HomeMy WebLinkAboutFIN 2019-02-25 COMPLETE AGENDA PACKETCity of Tukwila
Finance Committee
• Thomas McLeod, Chair
• Verna Seal
• De'Sean Quinn
AGENDA
Distribution:
T. McLeod
V. Seal
D. Quinn
K. Hougardy
D. Robertson
K. Kruller
Z. Idan
Mayor Ekberg
D. Cline
R. Bianchi
C. O'Flaherty
L. Humphrey
MONDAY, FEBRUARY 25, 2019 — 5:30 PM
HAZELNUT CONFERENCE ROOM
(At east entrance of City Hall)
Item
Recommended Action
Page
1. PRESENTATION(S)
2. BUSINESS AGENDA
a. An amendment to the Office of Public Defense grant
agreement.
a. Forward to 3/4 Consent
Agenda.
Pg.1
Cheryl Thompson, Executive Assistant, Mayor's Office
b. Preliminary December 2018 Year-end Financial Report.
b. Discussion only.
Pg.5
Jeff Friend, Fiscal Manager
c. Update on sales tax mitigation.
c. Discussion only.
Pg.9
Peggy McCarthy, Finance Director
d. 2018 Cash and Investment Report.
d. Discussion only.
Pg.63
Peggy McCarthy, Finance Director
e. Marijuana retail considerations.
e. Discussion only.
Laurel Humphrey, Counci I Analyst
3. ANNOUNCEMENTS
4. MISCELLANEOUS
Next Scheduled Meeting: Monday, March 11, 2019
/5. The City of Tukwila strives to accommodate individuals with disabilities.
Please contact the City Clerk's Office at 206-433-1800 (TukwilaCityClerk(@TukwilaWA.gov) for assistance.
TO:
City of Tukwila
INFOR ATIONAL E ORANDU
FINANCE COMMITTEE
Allan Ekberg, Mayor
CC: Mayor Ekberg
David Cline, City Administrator
FROM: Cheryl Thompson, Executive Assistant
DATE: February 19, 2019
SUBJECT: Office of Public Defense 2018-2019 Grant Agreement Amendment #2
ISSUE
The Washington State Office of Public Defense had additional grant funds become available
and has offered the City of Tukwila an additional $10,000 for 2019 to be used for increased
social work services to assist public defense attorneys. As the original grant was for $74,000:
$37,000 for both 2018 and 2019, the acceptance of the additional funds requires Council
approval.
BACKGROUND
The Washington State Office of Public Defense awarded the City of Tukwila a $74,000 grant for
the Public Defense Program: $37,000 for 2018 and $37,000 for 2019. The original grant
agreement was approved by Council on November 20, 2017.
DISCUSSION
On October 6, 2017 the City received notification from the Washington State Office of Public
Defense awarding the City grant funds in the amount of $74,000 2018-2019: $37,000 for each
year, to be used to provide investigator services, interpreter services and social work assistance
to the Public Defense Program. On August 7, 2018 the original agreement was amended to
allow use of grant funds for additional compensation to conflict public defense attorneys.
Because there was not an increase in funds the first amendment did not go before Council for
approval.
The City of Tukwila was the first municipality offered additional grant funds from WSOPD for
2019. Receiving and successful implementation of the additional grant funds also positions the
City to receive an increased grant award for 2020-2021.
RECOMMENDATION
The Council is being asked to send this item to the consent agenda at the March 4, 2019
Regular meeting.
ATTACHMENTS
Second Amendment to the 2018-2019 Grant Agreement
1
2
Second Amendment to Grant Agreement No. GIRT 18511
WASHINGTON STATE OFFICE OF PUBLIC DEFENSE
1.Gnantee
City ofTukwila
62OOSouthcenterBlvd.
Tukwila, VVA9g188'O54D
2. Grantee Representative
Cheryl Thompson
Executive Assistant
G%OUSouthcenterBlvd.
Tukwila, VVA9D1QD
3. Office ofPublic Defense (OPO)
7l1Capitol Way South, Suite lDG
POBox 4O9S7
Olympia, WA 98504'0957
4' OPD0ep,esentatiue
Katrin]ohnson
Managing Attorney
Office ofPublic Defense
71lCapitol Way South, Suite 1O6
POBox 40957
Olympia, WA 98504'8957
5. Additional Grant Amount
$10'000.00
6. Grant Period
January I,ZOIQthrough December 3l'Z019
7. Amendment Purpose
This Amendment serves to provide Grantee additional
dollars) for increased social work services to assist public
The Chapter 10.101 RCW city grants are competitive
public defense services in Washington municipalities.
funding in the amount of $10,000 (ten thousand
defense attorneys.
grants for the purpose of improving the quality of
(See Chapter 1O.l0l RCVV.)
The Office of Public Defense (OPD) and Grantee, as defined above, acknowledge and accept the change
described in sections 5 and 7 of this Amendment. All other terms and conditions of Grant Agreement
No. #l8SIlremain infull force and effect.
FOR THE GRANTEE
FOBOPD
Allan Ekberg, Mayor
Joanne |. Moore, Director
Date
Date
4
*ILA
\ -
29os
City of Tukwila
INFOR ATIONAL E ORANDU
TO: Councilmembers
CC: Mayor Ekberg
FROM: Peggy McCarthy, Finance Director
BY: Jeff Friend, Fiscal Manager
DATE: February 20, 2019
SUBJECT: Preliminary December 2018 Year -End Financial Update
Summary
Allan Ekberg, Mayor
The purpose of the 2018 Financial Report is to summarize for the City Council the general state
of Departmental expenditures and to highlight significant items at Year -End. The following
provides a high-level summary of the Departmental financial performance.
The Preliminary December 2018 Year -End report is based on financial data available as of
February 20, 2019, for the period ending December 31, 2018. The data in this report is referred
to as "preliminary" as additional 2018 expenditures or corrections can still be posted as the
Finance department continues to work on closing the year. Significant changes are not
expected as most transactions have been recorded. Additional details can be found within the
attached financial report.
Departmental Expenditures
General Fund expenditures totaled $61.4 million, which is $7.2 million below budget. The
Administration's goal of an overall 3% cost reduction of General Fund department expenses
was achieved with all departments combining to finish the year 3.3% under budget.
Transfers from the General Fund were $5.3 million under budget due to:
• a $3 million transfer to Bridges and Arterial Streets was budgeted but did not occur
as it was determined that it was not needed.
• a $2.3 million transfer to Debt Service did not occur as the City refinanced the 2017
Refunding Line -of -Credit instead of paying it off.
Other significant variances:
• Rentals and Leases are over budget due to the purchase of four SWAT vehicles; an
expenditure previously approved by Council.
• External taxes are over budget due to an unbudgeted leasehold tax payment of
$105,000.
5
INFORMATIONAL MEMO
Page 2
Preliminary Year -End Department Expenditures Compared to Allocated Budget
(December2018)
. $374
City Council
01 $430
Mayor
Human Resources
$728
$4,038
$4,144
Finance
Attorney
Recreation
Community Development
Municipal Court
Police
Fire
Technology & Innovation
Svcs $2,064
MN $726
$2,649
$2,733
$983
$983
$3,093
$3,282
$3,509
$3,671
$1,296
$1,296
$17,967
$18,726
$12,356
Public Works
Park Maintenance
Street Maintenance &
Operations
Dept 20
$2,062
$3,566
$1,515
$1,572
$3,876
$3,138
$3,150
$4,165
$0
$5,000
$9,471
$10,000
YTD Actual e YTD Budget
$12,542
$15,000
$20,000
Thousands
6
INFORMATIONAL MEMO
Page 3
GENERAL FUND
CITY OF TUKWILA
GENERAL FUND EXPENDITURES
AS OF DECEMBER 31, 2018
SUMMARY OF EXPENDITURES BY
DEPARTMENT
BUDGET
ACTUAL
2018 ANNUAL
2016
2017
%° CHANGE
2018
8DGT V5
ACTUAL
PENDED 2016/2017 2017/2018
01
City Council
430,319
327,433
356,375
374,120
(56,199)
86.9%
9%
5%
03
Mayor
4,143,651
3,863,399
3,813,280
4,038,135
(105,516)
97.5%
(1)%
6%
04
Human Resources
728,083
647,426
656,847
725,803
(2,280)
99.7%
1%
10%
05
Finance
2,733,016
2,137,628
2,408,087
2,648,628
(84,388)
96.9%
13%
10%
06
Attorney
983,185
530,725
664,913
982,922
(263)
100.0%
25%
48%
07
Recreation
3,282,244
2,937,733
3,048,617
3,093,303
(188,941)
94.2%
4%
1%
08
Comm unity Development
3,671,160
3,209,879
3,283,547
3,508,775
(162,385)
95.6%
2%
7%
09
Municipal Court
1,295,812
1,155,400
1,233,173
1,295,591
(221)
100.0%
7%
5%
10
Police
18,726,049
17,855,697
17,481,118
17,966,627
(759,423)
95.9%
(2)%
3%
11
Fire
12,541,640
11,554,341
12,066,979
12,356,200
(185,440)
98.5%
4%
2%
12
Technology& Innovation Svcs
2,063,671
1,515,832
1,994,956
2,061,595
(2,076)
99.9%
32%0
3%
13
Public Works
3,876,047
3,686,312
3,579,262
3,566,458
(309,589)
92.0%
(3)%0
(0)%
15
Park Maintenance
1,572,214
1,454,172
1,351,422
1,515,219
(56,995)
96.4%
(7)%
12%
16
Street Maintenance & Operations
3,149,643
2,897,968
3,037,318
3,137,645
(11,998)
99.6%
5%
3%
Total Departmental Expenditures
59,196,734
53,773,946
54,975,894
57,271020
(1,925,714)
96.7%
2%
4%
20
Dept20-Transfers
9,470,580
4,501,313
5,476,011
4,164,533
(5,306,047)
44.0%
22%
(24)%
Total Expenditures
68,667,314
58,275,259
60,451,905
61,435,553
(7,231,761)
89.5%
4%
2%
Percent of year completed
100.00%
7
INFORMATIONAL MEMO
Page 4
GENERAL FUND
CITY OF TUKWILA
GENERAL FUND EXPENDITURES
AS OFDECEMBER31,2018
BUDGET
ACTUAL
SUMMARY OF SALARIES AND
BENEFITS
2018 ANNUAL
2016
2017
2018
k CKANGE
BDGT VS
ACTUAL
% IXPE4D6J
2016/2017
2017/2018
11
Salaries
28,076,720
26,300,633
27,163,092
27,508,645
(568,075)
98%
3%
1%
12
Extra Labor
754,693
627,034
653,502
697,233
(57,460)
92%
4%
7%
13
Overtime
1,672,035
1,519,183
1,513,455
1,506,318
(165,717)
90%
(0)%
(0)%
15
Holiday Pay
525,583
437,045
455,024
448,184
(77,399)
85%
4%
(2)%
21
FICA
1,843,684
1,696,260
1,750,049
1,783,129
(60,555)
97%
3%
2%
22
Pens ion-LEOFF2
949,316
881,656
930,131
942,174
(7,142)
99%
5%
1%
23
Pension-PERS/PSERS
1,610,013
1,385,867
1,512,991
1,683,848
73,835
105%
9%
11%
24
Industrial Insurance
941,170
678,200
634,001
637,663
(303,507)
68%
(7)%
1%
25
Medical & Dental
6,397,364
5,583,572
5,597,627
5,478,650
(918,714)
86%
0%
(2)%
26
Unemployment
13,000
40,380
13,639
38,356
25,356
295%
(66)%
181%
28
Uniform/Clothing
10,774
5,002
5,300
5,675
(5,099)
53%
6%
7%
Total Salaries and Benefits
42,794,352
39,154,830
40,228,812
40,729,874
(2,064,478)
95%
3%
1%
Percent of year completed
100.00%
SUMMARY OF SUPPLIES,
SERVICES, AND CAPITAL
BUDGET
ACTUAL
2018 ANNUAL
2016
2017
2018
%EXPE4DED
a CHANGE
BOLT VS
ACTUAL
2016/2017
2017/2018
Transfers
9,470,580
4,501,313
5,476,011
4,164,533
(5,306,047)
44%
22%
(24)%
31
Supplies
1,188,804
1,271,622
1,112,172
1,167,904
(20,900)
96%
(13)%
5%
34
Items Purchased for resale
22,000
22,500
20,530
22,488
488
102%
(9)%
10%
35
Small Tools
97,318
108,922
149,000
94,068
(3,250)
97%
37%
(37)%
41
Professional ices
3,602,177
2,776,466
3,305,544
3,614,648
12,471
100%
19%
9%
42
Communication
436,370
407,499
400,826
439,626
3,256
101%
(2)%
10%
43
Travel
189,880
143,012
168,236
169,229
(20,651)
89%
18%
1%
44
Advertising
51,500
24,222
26,652
35,851
(15,649)
70%
10%
35%
45
Rentals and Leases
2313,870
1,845,849
2,062,559
2,552,779
238,909
110%
12%
24%
46
Insurance
976,992
810,799
888,997
974,066
(2,926)
100%
10%
10%
47
Public Utilities
1,928,305
1,828,751
1,915,730
1,947,025
18,720
101%
5%
2%
48
Repairs and Maintenance
807,488
850,278
662,275
646,619
(160,869)
80%
(22)%
(2)%
49
Miscellaneous
1,566,554
1,032,246
975,296
1,630,974
64,420
104%
(6)%
67%
51
Inter -Governmental
3,191,119
2,698,335
2,940,604
3,079,994
(111,125)
97%
9%
5%
53
Exl Taxes, Oper. Assess
5
12
985
105,984
105,979
2119687%
7925%,
10664%
64
Machinery& Equipment
30,000
798,601
117,679
59,892
29,892
200%
(85)%
(49)%
Total Supplies, Services, and Capital
25,872,962
19,120,429
20,223,094
20,705,679
(5,167,283)
80%
6%
2%
Percentof year completed
100.00 %
8
City of Tukwila
INFOR ATIONA
E
ORANDU
Allan Ekberg, Mayor
TO: Finance Committee
FROM: Peggy McCarthy, Finance Director
CC: Mayor Ekberg
DATE: February 6, 2019
SUBJECT: Sales Tax Mitigation Update
ISSUE
Provide an update on sales tax mitigation payments and offsets.
BACKGROUND
When the State moved to destination -based sales tax in 2008, referred to as streamlined sales tax
or SST, it was determined that those cities sustaining a negative financial impact from this legislation,
including the City of Tukwila, would receive mitigation funds from the State. In 2018, State legislation
was enacted to end the payment of these mitigation funds effective after the September 2019
payment. The City receives approximately $288 thousand quarterly or $1.15 million annually in state
streamlined sales tax mitigation funds. Another piece of legislation, the Washington State
Marketplace Fairness Act, became effective January 1, 2018 and requires remote sellers and other
entities that meet certain statutory criteria to collect and remit sales or use tax.
DISCUSSION
The potential increased sales tax collections from online businesses has served as one of the State's
justifications for eliminating the SST mitigation funds. However, the collections from voluntary
remitters and from the Marketplace Fairness Act for the City of Tukwila have been a fraction of the
mitigation payments, as illustrated in the schedule below.
Collection Rec'd By
Qtr City
Q1 2018 Jun 2018
Q2 2018
Q3 2018
Q4 2018
Sep 2018
Dec 2018
Mar 2019
estimate
TOTAL
Offsets to Sales Tax Mitigation Payments
Voluntary Marketplace TOTAL (a)
Fairness Act
$ 11,576 $ 16,584 $ 28,160
16,777 21,172 37,948
18,605 24,050 42,656
20,000 30,000 50,000
66,958 $ 91,806 $ 158,764
(a) Offsets as a percentage of mitigation allocation.
Sales Tax
Mitigation
Allocation
$ 287,346
287,346
287,346
Net
Mitigation
Rec'd
$ 259,185
249,397
244,690
17% 287,346 237,346
$ 1,149,382 $ 990,618
The City has been involved in lobbying efforts recommending to the Washington State Legislature
that streamlined sales tax mitigation payments continue to be funded for those cities that have not
yet received adequate WA Marketplace Fairness Act and voluntary compliance revenue to offset the
9
INFORMATIONAL MEMO
Page 2
loss of streamlined sales tax mitigation payments. For more information on these efforts, a letter
sent to the Washington State Department of Revenue by the Streamlined Sales Tax Mitigation
Executive Committee on August 31, 2018 is attached to this memo.
RECOMMENDATION
Presentation is for information only.
ATTACHMENTS
SST Mitigation Committee Cover letter and Report
10
--- --
`'-I r`
SSOCIATIO
��
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���'�^��^�_����__�����
August ]1'ZOl8
Mr. David Duvall
Legislative Liaison
Washington State Department of Revenue
POBox 47450
Olympia, Washington 985O4-74S0
Re: SSB 5883 Streamlined Sales Tax Report
Dear Mr. Duvall:
Onbehalf ofthe SST Mitigation Executive Committee, |amsubmitting the group'sreport and
recommendation. VVerespectfully request the report beincluded asan appendix tothe Department nf
Revenue (DOR) report on impacts by the State's implementation of Marketplace Fairness, required by
S8B5DD3Sec. 136(3),asagreed toby DORend cities.
The SST Mitigation Executive Committee included representatives of cities, the businesscommunity,
ports, the Washington State Department ofCommerce, and legislative staff.
The Committee recommends that the Washington State Legislature should continue to fund streamlined
sales tax mitigation payments for the limited number of cities that have not yet received adequate WA
Marketplace Fairness Act and voluntary compliance revenue to offset the loss of streamlined sales tax
mitigation payments. Ongoing data on the WA Marketplace Fairness Act and voluntary compliance
revenue collections in comparison to streamlined sales tax mitigation payments should inform the
continuation ofstreamlined sales tax mitigation payments in future biennia.
We look forward to the Department of Revenue's final report. We believe this report meets the goals of
the proviso in Sec. 136 (3) of SSB 5883 and the report addresses this important policy tool for sales tax
fairness.
Sincerely,
/I(- � h, L, -� �- .
Peter B.King
Chief Executive Officer
Cc: VlkNSmith, Director, Department ufRevenue
Victoria Lincoln, AVV[,co-chair ofExecutiveCommittee
Derek Matheson, City ofKent, co-chair ofExecutive Committee
3607514137 8K562�8981 'VV@['t'eS0[O
11
12
Prepared by the SST Mitihation Executive Conymittee
Auhust 31, 2018
13
14
SSB 5883 Streamlines Sales Tax Report August 31, 2018
Executive Summary
This report was prepared in response to 2017-19 Operating Budget, SSB 5883, Sec. 136(3) directing the
Department of Revenue (DOR) to evaluate sections 201-213 of EHB 2163 signed into law in the 2017
legislative session.
The SST Mitigation Executive Committee met between December 2017 and August 2018 and agreed to a
single recommendation:
o The Washington State Legislature should continue to fund streamlined sales tax mitigation
payments for the limited number of cities that have not yet received adequate WA Marketplace
Fairness Act and voluntary compliance revenue to offset the loss of streamlined sales tax
mitigation payments. Ongoing data on the WA Marketplace Fairness Act and voluntary
compliance revenue collections in comparison to streamlined sales tax mitigation payments
should inform the continuation of streamlined sales tax mitigation payments in future biennia.
The Committee looked at and did not approve four other options:
1. Expand existing tax authority;
2. Provide new tax authority;
3. Reset Land Use (rezoning); and
4. No action.
Overview
The study in Sec. 136(3) of SSB 5883 directed DOR to examine and report back on two core issues:
o Analysis of revenue gains under remote sales tax fairness vis-a-vis SST Mitigation; and
o Consideration of online sales and streamlined sales tax mitigation trends for areas with a
significant concentration of warehousing distribution and manufacturing centers.
The SST Mitigation Executive Committee felt the study, of the second core issue as stated above, should
involve a review of the impacts and how to best address them. DOR believed the cities would be better
positioned to lead this portion of the study, and DOR would include the cities' recommendations in the
report.
The city -convened workgroup, which became the SST Mitigation Executive Committee, consisted of:
o Cities;
o Association of Washington Cities and other city representatives;
o Chamber of Commerce; and
o Ports of Seattle and Tacoma.
1 PPage
•
15
SSB 5883 Streamlines Sales Tax Report August 31, 2018
The Committee reviewed:
o What is at stake in the most affected communities;
a History;
o Legal challenges;
o What other states are doing; and
o Alternatives for moving forward.
In making its recommendations, and selecting mitigation payments as the preferred option, the SST
Mitigation Executive Committee relied on the following guiding policy principles:
1) Valuing the economic model that makes Washington a critical player in international trade,
manufacturing, warehousing, and the location of distribution centers;
2) Ensuring local jurisdictions can continue to make land use, zoning, infrastructure investment,
and economic development planning decisions that support this model;
3) Attempting to hold local communities harmless, to the maximum extent practical. Local
communities built around a previous, origin -based -sourcing model of local sales tax were simply
living by and following the rules put in place by the State of Washington;
4) Attempting to minimize unfair or disproportionate tax burdens on businesses that have followed
those same rules and had nothing to do with the tax -policy decision made by the state;
5) Recognizing that local elected officials should not be asked to disproportionately bear the
burden of a fundamental change in tax policy at the state level;
6) Asking the State of Washington to continue to follow, and recognize, a system and structure of
Mitigation Payments established under SSB 5089, Laws of 2007 — one that is, in fact, working as
intended.
Recommendation: Continue Limited Mitigation
The SST Mitigation Executive Committee met between December 2017 and August 2018 and agreed to a
single recommendation:
o The Washington State Legislature should continue to fund streamlined sales tax mitigation
payments for the limited number of cities that have not yet received adequate WA Marketplace
Fairness Act and voluntary compliance revenue to offset the loss of streamlined sales tax
mitigation payments. Ongoing data on the WA Marketplace Fairness Act and voluntary
compliance revenue collections in comparison to streamlined sales tax mitigation payments
should inform the continuation of streamlined sales tax mitigation payments in future biennia.
The Committee looked at and did not approve four other options:
1. Expand existing tax authority;
2. Provide new tax authority;
3. Re -set Land Use (rezoning); and
4. No action.
2 Page
16
SSB 5883 Streamlines Sales Tax Report August 31, 2018
SST Mitigation Executive Committee Membership
The Committee membership included members from the affected cities and business community,
The Northwest Sea Port Alliance. The Association of Washington Cities and the City of Kent served
as co-chairs. See Exhibit A for complete list of committee members.
3 'Page
17
SSB 5883 Streamlines Sales Tax Report August 31, 2018
Introduction
What is at Stake
Washington State's economy relies significantly on trade, which is facilitated by the warehousing
distribution and manufacturing centers in the impacted cities. According to the March 2015 PSRC
Industrial Lands Report, the Puget Sound regional industrial land area serves as a significant economic
engine for the regional and state economy.
o 28,615 net acres of industrial -zoned and designated lands spread across four counties, 65
jurisdictions, and military and tribal lands;
o In 2012, total wages paid out by industrial activities on industrial lands were $24.4 billion, or
23.2 percent of all wages paid out in the region in 2012;
o Estimated state tax revenues generated by industrial activities on industrial lands totaled over
$2.25 billion in 2012;
o Kent -Renton Subarea Profile;
o 5,970 acres (8 percent of Region's Industrial Land)
o 49,300 industrial jobs (10 percent of Region's jobs)
o 14,500 non -industrial jobs
o Ownership by parcel area (Private — 91 percent; Public — 9 percent)
o Average parcel size is 4.2 acres.
o Specialization — Aerospace, Wholesaling, and Transportation Distribution and Logistics
(TDL)
The PRSC report also included estimated 2012 sales tax gains and losses for 10 selected cities in the
Puget Sound area attributed to the change in sourcing. These estimates were compiled based on
information provided by the Washington State Department of Revenue, the Association of Washington
Cities, and Community Attributes, Inc.
The estimated loss for the City of Kent was $12.7 million. The City of Kent' s FY 2017 SST Mitigation
payments only represent approximately $4.9 million, or 39 percent, of the actual estimated sourcing
losses experienced by the City. This report also reflected the following:
o A significant sourcing loss for one city which did not receive any SST mitigation
o A significant sourcing gain for two cities which received SST mitigation
o FY 2017 SST mitigation payments exceeding sourcing losses for one city
The Committee believes that these three observations reflect potential errors with respect to estimated
2012 sourcing losses rather than in the calculation of FY 2017 mitigation payments based on the
following:
o Pursuant to RCW 82.14.500, the Department of Revenue determined sourcing losses by
analyzing and comparing data from tax return information and tax collections for each local
taxing jurisdiction before and after July 1, 2008, on a calendar quarter basis. This was an
extensive process involving review and input by each respective mitigated jurisdiction.
4 Pa2,e
18
SSB 5883 Streamlines Sales Tax Report August 31, 2018
o These measurements were made during the trough of the Great Recession and were not
adjusted for subsequent recovery, growth and potential expansion of manufacturing,
warehousing and distribution activities within the mitigated jurisdictions. Therefore, the
expectation is that the actual sourcing losses would increase during periods subsequent to July
1, 2008.
Therefore, the Committee felt that anomalies with respect to 2012 sourcing loss estimates included in
this report do not diminish the expectation that mitigation payments received are less than the actual
sourcing losses experienced by the mitigated cities included in this report.
Prior to the implementation of streamlined sales tax in 2008, jurisdictions received sales tax revenue as
general fund revenue. When streamlined sales tax mitigation payments began, many jurisdictions used
the mitigation payments to backfill the loss of general fund revenues. Some of the largest receivers of
streamlined sales tax mitigation payments continue to allocate this funding to their general fund to
provide basic services, including law enforcement services. For these jurisdictions, eliminating these
payments could result in a significant impact on city services and a need to replace general fund
revenues.
History
In the 1992 Quill Corp. v. North Dakota decision the U.S. Supreme Court held that states cannot require
retailers with no in -state physical presence (nexus) to collect and remit sales and use tax. The U.S.
Congress did not respond by passing legislation to give authority to require collection to states. In
response, in 2000, a number of states and stakeholders formed the Streamlined Sales and Use Tax
Project which was designed to simplify, modernize and standardize sales and use tax laws, definitions,
and practices.
In 2002, a collection of states formed the Streamlined Sales and Use Tax Agreement (SSUTA). The
agreement would become effective when 10 states representing at least 20 percent of the population
became substantially compliant. One of the main components of SSUTA was to make the "sourcing" of
sales tax based on the final destination of the product. This was at odds with half the states, including
Washington, that used an origin -based system.
In 2003, the Washington State Legislature adopted SB 5783, directing the Department of Revenue to
undertake a comprehensive study on the impacts of the sourcing change. DOR' s study found that 120
cities, counties, transit agencies, and Public Facility Districts would be negatively impacted by the change
in sourcing.
In 2006, a compromise was made between the jurisdictions that would be negatively impacted with
those that would be positively impacted. The resulting compromise was enacted in SSB 5089 and signed
into law in 2007 with the promise of the legislature funding full mitigation. Mitigation was a critical step
to the upkeeping of warehousing, distribution centers, and industrial areas throughout the state. The
mitigation strategy was designed to provide payments until such a time as the gains met or exceeded the
losses due to the sourcing change.
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Legal Issues and Challenges
The passage of SSB 5089 was intended as a step in implementing sales tax collection requirements on
internet sales. Under the national agreement, companies could "voluntarily" collect sales tax on behalf
of the member states. If companies chose to "voluntarily" comply they would receive in return: 1)
vendor compensation or financial assistance in the costs of collection; and 2) liability protection against
back taxes in the event the state came under legal question.
The negatively -impacted jurisdictions were hit particularly hard. The Legislature began appropriating
approximately $50 million per biennium in streamlined sales tax mitigation based on 2008 estimates.
The actual amount of mitigation was determined by actual loss of sales and use tax, reduced by
voluntary compliance. If the Legislature acted on requiring internet retailers to collect and remit sales
and use tax, the additional tax collection would be attributed to mitigation.
As of 2017, there were 57 jurisdictions, including 49 cities, receiving mitigation. Initial revenue estimates
resulting from new sales tax collections provided by EHB 2163 indicate that at least 11 cities receiving
mitigation will be at a loss when attributing the new revenue source to the mitigation calculation.
The Washington State law was based on a case involving Colorado information reporting requirements,
Direct Marketing Associationv. Brohl, thatprovides that the individual taxpayer is responsible for paying
tax directly to the jurisdiction or through the intermediary. If the intermediary does not collect and
remit the tax then they would be required to report sales and amount due to the taxing authority. In the
concurring statement, Justice Kennedy wrote "the legal system should find an appropriate case for this
Court to reexamine Quill."
The U.S. Supreme Court accepted a legal challenge to Quill, South Dakota v. Wayfair, heard in April
2018. The challenge is whether a seller without a physical presence is required to collect and remit
taxes. The ruling in Brohl allows for jurisdictions that have destination -based taxes to collect taxes from
either voluntary compliance from sellers or mandatory compliance from payers.
On June 21, 2018 in South Dakota v. Wayfair, Inc., the U.S. Supreme Court reversed the Quill
Corporation v. North Dakota (No. 91-194) decision which required that retailers have a physical
presence in the state in order for the state to require collection and remittance of sales tax.
Review of Other States
The Committee reviewed options that other states implemented in response to changes in sales tax.
Each state was guided by the relationship between the cities and state and cities' local authority.
Washington's heavy dependence on sales tax limited the options and increased impacts on local
governments. Most states took one of three actions: 1) increased taxes at the state level; 2) closed tax
loopholes; or 3) provided authority, if the authority did not already exist, to the local level to increase
taxes.
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
Minnesota:
o Cities have authority to raise local taxes;
o Raise the local portion of the base [example .005 to .006.]
o Created new classes of taxable items
o Added candy
o Closed loopholes
Alabama:
o Multi -tier tax system
o Sales
o Business
o Corporate Income
o Chose to increase base rates such as capital gains and utilities
California:
o Cities have a base rate of 1 percent and can raise to 2 percent;
o City option
o Changed nexus standards to tax servers
Arkansas:
Raised taxes.
o Sales and Use
o Income
o Gross receipts [similar to Washington's B&O]
Georgia:
o Allows for taxes on items intended for resale
o This allows for items to be taxed at the warehouse.
o Multi -tier tax system
o Capital gains
o Personal income
o Sales tax
o Excise tax
o Corporate income tax
o Property tax
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
Discussion Topics & Process
As stated in the charter (Appendix A), the SST Mitigation Executive Committee determined it would
meet the requirements of SSB 5583 Sec. 136(3) by discussing the following topics:
o What is at stake for the communities most affected;
o History;
o Legal issues and challenges; and
o How have other states reacted.
The Committee agreed to approach each topic:
o With a member presentation;
o Discussion of topic to evaluate advantages and/or challenges; and
o Develop options or recommendations by consensus, if possible and by a majority with a
minority report on select topics if a consensus could not be reached.
SST Mitigation Executive Committee Recommendation and Alternative Options
The SST Mitigation Executive Committee members felt strongly that the State should continue to fund
streamlined sales tax mitigation payments for the limited number of cities that have not yet received
adequate WA Marketplace Fairness Act and voluntary compliance revenue to offset the loss of
streamlined sales tax mitigation payments. Ongoing data on the WA Marketplace Fairness Act and
voluntary compliance revenue collections in comparison to streamlined sales tax mitigation payments
should inform the continuation of streamlined sales tax mitigation payments in future biennia.
Committee members noted that this option would not require additional legislation.
1) The State of Washington made this policy decision in the best interest of the state, recognizing
there was an obligation to assist impacted local governments. The State should continue to
uphold the original agreement until local governments can recover their losses through
increased sales tax collections.
2) The number of jurisdictions needing mitigation continues to drop. The initial study of SST
destination -based -sourcing by the Department of Revenue projected that as many as 120 cities,
counties, transit agencies, and Public Facility Districts would experience adverse fiscal impacts.
The actual number of mitigated jurisdictions was 86 in 2009, had narrowed to 57 in the first
quarter of 2017, and then compressed even further with the projected remote sales tax revenue
projections under EHB 2163 —to 11 jurisdictions. Initial revenue collections indicate that some
of those 11 may no longer need mitigation payments, or may not need them for more than a
biennium or two. There were 26 jurisdictions (all cities) that collectively received $2.5 million on
June 29, 2018, representing the first mitigation payment incorporating WA Marketplace Fairness
Act revenues. This included 10 cities that each received at least $20,000 for a collective total of
$2.4 million.
3) A general fund allocation continues to help the dwindling number of adversely -impacted
jurisdictions cope with the aftereffects of SST and destination -based sourcing, without placing
new burdens on businesses, ports, truckers/shippers, industrial office properties, etc.
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
4) A general fund allocation helps local jurisdictions, counties, regions and the entire State of
Washington continue to support a land use and economic development model built over
decades. That economic model relies heavily on international trade and entire complexes of
manufacturing, warehousing, and distribution centers that support farm -to -market product
movements, shipping and trucking of goods, port imports/exports, etc.
In making its recommendations, and selecting mitigation payments as the preferred option, the SST
Mitigation Executive Committee relied on the following guiding policy principles:
1) Valuing the economic model that makes Washington a critical player in international trade,
manufacturing, warehousing, and the location of distribution centers;
2) Ensuring local jurisdictions can continue to make land use, zoning, infrastructure investment,
and economic development planning decisions that support this model;
3) Attempting to hold local communities harmless, to the maximum extent practical. Local
communities built around a previous, origin -based -sourcing model of local sales tax were simply
living by and following the rules put in place by the State of Washington;
4) Attempting to minimize unfair or disproportionate tax burdens on businesses that have followed
those same rules and had nothing to do with the tax -policy decision made by the state;
5) Recognizing that local elected officials should not be asked to disproportionately bear the
burden of a fundamental change in tax policy at the state level;
6) Asking the State of Washington to continue to follow, and recognize, a system and structure of
Mitigation Payments established under SSB 5089, Laws of 2007 —one that is, in fact, working as
intended.
Continue Some Form of SST Mitigation Payments
SST Mitigation Executive Committee members discussed an option of continuing to mitigate destination -
based -sourcing impacted jurisdictions through the State Operating Budget. Such an option could be
structured either as a budget -cycle -to -budget -cycle mitigation approach, or through a statutory
mechanism utilizing the State Operating Budget.
The option to utilize the State Operating Budget would involve a state sales tax credit mechanism. It
would require legislation and would further require a majority of the Legislature to see the benefits of
such legislation. A state sales tax credit could be structured in a way that assisted only the remaining
handful of local jurisdictions that continue to be adversely impacted by destination -based sourcing —
even with the arrival of new remote sales tax revenues.
The option to continue SST mitigation payments would not require legislation but would require
impacted jurisdictions and groups allied with them (e.g., ports, NAIOP, Washington Trucking
Association), to mount advocacy efforts annually to keep the Operating Budget mitigation in effect.
While Committee members saw value in having a structural, statutory mechanism such as a state sales
tax credit to address the SST Mitigation issue, there was a concern that such an approach would be
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
extremely difficult to enact. It would require many state legislators whose districts are either minimally
affected or not at all affected by the destination -based -sourcing changes to agree to this change.
Expand Existing Taxing Authority Granted to Cities to Cover Ongoing SST Sourcing Losses
The Committee also discussedthe alternative of addressing ongoing S ST local -sourcing losses by
recommending that certain adversely impacted cities be granted new taxing authority.
One example of a possible expansion in authority cited by Committee members involved the utility tax.
Under current state law, cities are provided with authority to impose a tax of up to 6 percent on three
utilities (natural gas, electricity, telecommunications) — and to go beyond that 6 percent threshold
requires a public vote. There is a "nexus" argument that, since facilities accommodating warehousing,
distribution centers, manufacturing and wholesaling are significant users of utilities, it makes sense to
ask those users to pay a higher level of utility taxes.
The Committee identified several potential benefits of this type of "expand existing taxing authority"
alternative: 1) avoids impact to state general fund; 2) could help keep adversely -impacted local
jurisdictions whole in terms of overall revenues; and 3) a jurisdiction could draw some logical nexus
between the types of businesses being taxed and the application of the tax itself.
However, Committee members also raised several concerns with this alternative which, in the view of
the Committee, outweigh the perceived benefits. These included:
1) Such an alternative would force local jurisdictions to accept tax -policy decisions that place new
burdens on area businesses. Local elected officials who had nothing to do with the local sales tax
sourcing decision in the first place would be asked to play the role of "bad cop";
2) In many cases, new tax burdens would be placed upon some of the most productive and
important industry sectors in a local community — if not the entire state. For example, existing
data shows that the cluster of warehousing distribution and manufacturing facilities in the
Green River Valley comprise 12.5 percent (one -eighth) of the entire state Gross Domestic
Product and are a pivotal component of the international trade that connects Washington's
ports to overseas nations in the Asia -Pacific and throughout the world;
3) Local elected officials pointed out that jurisdictions imposing higher taxes to cover SST sourcing
losses would in effect be paying a "double penalty," first covering for a decision made by the
state, and second, drawing criticism and ire from industrial sectors that play a mission -critical
role in the state's economic well-being;
4) The expanded taxing authority exercised by local jurisdictions might well cost them in economic
competitiveness and recruitment in the future. To use the utility tax example, since those utility
taxes would be markedly higher in certain jurisdictions, businesses would decide in certain cases
to locate in the jurisdiction without the tax markup;
5) It would be difficult, if not impossible, to structure an expanded tax to affect just those
commercial businesses that are involved in destination -sourcing activities. As a result,
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businesses not involved with or affected by the issue could end up paying an additional tax
burden with no "nexus" or policy rationale to support that additional burden.
Provide New Taxing Authority to Jurisdictions that Continue to be Adversely Impacted by Sourcing
The SST Mitigation Executive Committee also considered and discussed the option of statutorily
providing new taxing authority to jurisdictions that continue to be negatively impacted by the switch to
destination -based sourcing.
Like the expanded authority option, this option carries with it several potential benefits including:
o Avoiding state general fund impacts
o Keeping adversely -impacted municipalities "whole"
o Drawing a nexus, to a point, between the activities being taxed and the application of the tax
Committee members also discussed potential ways the new tax could be placed directly on remote
sellers, through some type of surcharge or point -of -collection charge.
However, Committee members saw this option causing an even greater shift of tax burdens onto the
business sector, in response to a decision made by state government. Committee members also foresaw
significant difficulty in devising a tax -collection system that would be efficient and workable. Those
concerns, and the five concerns already noted under the 'expanding taxing authority' option, led
committee members to conclude that this option should not be a preferred option.
Re -set Land Use Priorities to Deal with the Aftereffects of the Change to Destination Sourcing
The SST Mitigation Executive Committee discussed an additional option which would not involve any
tax -policy measures or revenue shifts per se, but rather would involve a reset on land use policies
through which jurisdictions host large concentrations ofmanufacturing, warehousing, and distribution
facilities.
The theory behind this option is that local communities would have the ability to react to a new, sales -
tax -driven, service -based economic model by rezoning their communities to host those businesses that
flourish under the new model and to discourage and ultimately phase out those businesses built and
clustered around an outdated economic model. Additionally, such a model would not require the state
to make general fund allocations, and it would not create or shift tax burdens.
However, there were several major concerns that led Committee members to conclude this option was
not only unworkable, but perhaps one of the most damaging options in the long run:
1) City officials pointed out that such an option would cause them to violate countywide planning
policies, regional Growth Management, land use, and employment/growth center policies
approved by Metropolitan Planning Organizations (MPOs) or Regional Planning Organizations
(RPOs). Additionally, the state's own economic cluster strategy, administered through the
Department ofCommerce, could be undermined. In other words, individual localities would be
asked to take actions that would be in direct conflict with strategies, land use plans, economic
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development and job -center strategies that entire counties and regions, and the State of
Washington are dependent upon;
2) City officials noted that such an option would also cause their jurisdictions to absorb negative
revenue impacts and re -shuffle their entire economic and job -center strategies in return;
3) The "reset land use policies" option would not just impact clusters of businesses — it would
upend an entire system put in place to support Washington's international -trade -based
economy. In particular, the Ports of Seattle and Tacoma import and export a vast supply of
goods that come from or destined for the warehouses, distribution centers, and manufacturing
facilities in the Green River Valley. Major industrial sectors such as trucking and shipping are
built around the commerce of that very system;
4) While this option might not have an immediate impact on the state general fund, Committee
members felt it could certainly have longer -term and potentially more harmful general fund
impacts by disrupting whole sectors such as manufacturing, distribution, supply firms, etc.;
5) Business representatives also saw this option unfairly penalizing commercial sectors and
undercutting a system that so many types of industries depend upon. Ports, trucking
organizations and the National Association of Industrial Office Properties (NAIOP) have been
supportive of SST Mitigation Payments because they help compensate the very jurisdictions that
host and support large concentrations of their businesses.
No -Action Alternative
The no -action alternative assumes that the number of cities dealing with revenue dislocations will
diminish over time as remote sales tax revenues under EHB 2163 grow and as a growing trend of online -
based purchasing continues unabated.
While this alternative could be seen as beneficial to the State of Washington by eliminating any general -
fund or policy responsibility for ongoing losses, and while this alternative may be workable for many
cities, there are at least two major flaws with the "no -action" approach:
1) DOR's analysis to date shows that jurisdictions with a particularly high concentration of
warehousing, distribution, and manufacturing will continue to experience significant overall
losses well into the foreseeable future — even with the advent of new sales tax under "remote
sales," and
2) The no -action alternative fundamentally undermines several core principles that form the
underpinnings of the Legislature's 2007 Session SST legislation, SSB 5089. The Part IX Sales and
Use TaxMitigation portion of S SB 5089, while concluding thatparticipation in the SST compact
of states was "in the best interests of the state" also found that "there will be an unintended
adverse impact" on numerous jurisdictions and that "changes in sourcing laws may have
negative implications for industry sectors such as warehousing and manufacturing, as well as
jurisdictions that house a concentration of these industries and have made zoning decisions,
infrastructure investments, bonding decisions, and land use policy decisions based on point of
origin tax rules in place before the effective date of this section".
In establishing the SST Mitigation program and SST Mitigation Payments, the Legislature intended to
have mitigation in place until a jurisdiction's new revenue from either "voluntary compliance" or remote
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
sales met or exceeded its ongoing loss from sourcing. As a DOR "Frequently Asked Questions" document
put it in 2008, "When a jurisdiction's voluntary compliance revenue exceeds its loss of local sales tax
revenue, the jurisdiction will not receive mitigation." That has already resulted in the number of
mitigated jurisdictions decreasing from 86 in 2009 to 57 in the first quarter of 2017 (Source: Department
of Revenue).
The Committee concluded that a "no -action" alternative, while beneficial in some ways, would be
harmful to a number of jurisdictions and would undermine the Legislature's own policy and statutory
direction laid out in SSB 5089.
Conclusion
The SST Mitigation Executive Committee recommends continued streamlined sales tax mitigation
payments for the limited number of cities that have not yet received adequate WA Marketplace Fairness
Act and voluntary compliance revenue to offset the loss of streamlined sales tax mitigation payments.
Ongoing data on the WA Marketplace Fairness Act and voluntary compliance revenue collections in
comparison to streamlined sales tax mitigation payments should inform the continuation of streamlined
sales tax mitigation payments in future biennia.
Exhibits
Exhibit A — SST Mitigation Executive Committee Membership List
Exhibit B — Streamlined Sales Tax Mitigation Executive Committee Charter
Exhibit C — RCW 82.14.500
Exhibit D — Legislation SSB 5089
Exhibit E— History, Impacts, and Legal
Exhibit F — 2015 Industrial Lands Report: Chapter 4 pg 4-26 to 4-28
Exhibit G — Mitigation Payments Q1 2018
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SSB 5883 Streamlines Sales Tax Report
Exhibit A
SST Mitigation Executive Committee Membership List
August 31, 2018
City or Organization
Name
Position
Auburn Area Chamber of Commerce
Julia Jordan
CEO
Burlington Chamber of Commerce
Peter Browning
CEO
City of Auburn
Nancy Backus
Mayor
City of Auburn
Shelley Coleman
Finance Director
City of Auburn
Kevin Fuhrer
Assistant Finance Director
City of Auburn
Mike Welch
Government Relations
City of Fife
Hyun Kim
City Manager
City of Fife
Patty Luat
Finance Director
City of Kent
Dana Ralph
Mayor
City of Kent
Derek Matheson
Chief Administrative Officer
City of Kent
Aaron BeMiller
Finance Director
City of Kent
Robert Goehring
City Auditor
City of Kent
Dana Neuts
Communications Manager
Cities of Kent, Fife, and Issaquah
Doug Levy
Government Relations
City of Pasco
Richa Sigel
Finance Director
City of Spokane Valley
Briahna Murray
Government Relations
Cities of Spokane Valley, Pasco,
Lynden, Othello
Chelsea Hager
Government Relations
City of Tukwila
Jennifer Ziegler
Government Relations
City of Woodinville
Blaine Fritts
Finance Director
City of Woodinville
Brynn Brady
Government Relations
Fife Milton Edgewood Chamber of
Commerce
Lora Butterfield
CEO
Seattle Southside Chamber of
Commerce
Andrea Reay
CEO
The Northwest Seaport Alliance
Sean Eagan
Director Government Affairs
Association of Washington Cities
Victoria Lincoln
Government Relations
Association of Washington Cities
Sheila Gall
Legal Counsel
Association of Washington Cities
Andrew Pittelkau
Analyst
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
Exhibit B
Streamlined Sales Tax Mitigation Executive Committee Charter
Purpose:
o The Streamlined Sales Tax Mitigation Executive Committee is to produce a report for
consideration by the Department of Revenue reflecting the impacts of sourcing on jurisdictions
with a high concentration of manufacturing and warehousing facilities, and development of
recommendations for addressing the disproportionate impact of sourcing on these
jurisdictions. This report and recommendations are due to the Department of Revenue by
September 1, 2018, and DOR's final report is due to the Governor and eight appropriate
legislative committees by November 1, 2018.
Scope:
o By September 1st, develop viable recommendation options for the State Legislature to mitigate
the impact of the Streamline Sales Tax initiative on Cities with significant manufacturing and
warehousing business activity. Additionally, to develop communications messages to use as
those cities discuss the recommendations with the legislators and other stakeholders.
Members:
City or Organization
City or Organization
City of Kent
City of Issaquah
Association of
Washington Cities
Gordon Thomas Honeywell
City of Woodinville
City of Fife
Ceiba Consulting
City of Spokane Valley
City of Pasco
City of Tukwila
The Northwest Seaport
Alliance
Outcomes by Levy, LLC
City of Sumner
City of Auburn
Burlington Chamber of
Commerce
City of Othello
Jennifer Ziegler Public
Affairs
Fife/Milton Chambers of
Commerce
Seattle Southside
Chamber of
Commerce
Representatives from Dept. of Commerce and legislative caucuses staff also attended some meetings.
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
Result:
o Measurable impact of whether goal has been achieved.
Resources:
o Identify outside experts on topics that need to be addressed. Industry experts.
o City of Fife will provide location
o AWC will provide support services
Communication Plan:
o Electronic meeting notices
o Meetings in person when available with a phone line for individuals who cannot be physically
present
Deliverables:
o Formal report due to the Department of Revenue on or before September 1, 2018 to be
incorporated into a legislative report
Decision Making:
o By consensus if possible and if not then by majority
Meeting Dates:
o December 15, 2017
o January 12, 2018
• March 16, 2018
• August 21, 2018
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
Exhibit C
RCW 82.14.500
Streamlined sales and use tax mitigation account -Funding -Determination of losses. (Effective until
October 1, 2019.)
(1) In order to mitigate local sales tax revenue net losses as a result of the sourcing provisions of the
streamlined sales and use tax agreement ....
(2) Beginning July 1, 2008, and continuing until the department determines annual losses under
subsection (3) of this section, the department must determine the amount of local sales tax net loss
each local taxing jurisdiction experiences as a result ofthe sourcing provisions of the streamlined sales
and use tax agreement under this title each calendar quarter. The department must determine losses by
analyzing and comparing data from tax return information and tax collections for each local taxing
jurisdiction before and after July 1, 2008, on a calendar quarter basis. The department's analysis may be
revised and supplemented in consultation with the oversight committee as provided in subsection (4) of
this section. To determine net losses, the department must reduce losses by the amount of voluntary
compliance revenue for the calendar quarter analyzed. Beginning December 31, 2008, distributions
must be made quarterly from the streamlined sales and use tax mitigation account by the state
treasurer, as directed by the department, to each local taxing jurisdiction, other than public facilities
districts for losses in respect to taxes imposed under the authority of RCW 82.14 390, in an amount
representing its net losses for the previous calendar quarter. Distributions must be made on the last
working day of each calendar quarter and must cease when distributions under subsection (3) of this
section begin......
(6)(a) As a result of part II of chapter 28, Laws of 2017 3rd sp. sess., local sales and use tax revenue
is anticipated to increase due to additional tax remittance by marketplace facilitators, remote sellers,
and consumers. This additional revenue will further mitigate the losses that resulted from the sourcing
provisions of the streamlined sales and use tax agreement under this title and should be reflected in
mitigation payments to negatively impacted localjurisdictions.
(b) Beginning January 1, 2018, and continuing through September 30, 2019, the department must
determine the increased sales and use tax revenue each local taxing jurisdiction experiences from
marketplace facilitator/remote seller revenue as a result of RCW 82,08.053, 82.08053L 82 32 047,
and 82.32.763, chapter 82.13 RCW, and sections 201, 211, and 213, chapter 28, Laws of 2017 3rd sp.
sess. each calendar quarter. The department must convene the mitigation advisory committee before
January 1, 2018, to receive input on the determination of marketplace facilitator/remote seller revenue.
Beginning with distributions made after March 31, 2018, distributions from the streamlined sales and
use tax mitigation account by the state treasurer, as directed by the department, to each local taxing
jurisdiction, must be reduced by the amount of its marketplace facilitator/remote seller revenue
reported during the previous calendar quarter. No later than December 1, 2019, the department will
determine the total marketplace facilitator/remote seller revenue for each local taxing jurisdiction for
reporting periods beginning January 1, 2018, through reporting periods ending June 30, 2019. If the total
distribution made from the streamlined sales and use tax mitigation account to a local taxing jurisdiction
was not fully reduced by its total amount of marketplace facilitator/remote seller revenue for reporting
periods beginning January 1, 2018, through reporting periods ending June 30, 2019, the department
must reduce the local taxing jurisdiction's distribution of local sales and use tax under RCW 82. 14 060 by
the excess amount received.
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Exhibit D
Legislation SSB 5089
CERTIFICATION OF ENROLLMENT
SUBSTITUTE SENATE BILL 5089
Chapter 6, Laws of 2007
60th Legislature
2007 Regular Session
STREAMLINED SALES AND USE TAX AGREEMENT
EFFECTIVE DATE: 07/01/08 - Except sections 301, 1301, 1602, and
1701 through 1703, which take effect 7/22/07; and sections 302,
1003, 1006, 1014, and 1018, which have a contingent effective date.
Passed by the Senate February 2, 2007 CERTIFICATE
YEAS 45 NAYS 3
BRAD OWEN
President of the Senate
Passed by the House March 16, 2007
YEAS 76 NAYS 15
FRANK CHOPP
Speaker of the House of Representatives
I, Thomas Hoemann, Secretary of the
Senate of the State of Washington,
do hereby certify that the attached
is SUBSTITUTE SENATE BILL 5089 as
passed by the Senate and the House
of Representatives on the dates
hereon set forth.
THOMAS HOEMANN
Approved March 22, 2007, 2:05 p.m. FILED
March 22, 2007
Secretary
CHRISTINE GREGOIRE Secretary of State
State of Washington
Governor of the State of Washington
32
18 I P a g e
SUBSTITUTE SENATE BILL 5089
Passed Legislature - 2007 Regular Session
State of Washington
60th Legislature 2007 Regular Session
By Senate Committee on Ways & Means (originally sponsored by Senators
Regala, Zarelli, Eide, Shin, Franklin, Keiser, Rockefeller, Weinstein,
Pridemore, Marr, Hobbs, Rasmussen, Murray, Prentice, Fairley, Fraser,
Spanel, Berkey, Tom, Kohl-Welles, McAuliffe and Kline; by request of
Governor Gregoire)
READ FIRST TIME 01/22/07.
SSB 5089.SL p. 2
33
1 PART IX
2 SALES AND USE TAX MITIGATION
3 NEW SECTION. Sec. 901. (1) The legislature finds and declares
4 that:
5 (a) Washington state's participation as a member state in the
6 streamlined sales and use tax agreement benefits the state, all its
7 local taxing jurisdictions, and its retailing industry, by increasing
8 state and local revenues, improving the state's business climate, and
9 standardizing and simplifying the state's tax structure;
10 (b) Participation in the streamlined sales and use tax agreement is
11 a matter of statewide concern and is in the best interests of the
12 state, the general public, and all local jurisdictions that impose a
13 sales and use tax under applicable law;
14 (c) Participation in the streamlined sales and use tax agreement
15 requires the adoption of the agreement's sourcing provisions, which
16 change the location in which a retail sale of delivered tangible
17 personal property occurs for local sales tax purposes from the point of
18 origin to the point of destination;
19 (d) Changes in the local sales tax sourcing law provisions to
20 conform with the streamlined sales and use tax agreement will cause
21 sales tax revenues to shift among local taxing jurisdictions. The
22 legislature finds that there will be an unintended adverse impact on
23 local taxing jurisdictions that receive less revenues because local tax
24 revenues will be redistributed, with revenue increases for some
25 jurisdictions and reductions for others, due solely to changes in local
26 sales tax sourcing rules to be implemented under section 503 of this
27 act and the chapter ..., Laws of 2007 (this act) amendments to ROW
28 82.14.020, even though no local taxing jurisdiction has changed its tax
29 rate or tax base;
30 (e) The purpose of providing mitigation to such jurisdictions is to
31 mitigate the unintended revenue redistribution effect of the sourcing
32 law changes among local governments;
33 (f) It is in the best interest of the state and all its
34 subdivisions to mitigate the adverse effects of amending the local
35 sales tax sourcing provisions to be in conformance with the streamlined
36 sales and use tax agreement;
37 (g) Additionally, changes in sourcing laws may have negative
38 implications for industry sectors such as warehousing and
P. 3
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SSB 5089.SL
1 manufacturing, as well as jurisdictions that house a concentration of
2 these industries and have made zoning decisions, infrastructure
3 investments, bonding decisions, and land use policy decisions based on
4 point of origin sales tax rules in place before the effective date of
5 this section, and the mitigation provided by sections 901 through 905
6 of this act is intended to help offset those negative implications; and
7 (h) It is important that the state of Washington maintain its
8 supply of industrial land for present and future economic development
9 activities, and local governments taking advantage of the mitigation
10 provided by sections 901 through 905 of this act should strive to
11 maintain the supply of industrial land available for economic
12 development efforts.
13 (2) The legislature intends that the streamlined sales and use tax
14 mitigation account established in section 902 of this act have the sole
15 objective of mitigating, for negatively affected local taxing
16 jurisdictions, the net local sales tax revenue reductions incurred as
17 a result of section 503 of this act and the chapter Laws of 2007
18 (this act) amendments to RCW 82.14.020.
19 NEW SECTION. Sec. 902. A new section is added to chapter 82.14
20 ROW to read as follows:
21 (1) The streamlined sales and use tax mitigation account is created
22 in the state treasury. The state treasurer shall transfer into the
23 account from the general fund amounts as directed in section 903 of
24 this act. Expenditures from the account may be used only for the
25 purpose of mitigating the negative fiscal impacts to local taxing
26 jurisdictions as a result of section 503 of this act and the chapter
27 Laws of 2007 (this act) amendments to RCW 82.14.020.
28 (2) Beginning July 1, 2008, the state treasurer, as directed by the
29 department, shall distribute the funds in the streamlined sales and use
30 tax mitigation account to local taxing jurisdictions in accordance with
31 section 903 of this act.
32 (3) The definitions in this subsection apply throughout this
33 section and RCW 82.14.390 and section 903 of this act.
34 (a) "Agreement" means the same as in ROW 82.32.020.
35 (b) "Local taxing jurisdiction" means counties, cities,
36 transportation authorities under RCW 82.14.045, public facilities
SSB 5089.SL p. 4
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districts under chapters 36.100 and 35,57 RCW, public transportation
benefit areas under ROW 82.14.440, and regional transit authorities
under chapter 81.112 ROW, that impose a sales and use tax.
(c) "Loss" or "losses" means the local sales and use tax revenue
reduction to a local taxing jurisdiction resulting from the sourcing
provisions in section 502 of this act and the chapter ..., Laws of 2007
(this act) amendments to ROW 82.14.020.
(d) "Net loss" or "net losses" means a loss offset by any voluntary
compliance revenue.
(e) "Voluntary compliance revenue" means the local sales tax
revenue
gain to each local taxing jurisdiction reported to
the
department from persons registering through the central registration
system authorized under the agreement.
(f) "Working day" has the same meaning as in ROW 82.45.180.
NEW SECTION. Sec. 903. A new section is added to chapter 82.14
RCW to read as follows:
(1) In order to mitigate local sales tax revenue net losses as a
result of the sourcing provisions of the streamlined sales and use tax
agreement under this title, the state treasurer shall transfer into the
streamlined sales and use tax mitigation account from the general fund
the sum of thirty-one million six hundred thousand dollars on July 1,
2008. On July 1, 2009, and each July 1st thereafter, the state
treasurer shall transfer into the streamlined sales and use tax
mitigation account from the general fund the sum required to mitigate
actual net losses as determined under this section.
(2) Beginning July 1, 2008, and continuing until the department
determines annual losses under subsection (3) of this
department shall determine the amount of local sales tax
local taxing jurisdiction experiences as a result of
section, the
net loss each
the sourcing
provisions of the streamlined sales and use tax agreement under this
title each calendar quarter. The department shall determine losses by
analyzing and comparing data from tax return information and tax
collections for each local taxing jurisdiction before and after the
effective date of this section on a calendar quarter
department's analysis may be revised and supplemented in
with the oversight committee as provided in subsection
basis. The
consultation
(4) of this
section. To determine net losses, the department shall reduce losses
36
p. 5
SSB 5089.SL
1 by the amount of voluntary compliance revenue for the calendar quarter
2 analyzed. Beginning December 31, 2008, distributions shall be made
3 quarterly from the streamlined sales and use tax mitigation account by
4 the state treasurer, as directed by the department, to each local
5 taxing jurisdiction, other than public facilities districts for losses
6 in respect to taxes imposed under the authority of RCW 82.14.390, in an
7 amount representing its net losses for the previous calendar quarter.
8 Distributions shall be made on the last working day of each calendar
9 quarter and shall cease when distributions under subsection (3) of this
10 section begin.
11 (3)(a) By December 31, 2009, or such later date the department in
12 consultation with the oversight committee determines that sufficient
13 data is available, the department shall determine each local taxing
14 jurisdiction's annual loss. The department shall determine annual
15 losses by comparing at least twelve months of data from tax return
16 information and tax collections for each local taxing jurisdiction
17 before and after the effective date of this section. The department
18 shall not be required to determine annual losses on a recurring basis,
19 but may make any adjustments to annual losses as it deems proper as a
20 result of the annual reviews provided in (b) of this subsection.
21 Beginning the calendar quarter in which the department determines
22 annual losses, and each calendar quarter thereafter, distributions
23 shall be made from the streamlined sales and use tax mitigation account
24 by the state treasurer on the last working day of the calendar quarter,
25 as directed by the department, to each local taxing jurisdiction, other
26 than public facilities districts for losses in respect to taxes imposed
27 under the authority of RCW 82.14.390, in an amount representing one-
28 fourth of the jurisdiction's annual loss reduced by voluntary
29 compliance revenue reported during the previous calendar quarter.
30 (b) The department's analysis of annual losses shall be reviewed by
31 December 1st of each year and may be revised and supplemented in
32 consultation with the oversight committee as provided in subsection (4)
33 of this section.
34 (4) The department shall convene an oversight committee to assist
35 in the determination of losses. The committee shall include one
36 representative of one city whose revenues are increased, one
37 representative of one city whose revenues are reduced, one
38 representative of one county whose revenues are increased, one
SSB 5089.SL p. 6
37
1 representative of one county whose revenues are decreased, one
2 representative of one transportation authority under ROW 82.14.045
3 whose revenues are increased, and one representative of one
4 transportation authority under ROW 82.14.045 whose revenues are
5 reduced, as a result of section 503 of this act and the chapter ...,
6 Laws of 2007 (this act) amendments toRCW 82.14.020. Beginning July 1,
7 2008, the oversight committee shall meet quarterly with the department
8 to review and provide additional input and direction on the
9 department's analyses of losses. Local taxing jurisdictions may also
10 present to the oversight committee additional information to improve
11 the department's analyses of the jurisdiction's loss. Beginning
12 January 1, 2010, the oversight committee shall meet at least annually
13 with the department by December 1st.
14 (5) The rule -making provisions of chapter 34.05 ROW do not applyto
15 this section.
16 Sec. 904. ROW 82.14.390 and 2006 c 298 s 1 are each amended to
17 read as follows:
18 (1) Except as provided in subsection ((+40-.)) (7) of this section,
19 the governing body of a public facilities district (a) created before
20 July 31, 2002, under chapter 35.57 or 36.100 ROW that commences
21 construction of a new regional center, or improvement or rehabilitation
22 of an existing new regional center, before January 1, 2004, or (b)
23 created before July 1, 2006, under chapter 35.57 ROW in a county or
24 counties in which there are no other public facilities districts on
25 June 7, 2006, and in which the total population in the public
26 facilities district is greater than ninety thousand that commences
27 construction of a new regional center before February 1, 2007, may
28 impose a sales and use tax in accordance with the terms of this
29 chapter. The tax is in addition to other taxes authorized by law and
30 shall be collected from those persons who are taxable by the state
31 under chapters 82.08 and 82.12 ROW upon the occurrence of any taxable
32 event within the public facilities district. The rate of tax shall not
33 exceed 0.033 percent of the selling price in the case of a sales tax or
34 value of the article used in the case of a use tax.
35 (2) (a) The governing body of a public facilities district imposing
36 a sales and use tax under the authority of this section may increase
37 the rate of tax up to 0.037 percent if, within three fiscal years of
p. 7
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SSB 5089.SL
1 the effective date of this section, the department determines that, as
2 a result of section 503 of this act and the chapter ..., Laws of 2007
3 (this act) amendments to ROW 82.14.020, a public facilities district's
4 sales and use tax collections for fiscal years after the effective date
5 of this section have been reduced by a net loss of at least 0.50
6 percent from the fiscal year before the effective date of this section.
7 The fiscal year in which this section becomes effective is the first
8 fiscal year after the effective date of this section.
9 (b) The department shall determine sales and use tax collection net
10 losses under this section as provided in section 903 (2) and (3) of
11 this act. The department shall provide written notice of its
12 determinations to public facilities districts. Determinations by the
13 department of a public facilities district's sales and use tax
14 collection net losses as a result of section 503 of this act and the
15 chapter ..., Laws of 2007 (this act) amendments to RCW 82.14.020 are
16 final and not appealable.
17 (c) A public facilities district may increase its rate of tax after
18 it has received written notice from the department as provided in (b)
19 of this subsection. The increase in the rate of tax must be made in
20 0.001 percent increments and must be the least amount necessary to
21 mitigate the net loss in sales and use tax collections as a result of
22 section 503 of this act and the chapter ..., Laws of 2007 (this act)
23 amendments to RCW 82.14.020. The increase in the rate of tax is
24 subject to RCW 82.14.055.
25 (3) The tax imposed under subsection (1) of this section shall be
26 deducted from the amount of tax otherwise required to be collected or
27 paid over to the department of revenue under chapter 82.08 or 82.12
28 RCW. The department of revenue shall perform the collection of such
29 taxes on behalf of the county at no cost to the public facilities
30 district.
31 (((3))) (4) No tax may be collected under this section before
32 August 1, 2000. The tax imposed in this section shall expire when the
33 bonds issued for the construction of the regional center and related
34 parking facilities are retired, but not more than twenty-five years
35 after the tax is first collected.
36 ((*4+)) (5) Moneys collected under this section shall only be used
37 for the purposes set forth in ROW 35.57.020 and must be matched with an
38 amount from other public or private sources equal to thirty-three
SSB 5089.SL p. 8
39
1 percent of the amount collected under this section, provided that
2 amounts generated from nonvoter approved taxes authorized under chapter
3 35.57 ROW or nonvoter approved taxes authorized under chapter 36.100
4 RCW shall not constitute a public or private source. For the purpose
5 of this section, public or private sources includes, but is not limited
6 to cash or in -kind contributions used in all phases of the development
7 or improvement of the regional center, land that is donated and used
8 for the siting of the regional center, cash or in -kind contributions
9 from public or private foundations, or amounts attributed to private
10 sector partners as part of a public and private partnership agreement
11 negotiated by the public facilities district.
12 (((5))) (6) The combined total tax levied under this section shall
13 not be greater than ((0.033)) 0.037 percent. If both a public
14 facilities district created under chapter 35.57 RCW and a public
15 facilities district created under chapter 36.100 ROW impose a tax under
16 this section, the tax imposed by a public facilities district created
17 under chapter 35.57 RCW shall be credited against the tax imposed by a
18 public facilities district created under chapter 36.100 RCW.
19 ((+64-)) (7) A public facilities district created under chapter
20 36.100 RCW is not eligible to impose the tax under this section if the
21 legislative authority of the county where the public facilities
22 district is located has imposed a sales and use tax under RCW
23 82.14.0485 or 82.14.0494.
24 NEW SECTION, Sec. 905. A new section is added to chapter 44.28
25 RCW to read as follows:
26 (1) During calendar year 2010, the joint legislative audit and
27 review committee shall review the mitigation provisions for local
28 taxing jurisdictions under ROW 82.14.390 and section 903 of this act to
29 determine the extent to which the mitigation provisions address the
30 needs of local taxing jurisdictions for which the sourcing provisions
31 in section 503 of this act and the chapter Laws of 2007 (this act)
32 amendments to RCW 82.14.020 had the greatest fiscal impact. In
33 conducting the study, the committee shall solicit input from the
34 oversight committee created in section 903 of this act and additional
35 local taxing jurisdictions as the committee determines. The department
36 of revenue and the state treasurer shall provide the committee with any
37 data within their purview that the committee considers necessary to
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SSB 5089.SL
1 conduct the review. The committee shall report to the legislature the
2 results of its findings, and any recommendations for changes to the
3 mitigation provisions under RCW 82.14.390 and section 903 of this act,
4 by December 31, 2010.
5 (2) The definitions in section 902 of this act apply to this
6 section.
7 (3) This section expires July 1, 2011.
Passed by the Senate February 2, 2007.
Passed by the House March 16, 2007.
Approved by the Governor March 22, 2007.
Filed in Office of Secretary of State March 22, 2007.
SSB 5089.SL p. 10
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SSB 5883 Streamlines Sales Tax Report
Exhibit E
History, Impacts, and Legal
August 31, 2018
A History Lesson on Streamlined Sales Tax (SST) Mitigation
& Overlap with Remote (Internet) Sales Tax Collection
How the SST Agreement Came to Be, Legal Issues, and More
Doug Levy, Outcomes By Levy; Sheila Gall, AWC; Robert Goehring, City of Kent
Why SST — and why an Agreement among states? — Doug Levy, Outcomes By Levy, LLC
o The SST compact (aka Streamlined Sales and Use Tax Agreement) was triggered by two key
factors:
1) The 1992 Quill decision by the U.S. Supreme Court held that states cannot require
retailers with no in -state physical presence to collect sales and use tax. Only the U.S.
Congress could take that action; and
2) The phenomenal growth in the use of the internet as a means to buy goods online
vs. in-store — what might be called the "Bezos effect."
o In March 2000 a number of states and other stakeholders formed the Streamlined Sales and
Use Tax Project. This project was designed to simplify, modernize, and standardize sales
and use tax laws, definitions, and practices, to bolster the state' s case with Congress that it
should allow for internet sales to be subject to sales tax;
o States recognized that the growth of "e-tail" or online sales was going to be revolutionary.
Back in 2003, a Department of Revenue study done for the Legislature estimated annual
losses to Washington State from internet sales of $191 million for the State of Washington
and $59 million for local governments;
o Increasingly, "Main Street" businesses realized that online sellers who didn't pay taxes were
increasingly taking away their business as the ease of shopping online became more and
more apparent;
o In 2002, a collection of states formed the Streamlined Sales and Use Tax Agreement
(SSUTA), a compact of states designed to achieve a simplified sales tax collection system.
The Agreement would become effective when 10 states representing at least 20 percent of
the U.S. population became substantially compliant with the SSUTA.
o One key factor in making Washington and many other states compliant was to make the
"sourcing" of sales tax based the final destination/delivery of a product — which is in
harmony with how online transactions take place but at odds with the fact that half the
states in the U.S., including Washington, had been using an "origin -based" system to credit
sales tax at a local level;
o So what does that mean? If a customer purchases a shirt at a retail store located in Spokane,
the "point of origin" and the "point of destination" are the same and the sales tax continues
18 I 1) a a e
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
to be credited to the City of Spokane. However, if the customer purchases a counch from a
furniture store located in Auburn and the store has it delivered from its warehouse located
in Fife to the customer's home or business in Des Moines, then sales tax is credited to the
City of Des Moines rather than the City of Fife. Why" Under the SSUTA for which
Washington is a member, with certain exceptions sales tax for retail deliveries are credited
based on the point of destination (Des Moines) rather than the point of origin (Fife
warehouse);
o The change in sourcing from origin -basis to destination -basis has an immediate and
significant adverse impact to sales tax revenues to communities with high concentrations of
warehousing, distribution and manufacturing activities including but not limited to, the
cities of Auburn, Kent, Tukwila, Fife and Sumner. In fact, those communities form the
nucleus of the 2nd-largest warehousing distribution complex on the West Coast. Noting that
communities such as Spokane Valley and Pasco are also significantly impacted;
o In 2003, after the Department of Revenue initially estimated a "sourcing" change was only
going to impact a "few" warehousing -based cities, the Legislature considered legislation to
adopt several provisions ofthe SSUTA, including sourcing. A number of adversely impacted
cities urged the Legislature to first study and better understand the full impacts of a
sourcing change;
o The 2003 Legislature did indeed adopt a bill on Streamlined Sales Tax— Senate Bill 5783
(Chapter 168, Laws of 2003). But, based on the concerns over the sourcing issue, the
Legislature directed that DOR undertake a comprehensive study of the impacts of a
sourcing change.
o The DOR's study, completed in December 2003, showed that in fact more than 120 cities,
counties, transit agencies, and Public Facility Districts (PFDs) would be negatively impacted
by a local sales tax sourcing change from "origin -based" to "destination -based" — with
severe impacts to some. The study identified a series of different possible ways to mitigate
the impacts of the sourcing change;
o In 2004 and 2005, the Legislature debated — but did not adopt — SST legislation that
included the local sales tax sourcing change. Fundamental disagreements among local
governments — with some recommending partial mitigation and others insisting on full
mitigation —precluded legislation from being adopted.
o Heading into the 2006 Session of the Legislature, cities and counties coalesced around a
"full mitigation" approach with regard to the SST, one endorsed and requested by then -
Governor Gregoire. 2006 legislation was not enacted — but this was more over timing issues
than substantive disagreement;
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
In 2007, the Legislature enacted SSB 5089, bringing Washington State in line with the
national SSTA with respect to sourcing rules. The promise of a full mitigation approach was
a key underpinning of the legislation, which clearly would not have been agreed to or
adopted without such an approach;
o The Governor and the Legislature made a strong commitment to SST full mitigation; based
on the fact that the sourcing change was a major and fundamental change in local sales tax
rules that had been in place for decades. The Legislature also recognized that mitigation
was critical to the upkeep of numerous warehousing, distribution center, and industrial
areas throughout the state.
o The full mitigation was based on an "actual loss" and "actual experience" approach, and
involved use of an advisory committee to work with the DOR on mitigation policies;
o The mitigation program was designed so that jurisdictions would receive mitigation
payments until such time as their gains from the "voluntary compliance" provisions of the
SSTA (voluntary compliance is calculated from sales tax accruing from voluntary sales tax
collection by companies coming into the SSTA compact) met or exceeded their losses from
the sourcing change. A DOR "Frequently Asked Questions" document from 2008 confirms
this: "When a jurisdiction's voluntary compliance revenue exceeds its loss of local sales tax
revenue, the jurisdiction will not receive mitigation."
Legal Issues and Challenges — and Along Comes the "Marketplace Fairness Act" — Sheila Gall,
Legal Counsel, AWC
o Washington State made changes to its sales tax system, including changing from an origin -
based sales tax sourcing system to a destination -based sales tax sourcing in 2007 (SSB
5089);
o This was intended as a step in implementing sales tax collection requirements on internet
sales and a way to further the case for state and local governments working to convince
Congress to act on federal legislation requiring sales tax collection by internet retailers
which became known as "Main Street"or "Marketplace Fairness" in sales tax policy. Passage
of SSB 5089 also was to give a voice to Washington on the governing board of the national
streamlined agreement;
o Under the national agreement, companies could "voluntarily" join and collect sales tax on
behalf of the member states. They would get two big benefits in return:
1) "vendor compensation" -- financial assistance in the costs of sales tax collection; and 2)
relief from liability against back taxes in the event their actual "nexus" in a state came under
legal question;
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
o The sourcing change from original to destination resulted in dislocations of sales tax
revenues at the local level — both negative and positive. The negative impacts were
particularly hard-hitting for jurisdictions with large warehouses or a retail base that
included delivery based items such as furniture that had previously sourced sales tax to
those warehouse or store jurisdictions;
o As part of the agreement with impacted jurisdictions in implementing the Streamlined Sales
Tax changes, the Legislature began appropriating approximately $50 million per biennium
in SST mitigation;
o The program mitigates actual sales tax losses based on 2008 estimates, reduced by actual
voluntary compliance new revenues. The calculation would also include new revenues if
Congress acts to require collection by internet retailers;
o Mitigation was designed to ramp down and would end when voluntary compliance new
revenues exceeded losses. In 2009, 86 jurisdictions, including 55 cities, received mitigation.
In the first quarter of 2017, 57 jurisdictions, including 49 cities, received mitigation. The
largest mitigation recipient has been King County Metro. For cities, the largest payments go
to Kent, Auburn, Tukwila, Issaquah, Spokane Valley, Fife, Woodinville, Sumner, Everett,
Lynnwood, and Pasco;
o Regarding the EHB 2163 legislation we referenced earlier, for at least 11 of the mitigation
jurisdictions, the new revenue resulting from new sales tax collections from out of state
retailers in EHB 2163 would not cover the loss of their expected SST mitigation payments;
o AWC has included passage of a requirement for sales tax collection on internet and other
remote sales purchases as a federal priority for many years. While there has been a new
push to enact federal Marketplace Fairness legislation again this year, to date Congress has
not taken action;
o The stakes of remote sales tax collection are very high, though, and tell you why this is so
critical. An early 2014 DOR estimate of a Congressional Marketplace Fairness bill showed it
would have resulted in $493.2 million in new biennial sales taxes to the State of Washington
in 2015-17 and $542.6 million in 2017-19;
o While Congress has not taken action on the Marketplace Fairness issue, other legal
precedents surfaced;
o In 2015, Justice Kennedy wrote a concurrence in Direct Marketing Association v. Brohl in a
case involving Colorado information reporting requirements stating that the "legal system
should find an appropriate case for this Court to reexamine Quill";
o The concurrence recognized the changed circumstances of the last 20 years of Quill has had
on state and local governments due to rise of internet purchases, Congress's failure to pass
the Marketplace Fairness Act, and states' need to improve use tax collection;
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
o Two states, South Dakota and Alabama, have enacted sales tax collection requirements that
are moving through the courts, with the expectation of review by the US Supreme Court as a
"Quill challenge." The South Dakota case is currently before the U.S Supreme Court waiting
for a decision on whether the court will accept review;
o Several more states have taken other steps to improve collections by out of state
businesses. Colorado, Oklahoma, South Dakota, and Vermont —and now Washington -- have
enacted reporting or registration requirements on remote sellers;
A Case Study on why "Full Mitigation" isn't necessarily full — and the hardships on
certain cities even with SST Mitigation and the promise of remote sales tax — Robert
Goehring, City ofKent
1. According to the March 2015 PSRC Industrial Lands Report the Puget Sound regional
industrial land area serves as a significant economic engine for the regional and state
economy. Specifically:
o 28,615 net acres of industrial -zoned and designated lands spread across four
counties, 65 jurisdictions, and military and tribal lands.
o In 2012, total wages paid out by industrial activities on industrial lands were $24.4
billion, or 23.2% of all wages paid out in the region in 2012.
o Estimated state tax revenues generated by industrial activities on industrial lands
totaled over $2.25 billion in 2012.
a Kent -Renton Subarea Profile:
ri 5,970 acres (8% ofRegion's Industrial Land)
Li 49,300 industrial jobs (10% ofRegions jobs)
CI 14,500 non -industrial jobs
o Ownership by parcel area (Private - 91%; Public — 9%)
o Average parcel size 4.2acres
o Specialization — Aerospace, Wholesaling and Transportation Distribution
and Logistics (TDL)
2. The City ofKentGreenRiver Valley is one ofeightPSRCRegionalManufacturing/Industrial
Growth Centers and, as such, is a vital component of the regional and state economy.
The City continues to spend a significant amount of money related to the impacts of
warehousing, manufacturing and related transportation activities, including, but not limited
to, construction and maintenance of roads.
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
3. Effective July 1, 2008 and pursuant to RCW 82.14.490 and as required by the SSUTA, local
sales tax distribution for retail deliveries switched from origin -based sourcing to
destination based sourcing resulting in a significant decrease in sales/use tax and local
business and occupation tax for jurisdictions with high concentrations of warehousing and
manufacturing facilities.
Effective July 1, 2008 and pursuant to RCW 82.14.500 and 82.14.390, mitigation for
sourcing losses for negatively impacted local governments was established as follows:
❑ All except PFDs — Direct quarterly payments from the state calculated as the
sourcing loss ("measurement period" - comparison of FY 2008 v. 2009 sales/use tax
at the individual business level) less the local portion of "voluntary compliance"
(from businesses registering under the SSUTA)
❑ PFDs —Eligible if the sourcing loss is at least .5% between the measurement period
and current annual revenues up to a maximum rate of .037 percent
5. The Department of Revenue worked with impacted local governments to determine the
estimated annual sourcing losses through comparison ofpre-sourcing (July 1, 2007 through
June 30, 2008) and post -sourcing (July 1, 2008 through June 30, 2009) sales tax at the
individual jurisdiction for businesses impacted by the sourcing change.
6. On a quarterly basis for the annual period under review, the Department of Revenue
calculated the sourcing losses for each jurisdiction and provided each jurisdiction with
respective detail at the individual business level. For example, the Department of Revenue
provided information for each impacted business comprised largely as the difference
between the reporting periods Q3 2007 (July 1, 2007 through September 30, 2007) and the
reporting periods Q3 2008 (July 1, 2008 through September 30, 2008).
7. The Department of Revenue remitted payments during the annual measurement period (FY
2007 v. FY 2008) on the last day of the third month for each quarterly measurement period.
For example, the payment for Q3 2008 v. Q3 2009 payment was made on December 31,
2009.
8. Based on in part on feedback received from the impacted local governments, the
Department of Revenue adjusted subsequent quarterly calculations during the
measurement period to prospectively address concerns noted. For example, the
Department's analysis may have excluded a company that should have been included in the
calculations.
After all four quarterly measurement periods were completed, the Department of Revenue
established a fixed estimated sourcing loss for use in the calculation of quarterly mitigation
payments effective FY 2010.
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
10. Mitigation was calculated based on the fixed estimated sourcing loss less the local
government portion of"voluntary compliance" received from businesses operating in the
jurisdictions that had registered to collect and remit sales and use tax under the SSUTA.
11. The measurement period (FY 2009) was during the trough of the Great Recession and the
estimated sourcing loss calculations were not adjusted for the recovery, for normal
sales/use tax growth, or for subsequent changes in warehousing/manufacturing activity.
12. As a result, the City ofKent's fixed sourcing loss estimate ($5 million per year) only
represents 39% of the 2012 estimated actual sourcing losses ($12.7 million) based on
Department ofRevenue information provided to the Puget Sound Regional Council for
PRSC's March 2015 Industrial Lands Report.
13. Due to the disproportionate losses under S SUTA to the City of Kent, the WA Market Place
Fairness Act would only represent an estimated $444,600 in annual sales tax revenues or
9% of annual mitigation currently received ($5.0 million).
24 IPaue
49
SSB 5883 Streamlines Sales Tax Report August 31, 2018
Exhibit F
2015 Industrial Lands Report: Chapter 4 pg 4-26 to 4-28
Impacts of Streamlined Sales Tax Policy
For most activities on industrial lands, tax revenues are directly levied by the
jurisdiction where the industrial activity takes place. A major exception is sales tax
levied on wholesaling activities. According to the streamlined sales tax (SST) policy,
goods that are sold over the Internet or by phone are subject to the sales levy at the
place of final destination. In the case of many Wholesaling & Warehousing activities,
the immediate implication of this rule is that jurisdictions that are home to many
Wholesaling and Warehousing jobs may not see a direct fiscal revenue stream
associated with these activities.
To illustrate these impacts, local sales tax revenues were calculated for Wholesaling &
Warehousing activities on industrial lands. These activities, across all industrial lands
region wide, generate an estimated $49.8 billion in business revenues. Of this, an
estimated 6.2% is in the form of final demand sales, and thus subject to a sales tax levy.
Sales transacted within the region account for an estimated 95% of total sales (the
remainder representing sales to customers outside the central Puget Sound region),
resulting in total regional taxable retail sales of $2.9 billion in 2012.
Jurisdictions with the largest number of Wholesaling & Warehousing activities
employment and associated business revenues include Kent ($9.5 billion), Seattle ($8.6
billion), Tacoma ($4.6 billion), Renton ($3.6 billion), and Auburn ($2.5 billion). If sales
tax levies were restricted to the origin of sale (and not destination), the City of Kent
would collect, based on the above estimates, more than $16.8 million in sales tax
revenues in 2012. However, the SST lowers this total to $4.1 million, a hypothetical net
loss of $12.7 million (Exhibit 4.28). Conversely, the City of Seattle, which under an
origin -based sales tax would directly collect $15.1 million in sales tax revenues
generated by Warehousing & Wholesaling activities, under the SST collects an
estimated $25.4 million, a difference of $10.3 million.
25 I P a 2 e
50
SSB 5883 Streamlines Sales Tax Report August 31, 2018
Exhibit4.28. Cities with Largest Absolute Change in Wholesaling &
Warehousing Sales Tax Due to SST, 2012, (est., Mils. $)
Estimated Actual Loss or Gain in
Sales Taxes Sales Taxes Local Sales Tax
Rank City W&W Revenues Collected if no SST Collected Revenues
1 Kent 9,5 17 16.8 4.1 -12.7
2 Seattle 8,562 15.1 25.4 10.3
3 Bellevue 102 0.2 6.0 5.8
4 Renton 3,632 6.4 2.4 -4.0
5 Tacoma 4,631 8.2 5.2 -3.0
6 Sumner 2,155 2.9 0.5 -2.4
7 Auburn 2,451 4.3 2.6 -1.7
8 Lynnwood 50 0.1 1.2 1.1
9 Kirkland 383 0.7 1.7 1.0
10 Bremerton 34 0.0 0.9 0.8
Source: \Washington Association of Cities, 2013; \Washington State Department of Revenue, 2014;
Community Attributes Inc., 2014.
Note: Loss of gain estimates may not exactly equal differences across other columns due to rounding.
Washington's streamlined sales tax policies went into effect on July 1, 2008, nearly seven years
ago. Some cities, such as Kent, may now be questioning the fiscal benefits of accommodating
warehousing activities, since state laws for municipal taxes so heavily favor retail sales with
points of sale locally. Warehousing is a critical component of the regional economy, however,
and the local economic benefits of warehousing do not hinge on SST alone. The local
economy, local residents' job opportunities, and the city's role in the regional economy
factor heavily into the relationship between local zoning and economic impacts, among
other considerations.
26 Page
51
SSB 5883 Streamlines Sales Tax Report
Exhibit G
Mitigation Payments Q1 2018
August 31, 2018
June 29, 2018 Payment for Quarter 1, '...)018 Activity Note 1
Ranking
jurisdiction
Location Jurisdiction
Code type
Net revenue
impact
Mitigation
payment made
Note I: Calculation of Mitigation Payments. Quarterly Mitigation Payments are calculated by the Department of
Revenue for each jurisdiction based on the Department of Revenue Calculated Sourcing Loss less the local
government portion of Voluntary Compliance and, effective January 1, 2018, WA Marketplace Fairness Act sales
and use tax. "Calculated Sourcing Loss" means the sales and use tax loss experienced by the jurisdiction based
on comparison of sales tax for certain businesses between the pre -sourcing (July 1, 2007 through June 30, 2018)
and the post -sourcing (July 1, 2008 through June 30, 2009) tax return periods. "Voluntary Compliance" means sales
and use tax attributed to the jurisdiction collected from businesses voluntarily registering to collect and remit sales
and use tax under the Streamlined Sales and Use Tax Agreement (SSUTA). "WA Marketplace Fairness Act" means
sales and use tax attributed to the jurisdiction collected from businesses reporting and/or collecting and remitting
sales and use tax pursuant to SEIB 2186 Washington State Marketplace Fairness Act (MPFA). For example, the
City of Kent's mitigation payment for June 29, 2018 representing Quarter I, 2018 activity ($1,136,71 I.) incorporates
one quarter of its Calculated Annual Sourcing Loss ($1,257,611) L55,030,445 divided by fourl less Voluntary
Compliance ($13,501) and less WA Marketplace Fairness Act ($107,399).
27 I a a
52
SSB 5883 Streamlines Sales Tax Report August 31, 2018
KENT
2 AUBURN
3 TUKWILA
4 ISSAQUAH
5 FIFE
6 WOODINVILLE
7 SUMNER
8 SPOKANE VALLEY
9 BURLINGTON
10 LYNNWOOD
11 OTHELLO
12 MILTON
13 MONROE
14 LYNDEN
15 COULEE CITY
16 LIBERTY LAKE
17 PACIFIC
18 PASCO
19 FAIRFIELD
20 ST. JOHN
21 TOPPENISH
22 HOQUIAM
23 LONG BEACH
24 NOOKSACK
25 LATAH
26 ALGONA
1715 City ($1,136,711.13) $1,136,711.13
1702 City
1729 City
1714 City
2706 City
1735 City
2716 City
3213 City
2902 City
3110 City
0103 City
1731 City
3112 City
3705 City
1301 City
3212 City
1723 City
1104 City
3204 City
3814 City
3910 City
1404 City
2502 City
3706 City
3205 City
1701 City
($414,606.59)
($259,185.05)
($153,928.45)
($122,798,67)
($111,263.11)
($99,089.41)
($75,976.91)
($23,636.75)
($20,548.29)
($18,842.90)
($16,842.68)
($8,736.04)
($6,509.78)
($3,711.5'7)
($3,254.10)
($3,164.61)
($1,792.37)
($1,559.40)
($1,526.73)
($1,021.88)
($866.47)
($860.87)
($780.20)
($666.90)
($222.28)
$414,606.59
$259,185.05
$153,928.45
$122,798.67
$111,263.11
$99,089.41
$75,976.91
$23,636.75
$20,548.29
$18,842.90
$16,842.68
$8,736.04
$6,509.78
$3,711.57
$3,254.10
$3,164.61
$1,792.37
$1,559.40
$1,526.73
$1,021.88
$866.47
$860.87
$780.20
$666.90
$222.28
Total Jurisdictions Receiving Payments ($2,488,103 14) $2,488,103.14
1 SEATTLE 1726 City $1,530,159.72
2 KING COUNTY 1700 County $646,355.56
281PaQc
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SSB 5883 Streamlines Sales Tax Report August 31, 2018
3 PIERCE COUNTY 2700 County $643,654.41
4 SNOHOMISH COUNTY 3100 County $569,764.22
5 KITSAP COUNTY 1800 County $401,480.11
6 WHATCOM COUNTY 3700 County $361,468.20
7 THURSTON COUNTY " 3400 County $325,201.54
8 SPOKANE COUNTY 3200 County $324,573.02
9 BENTON COUNTY 300 County $229,188.11
10 CLARK COUNTY 600 County $213,605.94
11 BELLEVUE 1704 City $182,011.29
12 ISLAND COUNTY 1500 County $179,898.61
13 TACOMA 2717 City $174,219,63
14 SPOKANE CITY 3210 City $173,009.74
15 YAKIMA COUNTY 3900 County $166,286.76
16 OLYMPIA 3403 City $163,353.91
17 KENNEWICK 0302 " City $142,205.93
18 RICHLAND 0304 City $137,445.60
19 SKAGIT COUNTY 2900 County $133,553.48
20 VANCOUVER 0605 City $132,861.49
21 BELLINGHAM 3701 City $131,767.62
22 RENTON 1725 City $130,875.13
23 GRANT COUNTY 1300 County $128,560.40
24 BOTHELL 1706 City $122,857.10
25 KIRKLAND 1716 City $119,511.68
26 CLALLAM COUNTY 500 County $119,479.23
27 REDMOND 1724 City $116,843.66
28 KITTITAS COUNTY " 1900 County $108,845.23
29 SAMMAMISH 1739 City $107,304.38
30 FEDERAL WAY 1732 City $106,353.17
31 MASON COUNTY 2300 County $102,618.43
32 LEWIS COUNTY 2100 County $99,487.62
33 EDMONDS 3104 City $88,532.73
34 LACEY 3402 City $88,279.73
35 BREMERTON 1801 City $86,098.24
36 PUYALLUP 2711 City $85,811.67
37 COWLITZ COUNTY 800 County $81,680.54
38 BLAINE 3702 City $80,958.10
39 MERCER ISLAND 1719 City $80,056.71
40 GRAYS HARBOR COUNTY 1400 County $79,776.27
41 SNOHOMISH CITY 3115 City $78,185.99
29IPag
54
SSB 5883 Streamlines Sales Tax Report August 31, 2018
42 JEFFERSON COUNTY 1600 County $73,529.49
43 GIG HARBOR 2708 City $73,133.45
44 SHORELINE 1737 City $70,061.65
45 WALLA WALLA COUNTY 3600 County $69,067.20
46 PULLMAN 3812 City $67,026.01
47 OKANOGAN COUNTY 2400 County $66,330.80
48 CHELAN COUNTY 400 County $63,710.99
49 YAKIMA CITY 3913 City $63,025.12
50 BAINBRIDGE ISLAND 1804 City $61,892.68
51 SAN JUAN COUNTY 2800 County $61,204.99
52 PORT ANGELES 0502 City $57,475.07
53 STEVENS COUNTY 3300 County $56,268.15
54 OAK HARBOR 1503 City $54,278.29
55 WHITMAN COUNTY 3800 County $52,301.42
56 SNOQUALMIE 1728 City $52,048.14
57 MAPLE VALLEY 1720 City $51,594.91
58 WALLA WALLA CITY 3604 City $48,780.49
59 LAKE STEVENS 3109 City $48,667.73
60 DOUGLAS COUNTY 900 County $47,649.71
61 BURIEN 1734 City $46,588.45
62 ANACORTES 2901 City $46,386.08
63 ELLENSBURG 1902 City $46,381.26
64 MOUNT VERNON 2907 City $45,451.81
65 FRANKLIN COUNTY 1100 County $44,637.99
66 UNIVERSITY PLACE 2719 City $43,612.12
67 PORT TOWNSEND 1601 City $43,093.32
68 EAST WENATCHEE 0902 City $42,898.48
69 MUKILTEO 3114 City $42,105.69
70 SEATAC 1733 City $40,542.20
71 TUMWATER 3406 City $39,197.95
72 LONGVIEW 0804 City $38,745.29
73 SPOKANE PUBLIC FACILITY Other $38,128,94
74 MOUNTLAKE TERRACE 3113 City $37,398.87
75 PACIFIC COUNTY 2500 County $36,629.82
76 POULSBO 1803 City $35,513.73
77 MARYSVILLE 3111 City $34,976.86
78 SHELTON 2301 City $33,432.67
79 BATTLE GROUND 0601 City $33,346.19
80 CAMAS 0602 City $32,958.87
30 I I) a g c
55
SSB 5883 Streamlines Sales Tax Report
81 MOSES LAKE
82 ENUMCLAW
83 COVINGTON
84 DES MOINES
85 STANWOOD
86 QUINCY
87 WEST RICHLAND
88 CENTRALIA
89 SELAH
90 PORT ORCHARD
91 PROSSER
92 NORTH BEND
93 PEND OREILLE COUNTY
94 LINCOLN COUNTY
95 ADAMS COUNTY
96 EPHRATA
97 LAKEWOOD
98 MILL CREEK
99 DUVALL
100 WASHOUGAL
101 SEQUIM
102 BONNEY LAKE
103 KLICKITAT COUNTY
104 KENMORE
105 DUPONT
106 WENATCHEE
107 NEWCASTLE
108
109
110
111
112
113
114
115
116
117
118
FOOTBALL
YELM
ABERDEEN
STEILACOOM
MEDINA
SUMAS
CLARKSTON
ORTING
FERRY COUNTY
COLLEGE PLACE
CHELAN CITY
0305
2101
3907
1802
0303
1722
2600
2200
100
1303
2721
3119
1710
0606
0503
2701
2000
1738
2704
0405
1736
3407
1401
2715
1718
3707
0202
2710
1000
3601
0402
1309 City
1711 City
1712 City
1709 City
16 City
310 City
City
City
City
City
City
City
County
County
County
City
City
City
City
City
City
City
County
City
City
City
City
Public
Facilities.
District
City
City
City
City
City
City
City
County
City
City
$32,449.23
$31,130.36
$31,001.74
$30,382.70
$30,233.65
$29,844.13
$28,644.13
$28,273.69
$27,638.29
$26,886.23
$25,846.91
$25,807.73
$25,678.66
$24,681.37
$24,300.36
$24,119.57
$23,698.47
$23,484.50
$23,090.14
$22,952.55
$21,672.20
$20,475.33
$20,402.63
$20,350.27
$19,639.75
$17,637.33
$17,282.55
$17,093.71
$16,588.86
$16,555.10
$16,521.45
$16,180.51
$16,093.05
$16,047.78
$15,981.87
$15,907.14
$15,697.84
$15,511.75
August 31, 2018
311Pa`7e
56
SSB 5883 Streamlines Sales Tax Report August 31, 2018
119 LAKE FOREST PARK
120 ASOTIN COUNTY
121 MONTESANO
122 BENTON CITY
123 FRIDAY HARBOR
124 NORMANDY PARK
125 BUCKLEY
126 WAPATO
127 COUPEVILLE
128 KELSO
129 FIRCREST
130 SKAMANIA COUNTY
131 GOLDENDALE
132 CLYDE HILL
133 EDGEWOOD
134 CLEELUM
135 CHENEY
136 ZILLAH
137 OROVILLE
138 OCEAN SHORES
139 LANGLEY
140 MATTAWA
141 BRIER
142 EATONVILLE
143 ROYAL CITY
144 COLFAX
145 BREWSTER
146 NEWPORT
147 BLACK DIAMOND
148 COLUMBIA COUNTY
149 CASHMERE
150 SULTAN
151 KALAMA
152 CONNELL
153 EVERSON
154 GRANITE FALLS
155 CARNATION
156 LEAVENWORTH
157 LA CONNER
1717 City
200 County
1406 City
0301 City
2801 City
1721 City
2702 City
3912 City
1501 City
0803 City
2707 City
3000 County
2002 City
1708 City
2720 City
1901 City
3202 City
3914 City
2408 City
1409 City
1502 City
1308 City
3102 City
2705 City
1311 City
3802 City
2401 City
2605 City
1705 City
700 County
0401 City
3117 City
0802 City
1101 City
3703 City
3107 City
1707 City
0404 City
2905 City
$14,856.94
$13,755.74
$12,853.28
$12,765.27
$12,469.82
$12,290.65
$12,128.66
$11,762.23
$11,729.88
$11,415.08
$11,211.63
$11,152.33
$11,054.86
$10,854.28
$10,776.08
$10,753.88
$10,728.23
$10,504.25
$10,392.46
$10,150.01
$9,937.41
$9,898.83
$9,892.22
$9,838.47
$9,798.83
$9,730.17
$9,625.12
$9,182.58
$9,123.66
$8,977.99
$8,905.61
$8,841.00
$8,521.36
$8,343.08
$8,314.28
$7,970.66
$7,882.88
$7,879.29
$7,640.26
32I1'a
57
SSB 5883 Streamlines Sales Tax Report August 31, 2018
158 TENINO 3405 City $7,161.21
159 FORKS 0501 City $6,963.23
160 WAHKIAKUM COUNTY 3500 County $6,740.97
161 OMAK 2407 City $6,652.02
162 WESTPORT 1408 City $6,571.89
163 CHEWELAH 3301 City $6,528.80
164 RAYMOND 2503 City $6,496.84
165 GRANDVIEW 3901 City $6,447.68
166 AIRWAY HEIGHTS 3201 City $6,403.46
167 DAYTON 0701 City $6,268.99
168 MESA 1103 City $6,227.30
169 WARDEN 1313 City $6,139.17
170 TWISP 2412 City $6,063.85
171 DAVENPORT 2203 City $5,822.74
172 SUNNYSIDE 3908 City $5,723.30
173 KETTLE FALLS 3303 City $5,713.96
174 CHEHALIS 2102 City $5,573.66
175 WHITE SALMON 2003 City $5,543.41
176 TONASKET 2411 City $5,438.64
177 BEAUX ARTS VILLAGE 1703 City $5,334.88
178 CASTLE ROCK 0801 City $5,333.48
179 ROY 2712 City $5,203.51
180 CONCRETE 2903 City $5,176.57
181 REPUBLIC 1001 City $5,033.11
182 NAPAVINE 2105 City $5,022.19
183 MABTON 3904 City $4,940.17
184 WOODLAND 0805 City $4,865.65
185 MCCLEARY 1405 City $4,859.46
186 LA CENTER 0603 City $4,739.23
187 RAINIER 3404 City $4,722.15
188 DARRINGTON 3103 City $4,492.47
189 ROSLYN 1904 City $4,464.26
190 GRANGER 3902 City $4,443.52
191 SOUTH BEND 2504 City $4,230.50
192 YARROW POINT 1730 City $4,161.62
193 TIETON 3909 City $4,132.49
194 CATHLAMET 3501 City $4,098.93
195 MEDICAL LAKE 3206 City $3,942.47
196 GOLD BAR 3106 City $3,758.58
33I1'age
58
SSB 5883 Streamlines Sales Tax Report August 31, 2018
197 RUSTON 2713 City
198 WOODWAY 3118 City
199 RITZVILLE 0104 City
200 TOLEDO 2107 City
201 ENTIAT 0403 City
202 'WINTHROP 2413 City
203 ILWACO 2501 City
204 YACOLT 0607 City
205 NACHES 3906 City
206 PRESCOTT 3602 City
207 SOAP LAKE 1312 City
208 KITTITAS CITY 1903 City
209 ROSALIA 3813 City
210 OKANOGAN CITY 2406 City
211 WINLOCK 2109 City
212 GRAND COULEE 1305 City
213 HARRAH 3903 City
214 IONE 2602 City
215 BRIDGEPORT 0901 City
216 ODESSA 2205 City
217 GEORGE 1304 City
218 BINGEN 2001 City
219 STEVENSON 3002 City
220 PATEROS 2409 City
221 WATERVILLE 0905 City
222 WILBUR 2208 City
223 COWLITZ PFD COL IA THEATRE Other
224 METALINE FALLS 2604 City
225 ELMA 1403 City
226 COLVILLE 3302 City
227 FERNDALE 3704 City
228 GARFIELD COUNTY 1200 County
229 WAITSBURG 3603 City
230 YAKIMA PFD CAPITOL THEATRE Other
231 SKYKOMISH 1727 City
232 HUNTS POINT 1713 City
233 LIND 0102 City
234 PALOUSE 3811 City
235 COSMOPOLIS 1402 City
$3,748.60
$3,719.72
$3,702.92
$3,561.56
$3,528.01
$3,446.66
$3,299.78
$2,998.12
$2,995.60
$2,954.17
$2,872.85
$2,855.56
$2,820.20
$2,805.16
$2,778.20
$2,730.16
$2,725.42
$2,599.28
$2,578.88
$2,538.79
$2,485.45 -
$2,457.35
$2,451.39
$2,400.55
$2,334.58
$2,300.13
$2,289.12
$2,272.97
$2,268.75
$2,215.92
$2,135.09
$2,112.88
$2,064.97
$2,032.50
$1,998.78
$1,989.03
$1,876.27
$1 868.24
$1,822.08
34IPage
59
SSB 5883 Streamlines Sales Tax Report August 31, 2018
236 OAKVILLE 1407 City
237 UNION GAP 3911 City
238 TEKOA 3815 City
239 POMEROY 1201 City
240 REARDAN 2206 City
241 ELECTRIC CITY 1302 City
242 NORTHPORT 3305 City
243 SOUTH CLE ELUM 1905 City
244 DEER PARK 3203 City
245 COULEE DAM 2403 City
246 SOUTH PRAIRIE 2714 City
247 EVERETT 3105 City
248 MOSSYROCK 2104 City
249 RIDGEFIELD 0604 City
250 MANSFIELD " 0903 City
251 SPRINGDALE 3306 City
252 ARLINGTON 3101 City
253 CARBONADO 2703 City
254 ALMIRA 2201 City
255 NORTH BONNEVILLE 3001 City
256 CUSICK 2601 City
257 HAMILTON 2904 City
258 COLTON 3803 City
259 WILKESON 2718 City
260 BUCODA 3401 City
261 MILLWOOD 3207 City
262 SEDRO WOOLLEY 2908 City
263 CRESTON 2202 City
264 ASOTIN CITY 0201 City
265 PEELL2106 City
266 GARFIELD 3806 City
267 ENDICOTT 3804 City
268 MOXEE CITY " 3905 City
269 LYMAN 2906 City
270 ROCK ISLAND 0904 City
271 SPRAGUE 2207 City
272 VADER 2108 City
273 WASHTUCNA 0105 City
274 RIVERSIDE 2410 City
$1,739.27
$1,678.23
$1,612.59
$1,603.20
$1,569.66
$1,490.77
$1,426.53
$1,422.04
$1,361.09
$1,343.07
$1,334.95
$1,306.60
$1,283.40
$1,212.06
$1,123.27
$1,082.69
$1,074.35
$1,064.92
$1,053.34
$1,052.34
$1,043.40
$1,015.05
$948.50
$944.93
$930.20
$924.43
$902.08
$893.77
$861.19
$827.10
$804.73
$784.00
$747.51
$722.37
$697.64
$695.09
$655,47
$647.06
$645.82
35 I 7. a LI e
60
SSB 5883 Streamlines Sales Tax Report August 31, 2018
275 HARTLINE
276 WILSON CREEK
277 NESPELEM
278 FARMINGTON
279 KAHLOTUS
280 OAKESDALE
281 HARRINGTON
282 HATTON
283 SPANGLE
284 ROCKFORD
285 INDEX
286 ALBION
287 ELMER CITY
288 CONCONULLY
289 MALDEN
290 LACROSSE
291 MARCUS
292 UNIONTOWN
293 MORTON
294 LAMONT
295 METALINE
296 STARBUCK
297 WAVERLY
298 KRUPP
1306 City
1315 City
2405 City
3805 City
1102 City
3810 City
2204 City
0101 City
3209 City
3208 City
3108 City
3801 City
2404 City
2402 City
3809 City
3807 City
3304 City
3816 City
2103 City
3808 City
2603 City
0702 City
3211 City
1307 City
$560.22
$540.22
$529.33
$515.46
$457.21
$424.08
$377.79
$369.90
$330.71
$325.61
$321.97
$314.77
$309.01
$286.81
$225.43
$199.58
$190.50
$185.06
$173.94
$166.88
$155.84
$128.07
$72.83
$40.60
Total Jurisdictions Not Receiving
Payments
$12,537,745.15
Net Sourcing Impacts (Includes Reductions for Voluntary Compliance
and WA Marketplace Fairness Act))
$10,049,642.01
36IPage
61
62
City of Tukwila
Allan Ekberg, Mayor
INFORMATIONAL MEMORANDUM
TO: Finance Committee
FROM: Peggy McCarthy, Finance Director
CC: Mayor Ekberg
DATE: February 6, 2019
SUBJECT: 2018 Cash & Investment Report
ISSUE
The cash and investment report provides portfolio information as of December 31, 2018 and for the
year then ended.
BACKGROUND
City funds are invested to earn a reasonable return while preserving principal and allowing sufficient
liquidity to meet the City's operating needs. To achieve these objectives investments are diversified
by type, by financial institution, and by maturities in compliance with the City Investment Policy.
DISCUSSION
Portfolio Components, Activity, and Year -Over -Year Comparison
As of December 31, 2018, the portfolio totaled $83 million comprised of $58 million in cash and cash
equivalents and $25 million in longer term investments. The U.S. Bank depository account held $20
million in anticipation of a $13 million payment due early in January 2019 for the acquisition of Public
Works shops property under the Public Safety Plan. The intent is to keep the balance of this account
to a minimum and transfer any excess funds to the Local Government Investment Pool (LGIP)
account. The bank account doesn't earn interest but does earn a 1% credit (the rate prior to October
2018 was .45%) as an offset to banking costs. Since the LGIP daily yield has exceeded 2% since
August 2018 and has progressively moved higher (it was 2.49% on February 4, 2019), the bank
account is managed to maintain only the minimum amount needed. The following chart illustrates
the portfolio components at 12/31/18.
Percent of Cash & Investment Portfolio
Agencies Municipal
19% Bonds
7%
CDs
4%
Money
Market
18%
LGIP
28%
Cash
24%
63
INFORMATIONAL MEMO
Page 2
During 2O18.two $1 million agencies matured and aportion ofthe Douglass County EGObond,
$355 thouaand, was redeemed; no investments were purchased. Most of the longer -term
investments in the portfolio - all but $2.6 million -vvere purchased in 2017foUovv|n0 the December
2016 issuance of $37 million of voted debt bonds. Of the $25 million longer -term investments at
year-end, $16.8 million mature in 2019. $8 million mature in 2020. and $2.5 million mature in 2021
or2D22producing oweighted average maturity ofone year.
AtDecember 31`2O17.the cash and investment balance was $1O1million, $10million more than at
December 31' 2018. This $18 0iUiDO reduction is attributable mainly to investment in the Public
Safety Plan. The Public Safety Plan Voted Debt fund 305 declined $21 million; the Public Safety
Plan Public Works Shops fund 3O8increased bV$11million reflecting expenditures and @$20million
limited tax general obligation bond issuance iOJuly 2O18; and the Residential Street fund declined
$7million from investment inthe 42nu Ave Gand 53rd Ave Simprovements.
Portfolio Performance
Short term investment yields have increased markedly o)noa nnid-2017 and this increase has been
reflected in the L{9|P netea, as illustrated in the two charts below.
LGIP Yields Based on the State's Fiscal Year of July I to June 30.
�. n
64
INFORMATIONAL MEMO
Page 3
2.70%
2.40 %
2.10%
1.80%
1.50%
1.20%
0.90%
0.60%
0.30%
0.00%
LGIP Yield by Quarter and Year
Issi II I I I I
Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
2013 2014 2015 2016 2017 2018
For 2018, the average yield was 1.90% for long term investments, 1.91% for the LGIP and 1.95%
for the money market account. The 2018 investment earnings of $1.58 million represents a 60%
increase over the 2017 total of $990 thousand and a $1.3 million positive variance over the $271
thousand budgeted. Earnings for the past four years are charted below.
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$356,952
2015
Investment Earnings
$388,767
2016
$990,468
2017
$1,580,900
2018
6 5
INFORMATIONAL MEMO
Page 4
Policy Compliance and Liquidity Analysis
The portfolio profile is well within the range of all the investment policy parameters. There is currently
a good mix of investments with a range of maturity dates. Current investments allow for adequate
cash flow requirements. The yield benchmark of the 2-year treasury however was not met due to
the rise in the two-year rate over the past year and a half, and timing of the longer -term investment
purchases. With a slowing of interest rate hikes (see the Investment Environment discussion below)
and the maturing of $16 million of longer -term investments in 2019, opportunities to increase the
portfolio yield may be presented in 2019.
Investment Environment
The Federal Reserve raised interest rates in December 2018 for the fourth time in 2018 putting it at
its highest level since the spring of 2008. This contributed to an inverted yield curve in December
whereby the 5-year treasury rate was higher than the 2-year treasury rate. The chart below illustrates
this convergence of rates in November and December and the steep rise in rates beginning in
September 2017.
Historical Treasury Rates
5-Year vs 2-Year
I,..,
.....0
CM
[Key
iX
2 YEAR NOMINAL
&YEAR NOMINAL
DtFFERENCE* -
0
Jmn Fet Mar April Kay- Juni-, duly Aug Sep'. Oci Nov Dec Jan Fek Moir April May June Jul, Aug Scol Oci Nov Dec
WV MB
Time Period
The Federal Reserve recently indicated that it may raise interest rates twice in 2019 rather than
three times slowing the interest rate climb. The Fed reported that economic growth remained
solid and is expected to continue. However, the case for raising rates has weakened somewhat
because of sluggish inflation, slowing growth in Europe and China and the possibility of another
federal government shutdown. It has been reported that the Fed would be "patient" in evaluating
the health of the economy and that the Fed stood ready either to raise or to cut rates, depending
on economic conditions. The portfolio will continue to be managed to take advantage of
investment opportunities as they arise.
66
INFORMATIONAL MEMO
Page 5
RECOMMENDATION
Presentation is for information only.
ATTACHMENTS
2018 Cash and Investment Report
Policy Compliance & Liquidity Analysis
Treasury Rates and Yield Curves at 12/31/17 and 12/31/18
67
68
Agency / Issuer
CASH & CASH EQUIVALENTS
US Bank depository account
Washington State Treasurer
Local Government Investment Pool, LGIP
Columbia Bank money market account
CITY OF TUKWILA
CASH & INVESTMENT REPORT
December 31, 2018
-Term
rt>
-cD Investment
Purchase Maturity 0 0 Book/Par Investment as a % of
Date Date Mos Mos Balance Yield Income Category
na $ 19,861,884 1,00% (ID) 58,300 35%
No fixed maturity
na or term; funds are 23,030,920 1,91% 762.000 40%
available within
na one day. 14,642,045 195% 280,300 25°/.
Cash & Cash Equivalents - Totals, Average 57,534,849 1 91%
1 100 600
100%
INVESTMENTS
Certificates of Deposit
Bank of Washington
Sound Community Bank
with reinvested earnings
6/2/2017 6/2/2019 24 5
3/4/2017 3/4/2019 24 2
250,000 1.40% 3,500 1%
3,288,311 1.40% 46,000 13%
CERTIFICATES OF DEPOSIT - Totals, Average 24 4 3,538,311 /.40% 49,500 14%
Agencies
Federal Farm Credit Bank 1/19/2016 12/21/2018 35 "natured 1,000,000 1,20% 12,000 0%
Federal Home Loan Mtg Corp 5/25/2016 5/25/2018 24 matured 1,000,000 0.91M0 3.800 0%
Federal Farm Credit Bank, FFCB 12/27/2016 12/27/2019 36 12 1,000,000 1.70% 17,000 4%
Federal Agricultural Mortgage Corp, Farmer Mac 1/23/2017 7/23/2019 30 7 1,000,000 1.40% 14,000 4%
Federal Home Loan Bank 1/30/2017 1/30/2019 24 1 1,000,000 1.29% 13,000 4%
Federal Farm Credit Bank, FFCB 3/20/2017 3/20/2019 24 3 2,000,000 1,45% 29,000 8%
Federal Agricultural Mortgage Corp, Farmer Mac 8/2/2017 8/2/2019 24 7 2,500,000 1,45% 37,000 10%
Federal Home Loan Bank, FHLB 8/28/2017 8/20/2020 35 20 2,300,000 1.65M0 38,000 9%
Federal National Mortgage Association, FNMA 8/28/2017 10/9/2019 25 9 2,400,000 1.60% 38.000 10e/o
zero coupon
Federal Home Loan Bank, FHLB 9/11/2017 6/29/2020 33 18 1,700,000 1,62% 26,000 70/
Federal Farm Credit Bank, FFCB 9/12/2017 5/9/2022 55 40 2,000,000 2.03°/o 39,000 8%
AGENCIES - Totals. Average 31 13 15,900,000 /.68% 266,800 63%
Taxable Municipal Bonds
UW Biomedical Center 12/14/2010 7/1/2019 103 6 500,000 4.05% 24,000 2%
Douglas County, ESD 12/23/2010 12/1/2020 119 23 (a) 780,000 4.55% 48,000 3%
$355,000 redeemed on 12/3/18
Port of Anacortes 12/17/2010 9/1/2020 116 20 340,000 5.00% 17,000 1%
City of Auburn BABs 6/14/2017 12/1/2019 30 11 300,000 1.65% 6,000 1%
Seattle UTGO 6/14/2017 11/1/2019 29 10 380,000 1.45% 6,000 20/v
Port of Tacoma 9/6/2017 12/1/2020 39 23 510,000 1.63% 9,000 2%
Port of Seattle, pre -funded 8/29/2017 5/1/2019 20 4 2,000,000 1,50% 32,000 8%
Multnomah County zero coupon 8/30/2017 6/1/2021 45 29 500,000 2.05% 10,000 2%
City of Burien, callable 6/1/20 12/21/2017 6/1/2020 29 17 (a) 500,000 2.25% 12,000 2%
MUNICIPAL BONDS - Total's, Average
Total Investrnerds
59 /6
38 11
5,810,000 2 82%
25,248,311 1,90%
164,000 23%
480,300 100M.
TOTAL CASH, CASH EQUIVALENTS & INVESTMENTS $ 82,783,160
Data as of February 4, 2019.
(a) On calleable bonds, term is calculated to final maturity even though call date may occur first; on
sinking fund bonds, average maturity is used to calculate term.
(b) Represents earning credit from US Bank towards payment of bank fees; rate was .45% prior to October 2018.
1,91%
$ 1,580,900
Current Portfolio Yield
69
CITY OF TUKWILA
Policy Compliance & Liquidity Analysis
CASH & INVESTMENT REPORT
December 31, 2018
Liquidity Analysis & Maturity Diversification
Funds immediately available - US Bank,
State LGIP, Money market
Fixed Maturity Investments, maturing in:
0-90 days after Report Date
91-180 days after Report Date
181-270 days after Report Date
271-360 days after Report Date
Investments maturing in 1 year or less 2019
Investments maturing in 1-2 years 2020
Investments maturing in 2-3 years 2021
Investments maturing in 3-4 years 2022
Investments maturing in 7-10 years 2023
Investments maturing in more than 1 year
and less than 10 years.
TOTALS
Portfolio
Amount
Available
Within 1 Year
$ 57,534,849 $ 57,534,849
6,288,311
2,250,000
4,000,000
4,080,000
16,618,311
6,130,000
500,000
2,000,000
8,630,000
$ 82,783,160
16,618,311
$ 74,153,160
90%
As of Report Date
Available Available in
Within 5 5 - 10 Years
Years
$ 57,534,849
16,618,311
6,130,000
500,000
2,000,000
$ 80,783,160 $ 2,000,000
98% 3c/.
tttdtnnittfititttdanitttaeettMMtanitaiiaiediamititetlaitfitmmMtaiadaotttaeOriatuaitsidanoitmtimtitattfiMsimtnsneio
Paintiliettonsitaimantifitignfiiitatianimaintimfinattiallaineettlettatinatitittedie
Financial Institution Diversification
US Bank
Columbia Bank
Bank of Washington
Sound Community Bank
Investments in Financial Institutions
Investments in US Government and other
non -financial institutions
Total
Investment Mix
Depository
State Investment Pool
Money market
Certificate of Deposit
US Agency
Municipal Bonds
Total
Portfolio
Amount
$ 19,861,884
14,642,045
250,000
3,288,311
38,042,240
44,740,920
$ 82,783,160
Portfolio
Amount
19,861,884
23,030,920
14,642,045
3,538,311
15,900,000
5,810,000
82,783,160
% of Total
24.0%
17.7%
0.3%
4.0%
46.0'Y°
54.0%
100.0%
% of Total
24.0%
27.8%
17.7%
4.3%
19.2%
7.0%
100.0%
POLICY
MAXIMUM
50.0%
50.0%
50.0%
50.0%
POLICY
MAXIMUM
insured by PDPC
75.0%
insured by PDPC
insured by PDPC
75.0%
no limit specified in policy
Policy
Met?
Yes
Yes
Yes
Yes
Policy
Met?
Yes
Yes
Yes
Yes
Yes
Yes
1011118111111111111011111111111111601111111111111111161611111111111111111I
INNINSIONNIMENINNIONSINNININIVININNINININ
Weighted Average Maturites:
Certificates of deposit
Agencies
Municipal bonds
Total Investments
POLICY MAXIMUM
Policy Met?
Years
0.2
1.2
1.1
1.0
3.5
Yes
Note: Cash and cash equivalents are available within one day and are not
factored into the Total Investments weighted average maturity.
Performance Analysis
Current portfolio yield
Benchmarks:
6 month treasury
2 year treasury
1.91%
2.47%
2.49%
Local Govt Invst Pool 2.38%
70
3mo 1.39%
6mo 1.53%
1Yr 1.76%
2Yr 1.89%
3Yr 1.98%
5Yr 2.20%
10Yr 2.40%
30Yr 2.74%
CITY OF TUKWILA
Treasury Rates and Yield Curves
CASH & INVESTMENT REPORT
December 31, 2018
Rate %
Change Change
1.06% 43%
1.03% 40%
0.87% 33%
0.59% 24%
0.48% 20%
0.31% 12%
0.29% 11%
0.28% 9%
Source: US Department of the Treasury
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
3mo
6mo
1Yr
2Yr
3Yr
5Yr
10Yr
30Yr
2.45%
2.56%
2.63%
2.48%
2.46%
2.51%
2.69%
3.02%
Comparison of Treasury Rates
3 mo 6mo 1 yr 2 yr 3 yr 5 yr 10 yr 30 yr
t 12/31/2018
�- 12/31/2017
71
72