Fiscal Note — SB 5483, Classification of Digital Processing Services (Department of Revenue)
Summary
Department of Revenue fiscal note for SB 5483, an act relating to classification of digital processing services. The note states that the bill extends the sales and use tax exemptions for sales to a business of digital goods purchased solely for business purposes to include digital automated services purchased by a financial institution solely for business purposes. It estimates total cash receipts of (93,320,000) and expenditures of 37,900 for 2023-2025. The note says some uncertainty exists as to when a particular transaction involves digital automated services.
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“Fiscal Note — SB 5483, Classification of Digital Processing Services (Department of Revenue).”
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Individual State Agency Fiscal Note
Bill Number: SB 5483 Bill Title: AN ACT Relating to classification of Agency: 140
digital processing services Department of Revenue
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 (10,330,000) (12,960,000) (23,290,000) (27,810,000) (30,550,000)
GF-State Use Tax (31,010,000) (38,870,000) (69,880,000) (83,430,000) (91,650,000)
Performance Audit Retail Sales
(20,000) (20,000) (40,000) (40,000) (50,000)
Tax
Performance Audit Use Tax (50,000) (60,000) (110,000) (140,000) (150,000)
Total (41,410,000) (51,910,000) (93,320,000) (111,420,000) (122,400,000)
Estimated Expenditures from:
Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
FTE Staff Years .27 .1 .19
Fund
GF-State 001 29,300 8,600 37,900
Total 29,300 8,600 37,900
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: CLINTON MCCARTHY Phone: 360-786-7319 Date: 1/24/2023
Agency Preparation: Taylor Culp Phone: (360) 534-1511 Date: 1/23/2023
Agency Approval Valerie Torres Phone: (360) 534-1521 Date: 1/25/2023
OFM Review: Phone: Date:
OFM Form FN (10/95)
Fiscal Note # 5483-1
Bill # SB 5483
1
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
CURRENT LAW:
Retail sales tax is due on retail sales of digital goods, digital automated services (DAS), digital codes, and services
provided by the seller exclusively in connection with these products. However, the tax does not apply to the sale to a
business of digital goods, and services rendered in respect to digital goods, if the digital goods and services rendered in
respect to digital goods are purchased solely for business purposes. This exemption also applies to the sale to a business of
a digital code if all the digital goods obtained with the code are used solely for business purposes.
Payment processing services, such as electronic credit card processing activities, and data processing services are
excluded from the definition of "digital automated services" and are not included within the definition of “retail sale” for
sales tax purposes. As a result, payment processing and data processing services are not subject to retail sales tax.
The retail sale of two or more items for one nonitemized price (a “bundled transaction”) is generally subject to retail sales
tax if the retail sale of any of the items included in the bundled transaction would be subject to retail sales tax. Thus, while
a stand-alone sale of data processing or payment processing services is not subject to retail sales tax, a bundled transaction
involving data processing or payment processing services and a product that is subject to retail sales tax, such as
prewritten computer software, would be subject to retail sales tax.
PROPOSAL:
This bill extends the sales and use tax exemptions for sales to a business of digital goods purchased solely for business
purposes to include digital automated services purchased by a financial institution solely for business purposes.
"Financial institution" means a bank, trust company, mutual savings bank, savings and loan association, or credit union
authorized to do business and accept deposits in this state under state or federal law.
The new tax preference performance provisions do not apply to this bill (see section 4 of the bill).
EFFECTIVE DATE:
The bill takes effect 90 days after final adjournment of the session.
II. B - Revenue Impact
ASSUMPTIONS:
- Some uncertainty exists on the part of DAS vendors and financial institutions as to when a particular transaction
involves digital automated services (DAS). As a result, some vendors may not be collecting retail sales tax from financial
institutions on sales of DAS, and financial institutions may not be paying the use tax on some purchases of DAS.
- Washington-chartered banks pay retail sales tax or use tax on purchases of DAS.
- Out-of-state banks paying use tax to Washington pay either retail sales tax or use tax on purchases of DAS.
- Out-of-state banks not paying use tax to Washington are also not paying retail sales tax on purchases of DAS used in
Washington. This estimate does not include the impact from exempting these taxpayers.
- Twenty-five percent of use tax paid by credit unions is for DAS purchases.
- Multiplying taxable income reported for business and occupation tax purposes under the service and other activities
classification by 7.29% determines the bank's estimated DAS purchases. Audit data informed the ratio of DAS purchases
in relation to a bank’s Washington business activity.
- This estimate assumes the legislation is effective July 21, 2023, and is implemented on August 1, 2023.
- Local revenue estimates use the statewide average local sales and use tax rate of 2.9231%.
OFM Form FN (10/95)
Fiscal Note # 5483-1
Bill # SB 5483
2
DATA SOURCES:
- Department of Revenue excise tax return and audit data
- Economic and Revenue Forecast Council November 2022 forecast
REVENUE ESTIMATES:
This bill decreases state revenues by an estimated $41.4 million in the 10 months of impacted collections in fiscal year
2024, and by $51.9 million in fiscal year 2025, the first full year of impacted collections.
This bill also decreases local revenues by an estimated $18.6 million in the 10 months of impacted collections in fiscal
year 2024, and by $23.3 in fiscal year 2025, the first full year of impacted collections.
TOTAL REVENUE IMPACT:
State Government (cash basis, $000):
FY 2024 - ($ 41,410)
FY 2025 - ($ 51,910)
FY 2026 - ($ 54,370)
FY 2027 - ($ 57,050)
FY 2028 - ($ 59,870)
FY 2029 - ($ 62,530)
Local Government, if applicable (cash basis, $000):
FY 2024 - ($ 18,630)
FY 2025 - ($ 23,340)
FY 2026 - ($ 24,450)
FY 2027 - ($ 25,660)
FY 2028 - ($ 26,920)
FY 2029 - ($ 28,120)
II. C - Expenditure Impact
ASSUMPTIONS:
This legislation will affect 315 financial institutions.
FIRST YEAR COSTS:
The department will incur total costs of $29,300 in fiscal year 2024. These costs include:
Labor Costs - Time and effort equate to 0.28 FTE.
- Create a Special Notice to inform affected taxpayers of the reporting change.
- Update or create publications in print and information on the department’s website.
- Respond to tax ruling requests and email inquiries.
- Process tax return work items, assist taxpayers with reporting questions, and respond to inquiries via email, web
message, and paper correspondence.
- Examine accounts and make corrections as necessary.
SECOND YEAR COSTS:
The department will incur total costs of $8,600 in fiscal year 2025. These costs include:
Labor Costs - Time and effort equate to 0.1 FTE.
OFM Form FN (10/95)
Fiscal Note # 5483-1
Bill # SB 5483
3
- Process tax return work items, assist taxpayers with reporting questions, and respond to inquiries via email, web
message, and paper correspondence.
- Examine accounts and make corrections as necessary.
ONGOING COSTS:
There are no ongoing costs.
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 17,900 5,600 23,500
Benefits 5,900 1,800 7,700
Supplies & Material 3,700 900 4,600
Office Equipment 1,800 300 2,100
Total 29,300 8,600 37,900
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
EXCISE TAX EX 2 55,872 .1 .1 .1
MGMT ANALYST4 73,260 .01 .01
TAX POLICY SP 2 75,120 .1 .05
TAX POLICY SP 3 85,020 .03 .02
TAX POLICY SP 4 91,524 .01 .01
WMS BAND 3 107,685 .01 .01
Total .27 .1 .21
III. C - Expenditures by Program (optional):
Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
Total
Part IV: Capital Budget Impact
None.
Part V: New Rule Making Required
Should this legislation become law, the department will use the expedited rulemaking process to amend WAC 458-20-
146, titled: “National and state banks, mutual savings banks, savings and loan associations and other financial institutions”
and WAC 458-20-15503, titled: “Digital products.”
Persons affected by this rulemaking would include financial institutions who will benefit from the expanded exemption.
OFM Form FN (10/95)
Fiscal Note # 5483-1
Bill # SB 5483
4
OFM Form FN (10/95)
Fiscal Note # 5483-1
Bill # SB 5483
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 (10,330,000) (12,960,000) (13,570,000) (14,240,000) (14,950,000) (15,600,000)
GF-State Use Tax 0110 (31,010,000) (38,870,000) (40,710,000) (42,720,000) (44,830,000) (46,820,000)
Total (41,340,000) (51,830,000) (54,280,000) (56,960,000) (59,780,000) (62,420,000)
OTHER
Performance Audit Retail Sales Tax 0101 (20,000) (20,000) (20,000) (20,000) (20,000) (30,000)
Performance Audit Use Tax 0110 (50,000) (60,000) (70,000) (70,000) (70,000) (80,000)
Total (70,000) (80,000) (90,000) (90,000) (90,000) (110,000)
Net (41,410,000) (51,910,000) (54,370,000) (57,050,000) (59,870,000) (62,530,000)
Revenue Impact - by Biennium
FUND SOURCE CODE 1st Biennium 2nd Biennium 3rd Biennium
GF-State Retail Sales Tax 0101 (23,290,000) (27,810,000) (30,550,000)
GF-State Use Tax 0110 (69,880,000) (83,430,000) (91,650,000)
Total (93,170,000) (111,240,000) (122,200,000)
OTHER
Performance Audit Retail Sales Tax 0101 (40,000) (40,000) (50,000)
Performance Audit Use Tax 0110 (110,000) (140,000) (150,000)
Total (150,000) (180,000) (200,000)
Net (93,320,000) (111,420,000) (122,400,000)
OFM Form FN (10/95)
Fiscal Note # 5483-1
Bill # SB 5483
6
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