Tax exemptions, preferences, deductions, credits and deferrals are off budget expenditures. They lack the accountability and transparency that exists for other expenditures the state makes as part of the biennial budget process. Taxpayers deserve to know who is receiving these tax exemptions, how much money is involved and for what reason they are given.
According to the Washington State Department of Revenue’s last Tax Exemption Study in 2012, while the State collected some $6.5 billion in B&O tax revenue in the previous biennium, it exempted from collection some $7.6 billion. When sales and use taxes were included with the B&O tax collected, the results were similar – the state collected $21 billion in revenue but exempted almost $20 billion total.
Washington State has created some 650 tax exemptions over the years. Over 450 of these are discretionary tax exemptions, not required by Federal or State constitutional law. These discretionary tax exemptions account for over $24 billion in revenue not collected.
The taxpayers of this state have a right to know:
- Who is getting these tax breaks?
- How much money is involved?
- Are these tax breaks benefiting the public?
Since these tax breaks affect the overall revenue available to the state and shift the tax responsibility onto those who don’t get the tax breaks, taxpayers have a right to know the answers to these three questions.
To be able to answer these questions, there is an urgent need to increase the transparency and accountability of Washington State’s prolific use of tax exemptions.
This legislation would do that by requiring the governor to propose and the state legislature to adopt a tax expenditure budget every 2 years as part of the biennial omnibus operating appropriations act. This would give the Washington State Legislature an opportunity to periodically evaluate the need and effectiveness of these exemptions in meeting current state needs. They would do this at the same time they are making budget decisions about prioritizing other state expenditures for public services as part of the biennial budget appropriations process.
This measure would require new and existing discretionary tax preferences to be authorized every two years in a tax expenditure budget. It will add much needed transparency to the hundreds of exemptions and preferences, along with their cost and how each decision to spend money on an exemption or preference is a choice to expend funds for this purpose with particular beneficiaries.
The state biennial omnibus operating appropriations act would be required under this measure to include a tax expenditure budget to approve new and existing discretionary tax preferences, including exemptions, deductions, credits, and deferrals. The tax expenditure budget would detail the fiscal impact, purpose, and effectiveness in meeting the purpose of each tax preference. Tax preferences not included in the tax expenditure budget would expire at the end of the calendar year in which the budget is adopted.
Increasing tax exemption transparency and accountability
2015 House Bill 1239 Sponsors:
Representatives Pollet, Appleton, Reykdal, Moscoso, S. Hunt, Stanford, Fitzgibbon, Kagi, Farrell, Ortiz-Self, Dunshee, Walkinshaw, Pettigrew, Tharinger, Ryu, Sells, Tarleton, Santos, Goodman, Cody, Wylie, McBride, Bergquist, Riccelli, Ormsby, Kirby
2015 Senate Bill 5492 Sponsors:
Establishes the tax exemption transparency and accountability act.
Creates a tax expenditure budget as part of the biennial budget adopted by the legislature.
Reforms the tax expenditure process by including tax expenditures in a tax expenditure budget in the biennial state budget process and requires they be readopted every two years as part of the budget process or they expire.
Requires the joint legislative audit and review committee to report its findings and recommendations for scheduled tax expenditures to the citizen commission for performance measurement of tax expenditures by June 30th of each year.