge, ownership will be deeded to the state by the private entity responsible for financing and constructing the project. The state will then lease the bridge back to the private entity which will maintain and operate the bridge for the term of the lease. This statute exempts such lease from the leasehold excise tax.

Purpose: To encourage construction of the bridge.

Category/Year Enacted: Economic development; 1998.

Primary Beneficiaries: The firm which will lease the bridge from the state.

Conflict With Other Programs: None evident.

Tax Savings ($000): Completion of the bridge will not occur until approximately 2005. At that time the lease is estimated to be worth $38 million per year. Thus, the annual impact of the exemption will approximate $2.6 million.

If the exemption were repealed, would the estimated revenue be realized? Yes.

82.29A.135 GASOHOL FACILITIES

Description: Exempts producers of alcohol for use in gasohol from the leasehold excise tax.

Purpose: The purpose is to encourage the production of gasohol fuel and to reduce the reliance on oil.

Category/Year Enacted: Economic development; 1980.

Primary Beneficiaries: There are currently no producers of alcohol for use in gasohol, operating in facilities leased from a governmental entity.

Conflict With Other Programs: None evident.

Tax Savings ($000): None.