In a year Gov. Jay Inslee and other Democrats pledged to shut tax “loopholes” to help raise money for public schools, it appears the House and Senate are going to pass far more new or extended tax breaks into law than the two exemptions they are closing in response to court rulings on the estate tax and telecom services.
One might say tax breaks are still alive and well – perhaps even thriving – in Washington state. The Republican-steered Senate has made the exemptions a key demand in exchange for closing the telecom tax break.
The value of the 16 exemptions now moving through the Senate amid Friday’s rush to approve an operating budget is about $13. 3 million over the next two years and $14.7 million over the 2015-17 biennium. Details on the exemptions and costs are here. UPDATE: The latest version of the bill readied for a Friday night vote is here.
Sen. Andy Hill, the Redmond Republican who chairs the committee, sponsored the measure and said during a hearing Friday morning the tax breaks are intended to promote economic growth.
The exemptions range from sales of solar energy equipment to the customizing of large-jet interiors, internal business payroll preparation, sales of feed for honeybees and apiary transactions, blood testing by blood banks, clay targets used by gun ranges, propane used in mint oil manufacture, and some dairy product transactions.
But in exchange for the tax breaks, House Finance chairman Reuven Carlyle, D-Seattle, says the Senate has finally agreed to close the loophole created for telecom companies by a court ruling. Along with an estate-tax fix passed by lawmakers a few weeks ago, the two tax-exemption changes raise about $245 million in new net revenues for the budget.
Carlyle said he believes the compromise will move the state closer to the five-point test he laid out earlier this year for future tax breaks.
As an example of that tougher standard Carlyle is seeking, Hill’s bill for the first time includes language for a “claw back” provision - specifically on the “hog fuel” break for mills that use waste wood, known as hog fuel, to generate heat or electricity. The House had demanded that provision.
A claw back means the pulp, paper or lumber mill getting the tax break must repay the state for two years’ taxes if it shuts down, moves to another state or goes off shore.
The Senate Ways and Means Committee approved Senate Bill 5882 this morning and the measure was pulled from Rules to allow a floor vote as soon as today. But the measure’s transparency provisions – which had held up action on a state budget deal earlier in the week – were continuing to cause problems in both chambers this afternoon.
Until the tax bill is approved by the Senate and then the House, Carlyle says the Senate won’t accept the bill closing the telecom exemption on home phone service, which Internet- and mobile-phone based services are trying to exploit under court rulings.
And without telecom, action on the operating budget is stalled
TVW’s coverage of this morning’s Ways and Means hearing is here:
As outlined in committee the measures will be subject to expiration dates, clear intent and some level of scrutiny to see they are delivering what they promise.
A retinue of business interests testified in favor of the measures, including pulp-and-paper interests and workers who backed the hog-fuel exemption.
Carlyle sounded chagrined that so many exemptions were in the final bill. The House had agreed to approve only two of them – for the hog fuel and apiarists, whose hives are key to state agriculture but have been riven by a collapse disorder that is killing off many bees.
“The other ones I think it’s fair to say they range from the good the bad and the particularly ugly,’’ Carlyle said.
In remarks to the Senate committee this morning, Nick Federici of the Our Economic Future Coalition urged Hill to adopt stringent accountability for tax breaks. He specifically mentioned the standards passed by the House Finance Committee that require a tax break to prove that it is giving value to taxpayers and requires companies to disclose enough information about hires and worker pay that the state can fairly assess the benefits brought by the tax assistance.
“We think the public should be able to understand who’s getting the exemptions, how much and why … as we are digging a little bit deeper hole in the budget,’’ Federici said.
Hill chafed a little at that.
“We don’t like to think we are digging a hole in the budget but that we are providing economic growth and incentives,” Hill explained. “We are looking at getting some of that transparency language right now. If you’ll notice in all these … we have added metrics.’’