Governor signs bill to end bleeding of millions in sales taxes in “underground” construction industry

Rep. Ross Hunter says legislation levels playing field for the good guys and ensures sales tax evasion no longer an easy option

May 19, 2009

Olympia, WA – Today the Governor signed legislation that will crack down on fraudulent use of sales tax exemptions for builders and contractors, a long-standing, $31 million issue in Washington’s underground economy that puts honest contractors at a steep disadvantage.

Contractors who misuse their tax exemptions use the cost advantage to undercut competitors who play by the rules and the Washington State Department of Revenue estimates that about $31 million in state and local sales taxes are lost each year as a result. SB 6173 seeks to drastically reduce the fraud and abuse of resale certificates, the piece of paper that allows a person to complete a purchase without paying sales tax.

“Sales tax evasion has been too easy for too long. Tens of thousands of contractors are using resale certificates to get out of paying sales taxes, either for materials on projects that don’t qualify for the tax exemption or for personal purchases,” says State Rep. Ross Hunter (D-Medina). “The good guys in the building industry can’t compete against an almost ten-percent cost advantage and the bad guys walk away with millions in taxpayer money.”

The state Department of Revenue released a report in 2008 that estimates more than $123 million in sales tax revenue is lost annually due to non-compliance of sales tax regulations. The construction industry accounts for about $31 million of that, though other industries contribute heavily as well, including the retail industry which accounts for losses of more than $56 million.

Hunter, who chairs the House Finance Committee, played a critical role in reworking the legislation to ensure that builders and contractors were satisfied with the proposed changes. The new system proposed by Hunter essentially replaces the current resale certificate that allows virtually anyone to claim an instant sales tax deduction on any purchase to a new system that requires businesses to complete a more rigorous application process for a seller’s permit.

“We owe Representative Hunter a real debt of gratitude for taking quick action on this bill,” says John Day, President of the Master Builders Association. “He listened to our concerns and was able to orchestrate amending a very bad bill into a law that can work for the business community.”

“AGC members very much appreciate Rep. Hunter’s willingness to acknowledge and address the serious problems that the original version of SB 6173 would have caused for contractors who legitimately meet their tax obligations,” said Rick Slunaker, Government Affairs Director for Associated General Contractors of Washington. “The proposal received little critical examination in its preparation and consideration by the Senate. It was essential that the House take the time to understand the negative effect it would have had on honest contractors. Rep. Hunter’s changes to the bill will help the State achieve its goals while not needlessly burdening honest contractors with unworkable and costly new requirements. AGC appreciates Rep. Hunter’s efforts to fix the legislation, and his commitment to assure its successful implementation.”

Hunter says he wants the new system works for everyone and will work closely with builders, contractors and the Department of Revenue to address any problems or issues that come up over the next year, including sponsoring legislation in the 2010 legislative session if needed.

# # #