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Smell Test: Ads promoting I-1107 mostly fail

Post by Peter Callaghan / The News Tribune on Oct. 26, 2010 at 9:13 am | 8 Comments »
October 26, 2010 12:15 pm

What the ads say: Both the Yes on 1107 TV ads and the mailers sent to thousands of homes make several claims about a tax package the initiative would repeal.

A narrator (played by actor Michael Gregory) standing in grocery store dressed as grocer says “the new tax scheme the politicians in Olympia put on grocery items makes no sense.”
We’ll look at three of the issues raised in the ads.

– “They put new taxes on bottled water and other common beverages, on foods made with meat, fruits and vegetables…”
– “And under the politician’s absurd definition of candy, products like these organic nutrition bars (Belly Timber Survival Bars) are taxed, while real candy bars like these (Nestle’s Crunch and Twix) are exempt.”
– “Even worse, they put new taxes on food products made by Washington companies, like locally made chili and pancake mix but not on similar products made by their competitors in other states and countries.”

What the initiative will do:
the 2010 session of the state Legislature raised several taxes including five covered by I-1077. The tax package:
– removed candy from the list of products exempt from the sales tax permanently.
– removed bottled water from the list of products exempt from the sales tax until July 1, 2013.
– enacted an excise tax of two cents a can on carbonated beverages until July 1, 2013.
– clarified a tax on food processors that was effected by a 2005 state supreme court decision. The court ruled that processed foods that contain meat were eligible for a special tax break enacted in 1967 to help perishable meat processors.
– clarified a tax on food processors that might have triggered a similar supreme court ruling. The legislature stated that it did not intend that a tax break for perishable fruit and vegetable processors did not apply to manufacturers that put fruit and vegetables in processed foods.


Water, meats, fruits and vegetables: The Legislature definitely put a “new tax” on bottled water. Whether the clarification of the meat processor tax is a new tax is subject to debate and definition. Manufacturers like Tacoma’s Nalley’s will pay a higher business and occupation tax for its products that contain meat. But the state argues they should have been paying that tax all along and were not eligible for the tax break, despite what the supreme court ruled.

Calling the tax on processed products containing fruits and vegetables a “new tax” is a stretch, however. Yes, the legislature clarified that processed foods such as the blueberry pancake mix used in the ad should pay the higher rate. But those manufacturers have always been paying that rate as none filed suit like Nalley’s did claiming they deserved the tax break for perishable fruits and vegetables.

It is worth noting that none of these food products are subject to the sales tax charged in the stores. Instead they pay a business and occupation tax directly to the state.

Absurd definition of candy: The state did need to come up with a definition of candy. But the politicians didn’t do it, the bureaucrats did by adopting a definition arrived at the Streamlined Sales Tax Governing Board. That is the national group charged with bringing uniformity to the states’ application of sales taxes – something that helps manufacturers who sell in more than one state.

But to tell candy from cookies, the group had to come up with a way to distinguish and came up with flour. If a product is make with flour from grain (as opposed to soy beans), they are not candy.

That does, as the ad asserts, lead to some absurd decisions like those cited by the narrator. Twix bars have a cookie inside made with flour. Crunch bars crunch because of the rice puffs inside. And that Belly Timber survival bar has small amounts of soy flour which doesn’t count.

But opponents of the initiative point out that the Belly Timber isn’t exactly health food. Compared to a Snickers Bar, the Belly Timber has more calories, more fat, more saturated fat and nearly the same carbohydrates. (It does, however, have less sodium, less sugars and much-more fiber).

In-state vs. out-of-state: The business and occupation tax on manufacturers – like all B&O tax rates – applies to companies with a physical presence in the state. So the clarified tax on processed meats applies to Nalley’s but not a competitor in another state which would violate the U.S. Constitution.

But those states charge their own array of taxes on their own manufacturers such as income taxes which Washington does not have. Washington does have a business and occupation tax on wholesaling and retailing once those products enter commerce in the state.

Bottom Line: The ad – part of the campaign funded by the American Beverage Association – effectively touches on issues that are sure to get voters attention while mentioning pop just once. But it has a lot of shortcomings in the fact department. It doesn’t make clear the differences between products that might be assessed the sales tax and the products that pay other business taxes.

The claims about “locally made chili” are deceptive and the claim of a new tax on “pancake mix” is just incorrect.

And the vast majority of food and beverage items in grocery stores will remain exempt from the sales tax whether I-1107 passes or not.

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