Ax It or Tax It: Tax breaks for urban transportation companies, letting bad tax credits die, and new taxes on personal aviation and bottled water

February 15, 2010 | Economic Opportunity Institute

Today’s suggested exemptions to ax and sins to tax:

$9.0 million | Special Public Utilities Tax rate for urban transportation and small vessels. A preferential rate for urban transportation was adopted when street cars and interurban railways were financially distressed. Private street cars and interurbans have been replaced with public transit. Primary beneficiaries now are freight companies, taxis, limos, messenger services, etc. Other states do not distinguish between urban and other transportation services.

$10.9 million | Additional tax preferences analyzed by Joint Legislative Audit & Review Committee (JLARC) in 2009:

  • Fraternal benefit societies insurance premium tax exemption: In contrast to 1891 when adopted, these now act like insurance companies and should be taxed as such.
  • Sales tax on farm equipment alternatives to field burning: Passed to aid the transition to less polluting practices, farmers have now had 11 years to make this transition.
  • Ocean marine insurance rate preference and deduction: For decades, marine insurance losses were highly volatile, but for the last decade, loss rate has been similar to all insurance.
  • B&O credit on hospital lift equipment: This credit was passed in 2006 to give hospitals incentives to quickly purchase patient lift equipment in order to reduce injuries to nurses and patients. It was intended to expire December 2010, but can end earlier.
  • Rural county software development and help desk: Tax credits passed in 1999 to expand jobs and raise incomes in rural areas, and set to expire in 2011. As of today, only 39 jobs have been created. Half the claimants of the high tech credit are sole proprietors with no employees, and the disparity between urban and rural wages has not changed.
  • Rural electric utility contributions: Since 1999 rural utility companies have been able to take a Public Utilities Tax credit equal to half their contributions to a rural economic development revolving fund. This credit expires in 2011, but according to JLARC review, there is no evidence of economic development resulting from the credit.
  • B&O exemption for non-profit kidney dialysis, hospice, and nursing homes: According to JLARC review, hospitals were originally exempted from B&O tax, and the legislature gradually expanded the exemption to include non-profit clinics performing services traditionally performed by hospitals. Since 1993, hospitals have paid B&O in order to help finance health care, making the reason for continuing the exemption on clinics unclear.
  • Gas tax deduction for handling losses: When licensees remove motor vehicle fuel from the terminal, they may deduct 31 gallons per 10,000 from the motor vehicle fuel tax to account for handling losses, in a tax break dating back to the 1930s. Fuel evaporation and spillage both cause pollution and have been minimized in current technology.
  • Non-profit horse racing B&O exemption: Non-profit horse racing is exempt from the pari-mutuel tax, so applying B&O taxes to this activity would not result in double taxation.

$10.8 million | Raise general aviation excise tax to level of personal property tax. In 1949 the legislature simultaneously enacted an aviation excise tax and exempted aircraft subject to it from personal property tax. 75% of owners paying the tax are individuals and most of the rest are corporations. The excise tax does not apply to commercial aircraft or those owned by the manufacturer for testing or training.

$134.7 million | New 1 cent per oz. on bottled water (wholesale). Includes soda, sweetened teas, power drinks, etc. — both regular and diet. Fruit beverages and products that are 90% milk or milk substitutes are excluded.

Total value of this Ax It or Tax It package: $165.4 million

Total value of all Ax It or Tax It packages to date: $1.834 billion

Economically speaking, Washington has been hit by a “perfect storm”: Plummeting tax receipts brought on by the national recession are now slamming our state’s rickety and outdated tax system. Last year, lawmakers cut $3.4 billion from the state budget. This year, we face a projected $2.6 billion shortfall.

“Ax It or Tax It” offers budget solutions that will both balance the state budget this year and provide long-term budget stability in the years ahead. By closing tax exemptions that no longer serve a compelling public purpose and carefully choosing new sources of revenue, lawmakers can stabilize funding for quality schools, affordable health care, a safety net for the most vulnerable, affordable housing, public safety, and a clean environment.

You can read previous editions of “Ax It or Tax It” here.

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Posted in State Economy, Tax and Budget

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