Oil refineries: Deserving of special tax treatment?
by John Stang
A refinery on Fidalgo Island near Anacortes (2008). Credit: 24hourmoon/Flickr
Should Washington's five oil refineries get a tax break for recycling used fuel internally? And how much would closing that tax break really hurt an oil refinery?
Those questions circulated around a Thursday hearing before the Washington House Finance Committee on a bill to close that exemption and spend the extra money on education. The refineries and the Association of Washington Business oppose the bill by Rep. Reuven Carlyle, D-Seattle and committee chair.
This is a resurrection of a bill that the Democrats wanted and Republicans blocked in the 2013. Last session, closing that exemption was estimated to provide almost $41 million in extra money for a budget biennium. This bill is part of Gov. Jay Inslee's call to close seven tax breaks to raise an extra $200 million to help the state comply with a 2012 Washington Supreme Court order to upgrade Washington's schools.
The 1949 exemption is for commercial byproducts that a plant uses internally for fuel. It was intended for "hog fuel," which is made from wood byproducts at sawmills and similar facilities. Washington's first oil refinery was set up in 1954."There is no evidence that (the exemption) was intended for oil refineries," Carlyle said.
However, Rep. Brandon Vick, R-Felida, pointed to the fact that no one tried to remove the oil refinery exemption over nearly the entire 60 years that the refineries have used it. "If it was there for 59 years, maybe the legislation was intended for oil refineries." Greg Hanon, representing the Western States Petroleum Association, argued that the Legislature could have specifically avoided exempting oil refineries in that 1949 bill if it intended refineries not to be covered.
Eric de Place, policy director for the Seattle-based Sightline Institute, testified that oil refineries account for 98 percent of the exemption's costs to the state compared to 2 percent by the wood industry and others targeted in 1949. He noted that in 2011 a bipartisan legislative committee tasked with reviewing each tax break every 10 years could find no public purpose for this particular exemption.
"I don't see it as a driver of economic activity, rather than an accident of the legislative process," de Place said.
Representatives from the oil refineries and their contractors contended that removing the tax break would make them less competitive than refineries in other states with such exemptions. The owners of the Washington refineries could move some of their business to those states, they said. They and Amber Carter of the AWB argued that oil refineries help diversify a Washington economy that is heavily dependend on Boeing and timber.
"It doesn't make sense to me when you tax something when you're recycling products," said Joe Wilson, vice president of Bellingham-based Pederson Brothers, which is a contractor that manufactures items for refineries.
The refineries pay about $260 million in overall taxes to the state annually. Hanon said. The Shell Oil refinery, with 460 full-time employees and 300 to 350 contractor workers, pays about $50 million annually in different categories of taxes, said the refinery's manager Tom Rizzo. Removing the recycled fuel exemption would add $5 to $7 million to its tax bill, he said.
Carlyle said there is currently no way to publicly determine whether adding a $5 million to $7 million tax would seriously hurt a single refinery. Right now, legislators, with the exception of the finance committee chairman and his Senate counterpart, cannot legally review financial information relating to tax exemptions that corporations want kept secret. Carlyle has a bill before the House Appropriations Committee that would make that exemption-related financial information publicly available.
Meanwhile, Pete Beaupain, a retired engineer from Auburn, said the refineries have been around for decades and are not laying off workers." There is no argument that the oil industry is a start-up struggling to survive. … Their main argument seems to be their sheer lobbying muscle," he said. Clallam County Commissioner Mike Daugherty said: "It's difficult for me to look at giving tax protections to oil companies in this era."
"We need the money for education," said Shawn Lewis, a lobbyist for the Washington Education Association.
For exclusive coverage of the state government, check out Crosscut's Under the Dome page.