Businesses attack House plan for tax break eliminations

Others argue that repeals would provide both fairness and much-needed revenue.
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Others argue that repeals would provide both fairness and much-needed revenue.

Almost every one of 14 tax-related measures to raise money to pay for K-12 education improvements in 2013-2015 drew criticism at a Friday public hearing by the Washington House Finance Committee.

Extending an expiring business-and-occupation tax on service firms: Slammed. Extending a beer tax: Bashed. Making out-of-state residents pay Washington sales tax: Pummeled.

Rep. Reuven Carlyle, D- Seattle and finance committee chairman, introduced a bill to close 12 tax exemptions and to extend the existing beer and service-related B&O taxes to raise roughly $1.3 billion. That would help pay for school improvements in 2013-2015 that are required by a Washington Supreme Court ruling. Closing the 12 exemptions plus a couple similar measures would raise $751 million for 2013-2015. Extending the soon-to-expire beer and B&O taxes would raise roughly $593 million for that biennium.

Carlyle's legislative focus has been on analyzing tax exemptions and closing those that cannot prove they are improving the economy. Washington has 640 tax exemptions covering many billions of dollars. Friday's hearing also addressed a rewrite of a Senate bill to tighten the monitoring on the effectiveness of tax exemptions.

Along with the criticisms, there was support for the House Democrats' package of tax extensions and abolition of tax breaks. "This is the right choice for the overall economy," said Andy Nicholas, representing the liberal-leaning Washington Budget and Policy Center, about the tax measures package.

Nick Federici, representing several social advocacy groups, testified: "Every bill [with exemptions passed by the Legislature] picks winners and losers. This bill does it more obviously. ... It simply reduces tax exemptions that gives one business an advantage over others."

Sharon Kitchel-Perdue of the Service Employees International Union Local No. 775 said: "The future of our children is worth paying a few extra pennies for a bottle of water or a can of beer." Kimberly Swenson, a Vancouver small business owner, noted her Battleground school district has had two levies fail and is trying for a third. The district faces being dissolved without state education funds provided by the tax-related package, she said.

Opponents zeroed in on the specific proposed tax measures that affected their professions.

"This puts the [education cost] obligations on the shoulders of business and people from out of state," said Amber Carter, representing the Association of Washington Business. Insurance agent Ted Trask, who faces extension of the service-related B&O tax, said, "By taxing the few, you're going to crippled a lot of small businesses."

"Driving a business like ours out of state won't help education," said Marjorie Hatter, manager of the Phillips 66 refinery at Ferndale. It is one of five refineries facing repeal of a 1949-enacted extract fuel exemption that would send another $40.8 million to the state in 2013-2015.

Meliessa Ogrodowski, representing the Red Hook Brewery, said extending a temporary beer tax increase would add roughly $1 to the price of a six-pack of beer. Carlyle said the expiring tax amounted to 14 cents per six-pack. Ogrodowski said the brewery mapped out its budget in recent years to factor in the extra tax expiring this year, and would need the end up the extra money to recoup past costs based on the expiration scenario.

Architects, insurance people, engineers and Realtors wanted the temporary B&O tax to die. Retailers wanted to keep the out-of-state resident's sales tax exemption. Marine and trucking firms and unions opposed repealing the stevedoring and interstate commerce exemptions. The Washington Farm Bureau opposed the entire tax-related package. Beverage and bottled water interests wanted to keep the bottled water exemptions.

Committee member Rep. Cary Condotta, R-East Wenatchee, said, "Businesses in Washington pay for more than 50 percent of (the state government's) general fund. The average west of the Mississippi is 33 percent. ... Why should Washington be the highest?"

Committee member Rep. Chris Reykdal, D-Olympia, said: "We're a high sales tax state, we're a high B&O tax state because we have no income tax. We're about average (tax-wise) overall."

Educational interests, several unions including the SEIU and Washington Education Association, the Elder Care Alliance, the American Association of Retired Persons, health care workers, and the Main Street Alliance of small businesses supported the entire package.

Finance committee member Rep. J.T. Wilcox, R-Yelm, noted that the state's Joint Legislative Audit Committee  -- which reviews tax exemptions for potential renewal or elimination -- has not looked at some of the proposed tax exemption repeals or limited its recommendation to "review and clarify."

" 'Review and clarify' is Olympia talk for 'punt,' " Carlyle said. Carlyle said JLARC has no decision-making authority. The finance committee is the appropriate place to make formal recommendations to the full House, he said.

Since 2007, JLARC has recommended terminating seven tax exemptions, allowing 12 more to expire and having 99 continue. And it has sought clarification from the Legislature about the goals for 40.

Carlyle has not decided yet whether the finance committee should vote exemptions and extensions individually or as a group on sending them to the full House. That will be tackled next week. The House and Senate have not sat down yet to negotiate on their radically different budgets, and the Senate overwhelming smaller addition in tax revenues consisting of extending one hospital tax. That's because both sides want to first see if the other can pass all the bills to back up their budget proposals. Then the two sides will begin negotiations .

Meanwhile, the Senate unanimously sent to the House a bill by Majority Coalition Caucus Leader Rodney Tom, D-Medina, that would require any new tax exemption or changes in existing exemptions to include an expiration date, specific economic goals and criteria to figure out if those goals are being met.

Carlyle has rewritten that biil to keep the basics, but also to add an automatic expiration after five years if no specific date is otherwise set. It would also require businesses receiving the exemptions to file annual reports with the state on how their competitiveness was specifically helped and how many new jobs were created. That information would be public unless the business can otherwise show that such transparency would cause it economic harm.

Several people testified in favor of the revamped bill.

"When a company leaves (the state after receiving an exemption) ... we want to know where the money went," said Sean O'Sullivan of the Association of Western Pulp and Paper Workers.

Carter of the AWB said her association prefers the Senate version, because of concerns about the five-year- sunset and transparency aspects of the House version.

For exclusive coverage of the state Legislature, check out Crosscut's Olympia 2013 page.


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About the Authors & Contributors

John Stang

John Stang

John Stang is a freelance writer who often covers state government and the environment. He can be reached on email at and on Twitter at @johnstang_8