Fiscal Note — SB 5689, Sales and Use Tax Exemption for Internet Infrastructure (Department of Revenue)
Summary
Individual State Agency Fiscal Note for SB 5689, an act relating to providing a sales and use tax exemption related to internet and telecommunications infrastructure projects involving a federally recognized Indian tribe, from the Department of Revenue. Part I estimates cash receipts of (21,900,000) for the GF-State Retail Sales Tax and (600,000) for the Performance Audit Retail Sales Tax for 2023-2025, totaling (22,500,000). It estimates GF-State expenditures of 193,300 for 2023-2025. A revenue impact detail lists the amounts by fiscal year and by biennium.
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“Fiscal Note — SB 5689, Sales and Use Tax Exemption for Internet Infrastructure (Department of Revenue).”
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Individual State Agency Fiscal Note
Bill Number: SB 5689 Bill Title: AN ACT Relating to providing a sales and Agency: 140
use tax exemption related to internet and Department of Revenue
telecommunications infrastructure projects
involving a federally recognized Indian tribe
Part I: Estimates
[ ] No Fiscal Impact
Estimated Cash Receipts to:
Fund Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
GF-State Retail Sales Tax (6,400,000) (15,500,000) (21,900,000) (12,900,000)
Performance Audit Retail Sales
(200,000) (400,000) (600,000) (300,000)
Tax
Total (6,600,000) (15,900,000) (22,500,000) (13,200,000)
Estimated Expenditures from:
Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
FTE Staff Years .7 .1 .4 .1 .1
Fund
GF-State 001 182,200 11,100 193,300 22,000 22,000
Total 182,200 11,100 193,300 22,000 22,000
The revenue and expenditures estimates on this page represent the most likely fiscal impact. Factors impacting the precision of
these estimates, and alternate ranges (if appropriate), are explained in Part II.
Check applicable boxes and follow corresponding instructions:
[X] If fiscal impact is greater than $50,000 per fiscal year in the current biennium or in subsequent
biennia, complete entire fiscal note form Parts I-V.
[ ] If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia,
complete this page only (Part I).
[ ] Capital budget impact, complete Part IV.
[ ] Requires new rule making, complete Part V.
Legislative Contact: JEFF MITCHELL Phone: 360-786-7139 Date: 2/6/2023
Agency Preparation: Taylor Culp Phone: (360) 534-1511 Date: 2/7/2023
Agency Approval Valerie Torres Phone: (360) 534-1521 Date: 2/8/2023
OFM Review: Phone: Date:
OFM Form FN (10/95)
Fiscal Note # 5689-1
Bill # SB 5689
1
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
CURRENT LAW:
Businesses performing construction both in and outside Indian country only exclude sales tax from the portion of the
contract that relates to work done in Indian country. If the business is performing work for a tribe or enrolled tribal
member/citizen outside of their Indian country, for example road work that extends outside of Indian country, the business
must collect and pay retail sales tax on the portion of work performed outside Indian country.
PROPOSAL:
This bill provides a sales and use tax exemption for sales, labor and services associated with the construction of a
qualified infrastructure project (QIP).
The exemption applies to:
- Sales of building materials
- Telecommunications equipment
- Personal property used or incorporated into a qualified infrastructure project
- Charges made for the labor and services related to the construction of a QIP
- The installation of any equipment or other personal property incorporated into a QIP
The taxpayer must apply to the Department of Revenue (department) for an exemption certificate. The application must
include the information necessary, as required by the department, to determine that the taxpayer qualifies for the
exemption. The application must also include certification from the owner of the QIP that the taxpayer is associated with
the QIP.
The exemption certificate is effective from the date the department receives the application, which is the date of issuance.
No tax refunds are authorized for purchases made before the effective date of the exemption.
The exemption certificate expires on the date the QIP owner certifies the project as complete or December 31, 2028,
whichever is first.
Qualified infrastructure project means the construction of buildings and utilities related to the deployment of modern
global internet and telecommunications infrastructure that occurs in part in a distressed county located on the coast of
Washington.
Qualified infrastructure project owner means a federally recognized tribe and an indigenous-owned business entity
deploying an internet and telecommunications infrastructure in at least one distressed county on the coast of Washington.
This exemption expires December 31, 2029.
EFFECTIVE DATE:
The bill takes effect 90 days after final adjournment of the session. However, due to the time it will take to program this
bill's changes, the department is unable to implement the bill until January 1, 2024.
II. B - Revenue Impact
ASSUMPTIONS:
- A new Cable Landing Station (CLS) will be built in Grays Harbor County on the northwest coast of the United States.
- The average cost of a CLS is between $250 - $800 million, the CLS in Washington will cost $550 million.
OFM Form FN (10/95)
Fiscal Note # 5689-1
Bill # SB 5689
2
- All the infrastructure is not on tribal land.
- One project begins in early 2024 and is completed by the end of 2025.
- Local revenue estimates use the Grays Harbor County average local sales and use tax rate of 2.49%.
- The department implements this legislation January 1, 2024, impacting five months of collections in fiscal year 2024.
DATA SOURCES:
- Toptana Technologies. (2022, October 26). New cable landing station to be built on Quinault land in northwest US.
www.toptanatech.com. https://www.toptanatech.com/blog/dcd-new-cable-landing-station
- Various CLS articles involving costs
REVENUE ESTIMATES:
This bill decreases state revenues by an estimated $6.6 million in the five months of impacted collections in fiscal year
2024, and by $15.9 million in fiscal year 2025, the first full year of impacted collections.
This bill also decreases local revenues by an estimated $2.5 million in the five months of impacted collections in fiscal
year 2024, and by $6.1 in fiscal year 2025, the first full year of impacted collections.
TOTAL REVENUE IMPACT:
State Government (cash basis, $000):
FY 2024 - ($ 6,600)
FY 2025 - ($ 15,900)
FY 2026 - ($ 13,200)
FY 2027 - $ 0
FY 2028 - $ 0
FY 2029 - $ 0
Local Government, if applicable (cash basis, $000):
FY 2024 - ($ 2,500)
FY 2025 - ($ 6,100)
FY 2026 - ($ 5,100)
FY 2027 - $ 0
FY 2028 - $ 0
FY 2029 - $ 0
II. C - Expenditure Impact
ASSUMPTIONS:
Expenditures assume this bill affects 10 taxpayers performing construction services on qualified infrastructure projects.
FIRST YEAR COSTS:
The department will incur total costs of $182,200 in fiscal year 2024. These costs include:
Labor Costs – Time and effort equate to 0.7 FTE.
- Adopt one new excise tax advisory.
- Set up, program, and test computer system changes.
- Process applications, issue exemption certificates, examine accounts and make corrections as necessary, process
refund requests, and monitor reports.
Object Costs - $99,100.
OFM Form FN (10/95)
Fiscal Note # 5689-1
Bill # SB 5689
3
- Computer system changes, including contract programming.
- Travel cost for meetings.
SECOND YEAR COSTS:
The department will incur total costs of $11,100 in fiscal year 2025. These costs include:
Labor Costs – Time and effort equate to 0.1 FTE.
- Continued computer system testing, monitoring, and maintenance.
Object Costs - $100.
- Travel cost for meetings.
ONGOING COSTS:
Ongoing costs for the 2025-27 biennium equal $22,000 and include similar activities described in the second-year costs.
Time and effort equate to 0.1 FTE.
Part III: Expenditure Detail
III. A - Expenditures by Object or Purpose:
Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
Salaries and Wages 51,100 7,300 58,400 14,600 14,600
Benefits 16,800 2,400 19,200 4,800 4,800
Personal Service Contracts 99,000 99,000
Supplies & Material 10,500 1,000 11,500 2,000 2,000
Travel 100 100 200
Office Equipment 4,700 300 5,000 600 600
Total 182,200 11,100 193,300 22,000 22,000
III. B - FTE Detail:
Job Classification Salary FY 2024 FTEs FY 2025 FTEs 2023 - 2025 Total 2025 - 2027 2027 - 2029
EMS BAND 4 126,619 .01 .01
EMS BAND 5 147,919 .01 .01
EXCISE TAX EX 3 61,632 .1 .05
IT SYS ADM-JOURNEY 92,844 .1 .05
MGMT ANALYST4 73,260 .4 .1 .25 .1 .1
TAX POLICY SP 2 75,120 .01 .01
TAX POLICY SP 3 85,020 .05 .03
TAX POLICY SP 4 91,524 .01 .01
WMS BAND 3 107,685 .01 .01
Total .7 .1 .43 .1 .1
III. C - Expenditures by Program (optional):
Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
Total
OFM Form FN (10/95)
Fiscal Note # 5689-1
Bill # SB 5689
4
Part IV: Capital Budget Impact
None.
Part V: New Rule Making Required
OFM Form FN (10/95)
Fiscal Note # 5689-1
Bill # SB 5689
5
Revenue Impact Detail
First Biennium Second Biennium Third Biennium
FUND SOURCE CODE 1st YEAR 2nd YEAR 3rd YEAR 4th YEAR 5th YEAR 6th YEAR
GF-State Retail Sales Tax 0101 (6,400,000) (15,500,000) (12,900,000)
Total (6,400,000) (15,500,000) (12,900,000)
OTHER
Performance Audit Retail Sales Tax 0101 (200,000) (400,000) (300,000)
Total (200,000) (400,000) (300,000)
Net (6,600,000) (15,900,000) (13,200,000)
Revenue Impact - by Biennium
FUND SOURCE CODE 1st Biennium 2nd Biennium 3rd Biennium
GF-State Retail Sales Tax 0101 (21,900,000) (12,900,000)
Total (21,900,000) (12,900,000)
OTHER
Performance Audit Retail Sales Tax 0101 (600,000) (300,000)
Total (600,000) (300,000)
Net (22,500,000) (13,200,000)
OFM Form FN (10/95)
Fiscal Note # 5689-1
Bill # SB 5689
6
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