2017 Tax Exemption Transparency and Accountability Act to be Filed in Legislature

Tax Exemption Transparency and Accountability Act 2017

Representative Gerry Pollet and Senator David Frockt are filing updated versions of the Tax Exemption and Transparency Act that we filed in previous sessions of the Washington State Legislature. In the 2015 – 2016 Legislative session it was HB 1239 in the House and had 26 sponsors. The Senate Bill was SB 5492 and had 12 sponsors.

Why is this legislation needed?

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  2016 Tax Exemption Study, while the State expects to collect some $7.4 billion in B&O tax revenue in the current 2015 -2017 biennium, it exempts from collection some $11.4 billion. When sales and use taxes were included with the analysis, the results are similar – the state expects to collect some $18.9 billion in revenue while exempting some $16.9 billion in revenue

Washington State has created some 694 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 will account for over $28.3 billion in B &O and sales/use tax revenue not collected in the current biennium.

Including property tax exemptions the 2016 Department of Revenue Report projects that in total, Washington State will see as off budget tax expenditures almost $40 billion in tax exemptions this biennium while only collecting revenues of $32.6 billion for the Legislature to fund its biennial budget. .

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.

 What would the Tax Exemption Transparency and Accountability Act do:

 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.

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