This Washington

Friday (Budget) Jolt: Republicans Add Last Minute Tax Breaks

To reach a final budget deal, the Democrats had to agree to batch of tax breaks.

By Carryn Vande Griend June 28, 2013

1. Today's Winner: Tax Breaks

In a session that was supposed to be about ending tax breaks ... well...

As the tug of war over the budget comes to a close (the senate passed the budget this afternoon), the Republican budget leader, ways and means chair Sen. Andy Hill (R-45, Redmond) has proposed a list of 15 tax exemptions to remain on the books over the next biennium.

Ironically, the Democrats came out of the gate in April with 15 tax loopholes they wanted to close, and they did ultimately manage to close two of them, the telcom tax loophole for land line phone companies and the estate tax loophole for wealthy couples, for a total savings $269 million. But they'll have to tweak that number down by $13.3 million, the value of the Republicans' last-minute exemptions.

What tax breaks are so important that the Republicans put them in the mix on the eve of a budget agreement? The oddball list of exemptions includes breaks for blood banks, mint farms, shooting range clay pigeons, Russell Investments in downtown Seattle, beekeepers, hog fuel, food flavoring, jet repair, and dairy products.

Rep. Reuven Carlyle (D-36, Queen Anne), the house finance chair who led the fight to close loopholes, explained that the Republicans would not sign off on the Democratic priority of closing the telcom loophole—which, Carlyle notes, staved off a a $1.1 billion lawsuit liability from cellular companies that weren't getting break—unless the Democrats agreed to the list of exemptions. Carlyle grouses: "Our friends in the Republican senate played their cards, and they doubled down on the full meal deal of new tax exemptions in exchange for the telcom bill. We looked at the numbers [the $1.1 billion liability if the telcom bill didn't pass], and we had no choice."

Carlyle did add a provision to the GOP tax break bill requiring metrics to judge whether future tax breaks pencil out, what the legislative intent of each tax break is (the committee that reviews tax breaks has often been at a loss about whether or not to renew or close breaks because they rarely come with a clear goal) and accountability provisions, such as making a company pay out if they up and leave after getting a tax break (this is known as a "clawback" provision.)

The list includes some crass corporate giveaways, such as exempting Russell from a digital goods tax on online data that other companies pay when creating products based on web-based information, and the jet tax break that Josh has been cranky about all session. That tax break exempts out-of-state residents from paying sales tax on large private plane sales and repairs. It's estimated that the break will cost the state $2.1 million over the next biennium. The tax break primarily favors two companies: Kirkland-based luxury airplane repair company Greenpoint Technologies, and an Everett company called Aviation and Technical Services.

There are also some that make total sense, such as ending a B&O tax on in-house payroll divisions that's based on the dollar amount of the payroll. This was a top priority for the Association of Washington Business.

Other exemptions are intended to protect struggling industries, such as the exemption on purchasing hog fuel to run sawmills, estimated at $1.9 million.

There are also some oddities, such as the breaks for clay pigeons and mint farms. Essentially, shooting ranges and mint farmers don’t want to be taxed on raw materials that are factored into a final taxable product. Mint farmers maintain that the propane they use to make mint oil should be exempted (a savings of $266,000 over the next two years), just as current law allows farmers to claim an exemption on the the diesel they to maintain and harvest crops. Shooting ranges are essentially requesting the same thing. They maintain that because the recreation of shooting clay targets is a taxable activity, their purchase of clay targets to provide that activity should be tax exempt, saving them $26,000.

Another exemption groups four tax breaks for the beekeeping industry. According to the Washington State Department of Agriculture, colony collapse disorder still plagues the beekeeping industry and therefore the tax on food for bees, pollination services and the sale of bees should be lifted. The industry exemption would extend to a B&O tax exemption on wholesale of honey and bee products. The four exemptions will cost an estimated $120,000 over the next biennium, and will continue until the WSDA annual report on colony collapse disorder improves.

Ironically, another winner, thanks to the list of tax breaks from the senate Republicans, is senate Democratic minority leader Sen. Ed Murray (D-43, Capitol Hill).

2. Winner: Seattle Clubs

The Republicans also included a tax break at Democratic leader Sen. Ed Murray's (D-43, Capitol Hill) request—a consolation prize for their coup?—exempting clubs from the dance tax. The tax, which derived from a tax on Jazzercise in the mid 90s, consists of a sales tax cover charges at any club or music venue that offers the  “opportunity to dance.”

David Meinert, local nightlife entrepreneur and founder of the Capitol Hill Block Party, says he has already witnessed local businesses, like the Tractor Tavern and Century Ballroom, scramble under the intital hit of a $250,000 bill in back taxes. "It will close several venues if there would a sales tax on every ticket sold. It will raise ticket prices," Meinert warns, "or conversely, that amount would be taken out of the artists' pockets. It wasn't something that was applied before a couple years ago. For the DOR to come up with new ways to get revenue is very punitive for these businesses."

Murray, who has represented his artsy Capitol Hill constituents for 18 years and is currently running for Seattle mayor, regards the tax as “absolutely bizarre.” 

"Obviously, there are numerous small businesses in my district that provide live music," he says. "To tax someone on the basis of an opportunity to dance? I don’t think that’s sensible,” Murray says,“That’s an unfair burden on a business like that.”

But unlike Murray, many progressives are against the “opportunity to dance” tax break, in line with the Democrats' anti-exemption mantra. Michael Mitchell, of the lefty Washington Budget and Policy Center, contends the money saved should be viewed in light of the state’s priorities. “First and foremost, when we’re talking about any tax break, we have to prioritize investment. This is about a million dollars for the biennium that could have been invested in kids, higher education and families, but instead it’s put toward a tax break."

The tax breaks will be voted on in a separate bill (except for the payroll division tax break, which was part of the budget bill.)

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