Which state tax breaks should be ditched or kept? Audit review committee suggests these…

One of the hot topics from the 2011 Legislative Session sure to resurface next year is what to do about the state’s various tax preferences. To assist the Legislature in answering this question, in 2006 lawmakers adopted HB 1069 which set up the Citizen Commission for Performance Measurement of Tax Preferences administered by the Joint Legislative Audit Review Committee (JLARC). WPC’s Vice President for Research Paul Guppy serves on the commission.

Today, JLARC released the commission’s 2011 tax preference report. Of the 25 tax preferences reviewed, JLARC recommends the Legislature:

Terminate one tax preference:

  • Repaired Goods Delivered Out-of-State (Sales Tax) – $0

Allow two tax preferences to expire:

  • Hog Fuel to Produce Energy (Sales & Use Tax) – $2.9 million
  • Renewable Energy Machinery (Sales & Use Tax) – $40.9 million

Review and/or clarify the intent of eight tax preferences

  • Aircraft Fuel Tax, Export and Commercial Use (Aircraft Fuel Tax) – $299.9 million
  • Extracted Fuel (Use Tax) – $69.2 million
  • Interest on Real Estate Loans (Business & Occupation Tax) – $172.6 million
  • Limited Income Property Tax Deferral (Property Tax) – $271 thousand
  • Meat Processors (Business & Occupation Tax) – $30.5 million
  • Municipal Sewer Charges (Business & Occupation Tax) – $3 million
  • Nonprofit Sheltered Workshops (Property Tax) – $4.4 million
  • Shared Real Estate Commissions (Business & Occupation Tax) – $36 million

Continue 14 tax preferences:

  • Boat Sales to Nonresidents/Foreign Residents (Sales Tax) – $13.7 million
  • Church Camps (Property Tax) – $6.9 million
  • Display Items for Trade Shows (Use Tax) – $5 million
  • Interest from State and Municipal Obligations (Business & Occupation Tax) – $1.8 million
  • Interstate Bridges (Property and Other Taxes) – $29 million
  • Investment of Businesses in Related Entities (Business & Occupation Tax) – $14.4 million
  • Laundry Services for Nonprofit Health Care Facilities (Sales Tax – $8.8 million
  • Nonprofit Blood and Tissue Banks (Property Tax) – $6.1 million
  • Nonprofit Day Care Centers (Property Tax) – $15.8 million
  • Open Space Compensating Tax (Property Tax) – $3.9 million
  • Real Estate Excise Tax Exemptions (Real Estate Excise Tax) – $1.4 billion
  • Sales of Goods to Certain Nonresidents for Use Outside the State (Sales Tax) – $58 million
  • Sales or Use Tax Paid in Another State (Use Tax) – $1 million
  • State-Chartered Credit Unions (Business & Occupation Tax) – $60.9 million

Here is the report’s methodology according to JLARC:

“JLARC staff analyzed the following evidence in conducting these reviews: 1) legal and public policy history of the tax preferences; 2) beneficiaries of the tax preferences; 3) government data pertaining to the utilization of these tax preferences and other relevant data; 4) economic and revenue impact of the tax preferences; and 5) other states’ laws to identify similar tax preferences.

Staff placed particular emphasis on the legislative history of the tax preferences, researching the original enactments as well as any subsequent amendments. Staff reviewed state Supreme Court, lower court, or Board of Tax Appeals decisions relevant to each tax preference. JLARC staff conducted extensive research on other state practices using the Commerce Clearing House database of state laws and regulations.

Staff interviewed the agencies that administer the tax preferences or are knowledgeable of the industries affected by the tax (the Department of Revenue, the Department of Licensing, the Department of Transportation, and the Department of Financial Institutions). These parties provided data on the value and usage of the tax preference and the beneficiaries. JLARC staff also obtained data from other state and federal agencies to which the beneficiaries are required to report.”

A hearing on the report has been scheduled for Wednesday, July 20, at 10:00 a.m. in Senate Hearing Room 4.

 

Jason Mercier is the director of the Center for Government Reform at the Washington Policy Center. He serves on the Executive Committee of the American Legislative Exchange Council’s Tax and Fiscal Policy Task Force and is the private sector chairman of ALEC’s Fiscal Federalism Working Group. He is a contributing editor of the Heartland Institute’s Budget & Tax News, serves on the board of the Washington Coalition for Open Government, and was an advisor to the 2002 Washington State Tax Structure Committee. In June 2010, Governor Gregoire appointed Jason as WPC’s representative on her Fiscal Responsibility and Reform Panel. Jason holds a Bachelor’s degree in Political Science from Washington State University.

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