Legislative update - third quarter 2022

Introducing the DOR Quarterly Legislative Update

This is the first in a series of concise and insightful updates from the Department of Revenue’s legislative team. The aim is to shed light on tax policy and goings-on at DOR that are of value to you and which you can read in just a few minutes.

We plan to produce this update on a quarterly basis and will notify lawmakers and staff on the two fiscal committees via email when a new update is posted on DOR’s website. Please let us know if you do not want to receive future email notices and we will take you off our list. We also can add anyone else serving or working in the Legislature to our email list.

I hope you find this and future updates enjoyable and informative. Questions and comments are always welcome! And beyond the legislative update, if DOR can be of assistance (including confidentially) on tax matters during interim and as we approach 2023 session, please don’t hesitate to reach out.

- Steve Ewing, DOR Legislative and External Affairs Liaison

Unclaimed success

As you talk with your constituents, please encourage them to visit claimyourcash.org, where Washingtonians can search to see if they have unclaimed property. To date, more than $1.2 billion of property and assets has been returned to the rightful owners.

During the 2022 session, the Legislature passed ESSB 5531, which contained updates to Washington’s unclaimed property laws. DOR administers this state program and is proud of the work our staff does. We’re not alone in our admiration. The Unclaimed Property Professionals Organization selected Washington as the 2020-21 Unclaimed Property State of the Year.

We updated our unclaimed property website in April 2021 with more robust search features, a mobile-friendly design, and a new fast-track process that gets property into Washingtonians’ hands safely and quickly. Since launching the new site, we’ve seen an impressive 127% increase in claims. We’ve also launched a marketing campaign to help raise more awareness of unclaimed property and reach a broader audience.

When an entity holding monetary assets or tangible property loses contact with the rightful owner for an extended period of time, the property is considered lost, forgotten, or abandoned, and turned over to the Unclaimed Property program. The state holds the property in perpetuity until claimed.

The most common types of unclaimed property are: bank accounts; insurance proceeds; stocks, bonds, and mutual funds; utility and phone company deposits; customer credits; uncashed checks (payroll, travelers checks, etc.); and safe deposit boxes.

There’s more than one way to skin a CAT

Oregon’s new corporate activity tax (CAT), which is assessed on top of existing corporate taxes, went into effect on Jan. 1, 2020. The Oregon bill creating the CAT, HB 3427, requires a business to pay $250 plus .57% on taxable commercial activity in excess of $1 million if the business meets the threshold and applicability requirements of the CAT.

Oregon’s tax sourcing requires that a business outside of Oregon be subject to the CAT on sales to Oregon residents, even if the sales occur outside of Oregon. This has caused some Washington businesses to be subject to both Oregon’s CAT and Washington’s B&O tax on the same sales. Late last year, DOR heard from a southern Washington lawmaker on behalf of a local auto dealer subject to the Oregon CAT for sales to Oregon residents occurring in Washington.

Since Oregon passed its CAT, neighboring states have taken notice. In March, Idaho’s legislature unanimously passed HB 677, which declared Oregon’s administration of its CAT “not acceptable to the sovereign State of Idaho” and barred enforcement of the tax on “an Idaho business for conducting sales or other business taking place within the state of Idaho between an Idaho business and a nonresident who is physically present within the state of Idaho while engaging in the business transaction.”

DOR has been engaging with our counterparts at the Oregon Department of Revenue to discuss their CAT and the possibility of changing the sourcing rules. According to a recent Oregon DOR report, 5% of returns filed for the CAT come from Washington.

TSWG: Replace or modify the B&O? Margins tax? Expanded WFTC?

At the May 25 hearing of the Tax Structure Work Group, its members provided DOR with guidance that the department will use to model new tax regimes ahead of future TSWG meetings. Guidance concerned replacing or modifying the B&O tax and expanding the Working Families Tax Credit.

Members provided feedback by anonymous polling; decisions made were not endorsements of any policy positions. DOR is pleased to partner with the TSWG on these vital issues and will stay busy this summer crunching the numbers on the TSWG’s decisions!

The TSWG showed interest in exploring the possibility of wiping the slate clean for the B&O tax, largely hitting the reset button on preferential rates, credits, deductions, and exemptions. That said, the group directed DOR to model the B&O maintaining the current lower retailing B&O tax rate and the current tax base. In considering a margins tax, the TSWG directed DOR to model it with the four deductions used by Texas’ margins tax system. Finally, the TSWG voted for DOR to model the Working Families Tax Credit with expanded eligibility. DOR will solicit the TSWG for more guidance on what broadening should look like and how it should work.

You can find more information about the TSWG’s May 25 meeting and the anonymous polling results here.

WFTC website is live

DOR recently launched the website for the Working Families Tax Credit in anticipation of the program going live next year. Please spread the word and help raise the program’s awareness in your community by sharing the link to the website.

Farewell and happy retirement to DOR’s Director Smith

Director Vikki Smith has announced she will retire from state service Aug. 31 after 51 years with DOR. Her replacement will be announced later this year.

Director Smith started her career at DOR in 1970 as a summer temporary clerk and worked her way up through the ranks to become the agency’s director in 2015. In her 51-year career, she served in many of DOR’s divisions, championing the continuous improvement of customer service to taxpayers. Smith said she plans to spend more time with her family after she retires.

Although the name at the top of the org chart will change, DOR will continue to administer Washington’s tax code professionally and efficiently and serve as a trusted and valuable partner to the Legislature.

Dependence Day

Having recently observed Independence Day, a quick look back in history seems appropriate. At the same time the Second Continental Congress debated declaring independence, a committee worked to determine what form the confederation of colonies would take. 

The nation’s first constitution approved in 1777, the Articles of Confederation, included no federal authority to levy taxes: Congress could only request funds from states and was entirely dependent on their voluntary acquiescence.  Understandably, the states were none too eager to cough up, and so the federal government was chronically underfunded.  Having learned their lesson, our country’s leaders included explicit taxing authority in Article I, Section 8 of our current constitution.

Meet the DOR legislative team

This first Quarterly Legislative Update is a great opportunity for us to introduce ourselves to those of you we did not have the pleasure of working with during the 2022 session.

Steve Ewing joined DOR in 2021 as the new legislative and external affairs liaison. He moved to Washington from Columbus, Ohio, where he had been the legislative liaison at the Ohio Department of Transportation. He previously served as the liaison for the Ohio Department of Veterans Services, and before that, worked in both the Ohio House and Senate. He and his wife, Sarah, were married in Washington in September 2021 and decided right away to make the Evergreen State their new home.

Ian Doyle was named DOR’s assistant legislative liaison at the beginning of the 2022 legislative session. Ian had served as a tax policy specialist since 2018. Before that, he worked for both the Department of Revenue and Department of Licensing as an excise tax examiner and revenue agent. Ian graduated from Washington State University before starting his career in state service.