Sales tax question remains unsolved

OLYMPIA — The House rebuffed the Senate’s latest tax proposal Saturday, approving a plan without a sales tax increase that continues to foment division between the chambers.

House Democrats, on a 53-42 vote, squeezed through an assortment of revenue raising measures crafted into a proposal and brought to them by Gov. Chris Gregoire.

Senate Democrats don’t like this counter to the package they sent the House late Friday, one which depends on a two-tenths of a cent increase in the sales tax.

With competing proposals in hand, Democratic leaders sent lawmakers home today except those negotiating agreements on a budget and tax package that can end the week-old special session.

Rep. Marko Liias, D-Edmonds, isn’t part of the talks but felt Saturday’s action in the House pushed the Legislature closer to completion.

“That represents hopefully a compromise position on revenue,” he said. “We’re at a point where this isn’t going to take 30 days. It will take maybe two or three more days, and we’ll finish with a product we can all be proud of.”

The House, Senate and governor are scrapping over ways to plug a $2.8 billion hole in the budget that runs through June 2011.

Democrats, as the majority party, are the ones deciding what spending to cut, reserves to tap and taxes to increase.

The House and Senate have agreed on a target of $800 million in new revenue from taxes and fees. They also agree on a handful of exemptions to end, loopholes to close, a higher tax on cigarettes and the addition of sales tax on bottled water.

They are at odds on the sales tax: The Senate counts on it for about $213 million. The House comes up with about the same amount through other means of tax changes that several in the Senate have argued against.

Senate Democrats on Friday scaled back their sales tax increase from three-tenths to two-tenths in hopes of winning House support for that route.

That same day Gregoire, who doesn’t favor a sales tax, delivered her proposal to both chambers.

Rep. Ross Hunter, D-Medina, chairman of the House Finance Committee, described it as an “honest attempt” to find the “center point of where the House has been and where the other body has been.”

The House vote appears to align that chamber and the governor against the Senate on the sales tax. Yet several lawmakers said privately Saturday it’s far from over and they won’t be surprised to see a sales tax increase in the final package.

Representatives said they believe more senators will dig in harder against the House plan than House members will to block a small increase in the sales tax.

Also, Gregoire has not said she will veto a sales tax increase, and they interpret her silence as an admission she will accept it as a last resort for agreement.

Backers of a sales tax in the House continue to talk it up as the pragmatic path to concluding the special session. But they still need to sway the most powerful opponent of the idea in the House, Speaker Frank Chopp, D-Seattle, and he may prove the most difficult hurdle.

For now, the House has its plan approved Saturday to generate $691 million from an array of elements long part of the Legislature’s tax debate.

It doesn’t tax elective cosmetic surgery, candy or gum as proposed earlier. It does levy an excise tax on the value of airplanes built since 1970 and doubles the fee charged on those built before then.

It would require Oregon residents pay the sales tax and applies at tax on custom-made software programs. Some banks would start paying taxes on interest earned from first mortgages.

The largest sum would come from a hike in the tax rate paid by professional services including lawyers, accountants, barbers, real estate agents and others.

“There are some pieces of that proposal we have issues with,” said Senate Majority Leader Lisa Brown, D-Spokane.

Ending the tax exemptions for out-of-state residents and banks and charging sales tax on custom software are nonstarters with several in her caucus, she said.

“Once you take the things out of that package that don’t fly over here, you don’t get to $800 million,” she said.

Reporter Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com

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