Tax exemptions are starting to draw an uncomfortable spotlight

An initiative campaign and a state commission are both moving to focus more attention on tax breaks for companies.
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A Boeing 787

An initiative campaign and a state commission are both moving to focus more attention on tax breaks for companies.

A couple of tentative nibbles at Washington's 640 tax exemptions took place Friday in Olympia. But it will take several months before anyone knows whether those nibbles will translate into any serious chomping.

First, the anti-exemption group Tax Sanity filed paperwork Friday with the Washington Secretary of State to start an initiative campaign to require the state Legislature to list every tax exemption in every budget passed by the House and Senate. The idea is that each of the state-controlled tax exemptions should be considered as a budget expense — and should be considered as such in each biennial budget, said Tax Sanity leader Steve Zemke.

Out of the state's roughly 640 tax exemptions, the Legislature controls 452. The others are required by the state Constitution or the federal government.

Second on Friday, a state-level tax advisory commission put 10 aerospace-related exemptions and six food processing industry exemptions at the top of tax breaks that might be studied in depth.

The Citizens Commission for Performance Measurement on Tax Preferences is scheduled to recommend in October 2014 which of 70 exemptions should be considered for closing. Those recommendations will go to the Joint Legislative Audit & Review Committee — eight GOP and eight Democratic legislators split between the Senate and House. The JLARC will forward its own recommendations for tax exemptions that should be eliminated or kept to the House and Senate.

The citizens commission tends to be a bit more gung-ho about closing tax exemptions than the JLARC. Since 2007, the JLARC has recommended terminating seven tax exemptions, allowing 12 more to expire and continuing 99. And it has sought clarification from the Legislature about the goals for 40. The Legislature has eliminated only a handful of exemptions. This year, the House Democrats want to eliminate 11 tax exemptions, while the Senate Majority Coalition Caucus is equally adamant about keeping all 11.

The Tax Sanity petition for a referendum is to be sent directly to the 2014 Legislature to ask it to put the matter to a public ballot. That gives the petitioners all of 2013 to collect the needed 246,372 signatures.

Zemke described Friday's petition as a draft to stimulate public discussions, with the organizers expecting to submit a tweaked initiative proposal later this year.

Zemke contended that each of the 452 state-controlled tax exemptions should be listed as an expense in each biennial budget. The current state operating budget proposals in the neighborhood of $33 billion to $34 billion would be considered to be in the hundreds of billions of dollars if exemptions are counted as expenses. Tax Sanity's proposal would translate into a budget vote also being a vote on all tax exemptions.

"It will be more complicated" Zemke conceded. He added, "We're arguing that this is reality." He noted that numerous tax exemptions date back decades, with fuzzy origins. And he contended that a biennial vote on the 452 would give legislators less political cover to allow those exemptions to continue.

This is not the only complicated tax-related initiative that will be trying to collect sufficient signature this year. On the opposite end of the political tax spectrum, professional initiative promoter Tim Eyman is trying to collect signatures on a measure that would:

  • Require a statewide advisory ballot each year on whether the public supports a constitutional amendment to mandate two-thirds approval of new taxes and tax hikes.
  • Limit the time period of all tax increases, tax extensions and repeals of tax exemptions to one year.
  • Require that all legislators' votes on tax increases, tax exemptions and tax extensions to be noted on all state voters' pamphlets. The requirement would also apply to the governor's record.
  • Eliminate these requirements when the Legislature agrees to send a two-thirds-majority-for-tax-matters constitutional amendment to a public referendum.

Meanwhile, the citizens commission on measuring tax preferences is in the seventh year out of 10 years during which it is supposed review all of Washington's tax exemptions for the first time to see if they should be kept or terminated. Th 2014 list holds 70 potential exemptions to be considered. Friday's meeting was to determine which of the 70 exemptions should be seriously studied and which should not be.

Meanwhile, the tax exemptions being studied for the citizens commissions to make recommendations this October can be found at this site.

This winnowing was to prioritize the work for a JLARC staff with limited time and resources.

Ten aerospace-related exemptions — with eight due to expire in 2024 — were given top priority for studies on their effectiveness to be completed by August. The largest of those were a business-and-occupation tax exemption on aircraft pre-production expenses, estimated to be worth almost $195 million every two years, and a reduced B&O tax rate on commercial aircraft manufacturing estimated to be worth almost $178 million every two years. The 10 exemptions tally roughly $418 million every two years.

The other top priority goes to six food-processing industry B&O tax reductions that expire in 2015 and are estimated to be worth roughly $95 million every two years.

The citizens commission and JLARC staff did not know how long it would take to study the cost-effectiveness of those 16 exemptions.

A hodgepodge of 11 other tax exemptions might be studied if the staff time is available. Most of other exemption tally less than $1 million apiece every two years; the citizens commission believes they are too small to be cost-effective to study. A handful of large exemptions are considered unlikely to be revoked for various legal reasons and, therefore, won't be studied.

The staff studies are supposed to be done by August 2014. The citizens commission expects to hold a public hearing on those study results in September 2014. It expects to make its recommendations to the JLARC legislators in October 2014. The JLARC legislators will likely then hold their own hearing and make any recommendations soon afterward.

The Senate and House mostly agree that future tax-exemption legislation should include expiration dates and specific criteria to measure whether those bills accomplish what they are supposed to. A major problem in the current battles over tax exemptions is that many measures were passed decades ago with no expiration dates and no guides to tell if they accomplish their purposes.

This session, the House and Senate have passed different forms of the same bill 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. A 10-year expiration date would be automatic if no specific dates are nailed down in such bills.

The sticking point between the two versions is that the Democratic-controlled House bill 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. The Republican-oriented Senate wants all that information to be automatically confidential.


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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