On tax exemptions, House D's prove no match for beekeepers. Or oil refineries.

Democrats wanted to repeal more than a dozen tax loopholes. Instead, the Legislature ended up creating more new ones than it abolished.
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Beekeepers: Democrats were no match.

Democrats wanted to repeal more than a dozen tax loopholes. Instead, the Legislature ended up creating more new ones than it abolished.

Beekeepers and clay pigeon shooters kicked butt. So did Washington's five oil refineries. The House Democrats did not.

The arena was tax exemptions.

The Washington Senate passed or extended 17 tax exemptions Friday in a 43-5 vote as part of its operating budget deal for 2013-2015 with the House. After the budget was approved by both chambers, the House late Friday night approved the 17 tax exemptions on a 66-25 vote.

Meanwhile in this deal and an earlier swap of bill passages, the House Democrats managed to close two of the 15 tax exemptions that they targeted in the spring as a way to raise $751 million for education improvements. Democrats also wanted to extend an expiring business-and-occupation tax on service firms and a beer tax — two measures that died before the Legislature's endgame maneuvers began.

Instead, House Democrats convinced the Senate Majority Coalition Caucus to close two tax loopholes that could have led to litigation against the state. The resulting $250 million to $270 million in 2013-2015 will be used to pay for education improvements. One exemption involved married couples not having to pay inheritance taxes, plus a tax exemption on landline phones.

"It's fair to conclude that Republicans have a deep, profound, intimate love affair with the joy of tax exemptions," said Rep. Reuven Carlyle, D-Seattle and the House Democrats' leader on this issue. Washington's roughly 640 tax exemptions are now headed past the 650 mark, on their way to reaching approximately 655.

Republicans have consistently portrayed closing tax exemptions as tax increases, and have vehemently fought each proposed closure of one.  "A list of taxes longer than I can remember didn't happen," said Senate Republican Caucus Leader Mark Schoesler, R-Ritzville.

"If you want less of something, increase the tax on it. If you want more of something, decrease the tax on it," said Sen. Michael Baumgartner, R-Spokane.

The Senate bill also requires specific job-related goals and expiration dates on new tax exemptions, including those passed Friday. Companies seeking tax exemptions must assume that their financial information sent to the Washington Department of Revenue will be automatically made public, except when they can convince the department that such disclosure would cause economic harm to a firm. Until now, only the House Finance Committee chairperson and the Senate Ways & Means Committee chairperson could legally look at information that exemption-seeking companies file. Even other legislators could not look at financial information that an exemption-seeking firm wanted to keep secret, forcing them to accept the claim that a tax break was needed. 

If no expiration date is set for a tax exemption, it will automatically end in 10 years. A task force will be appointed to study what data and goals should be used to judge the effectiveness of tax exemptions, with recommendations due by Jan. 1, 2014. Carlyle and Majority Coalition Leader Rodney Tom, D-Medina, had introduced versions of this bill in their chambers.

The 17 new or extended tax breaks include setting an expiration date of June 30, 2024 on a 1949 extract fuel exemption originally intended for wood burned for power by the lumber industry. Later, five Washington oil refineries were piggybacked onto that exemption. Besides extending that tax break to help the oil refineries, the bill states that if an oil refinery closes, it must repay two years of the exempted taxes. To keep this exemption, a company must keep at least 75 percent of its current employees. The effectiveness of this tax break will be reviewed in 2019.

The House Democrats unsuccessfully tried to close this tax break as part of its original 15 targeted exemptions.

A couple of other new exemptions favor clay pigeons and honeybees. Diseases have hit the honeybee industry hard, leading to some tax exemptions for beekeepers in 2008. These are now extended to 2017. Non-profit shooting clubs are now exempt from paying a sales and use tax for the clay targets that they buy. This exemption expires on July 1, 2017.

Business interests, spearheaded by the Association of Washington Business, succeeded in an 11th hour push to end a tax on corporate entities that combine to have centralized payroll operations. Such operations are taxed, which corporations are arguing results in a double-taxation scenario.

Other exemptions tackle loans to rural electric cooperatives, the sales of financial data, dances, dairy products, solar energy compensation and manufacturing, storage of large private planes, contest prizes and blood testing. (A Senate staff report on those exemptions is here.) All have expiration dates ranging from 2016 to 2024.

The House Democrats originally sought to close 15 exemptions (details here), trimming those to 11, and later those to seven several weeks ago. Besides the two tax breaks that were closed, other targeted loopholes included non-residents not paying Washington sales taxes, and a sales tax exemption on bottled water.

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 johnstang_8@hotmail.com and on Twitter at @johnstang_8