New Revenue Bill: A Step in the Right Direction, Far from Balanced Approach

 A new bill in the state Senate (SB 6635) would generate additional resources to help address the roughly $1 billion revenue shortfall. While this is a positive development, the amount of additional revenue under consideration falls far short of what is needed to sustain basic public investments.

Senate Bill 6635 would narrow two costly tax breaks – a business tax deduction for out-of-state banks and a sales tax exemption on certain telephone services – while extending tax preferences for other industries. No fiscal note has yet been produced, but a rough analysis suggests the measure would generate $40 million to $50 million in additional tax resources in the coming 2013 fiscal year. (In comparison, the current House budget proposal would cut roughly $315 million from Washington’s core health and economic services).

SB 6635 would:

•    Narrow a business tax break for out-of-state banks: Under current law, banks are allowed to deduct interest payments they receive from 1st home mortgages from their state Business and Occupation (B&O) taxes. The bill would limit eligibility for this deduction to banks that operate in fewer than 10 states.
•    Eliminate a sales tax exemption on certain phone services: Payphones, local residential calls, and calls from cell phones made by out-of-state residents are currently exempt from the sales tax. SB 6635 would repeal this exemption.
•    Extend a B&O exemption for fruit, vegetable, seafood processors: A B&O exemption for companies that process fruits, vegetables, and seafood products is currently set to expire on July 1st of this year. These businesses will then be eligible to receive a preferential B&O tax rate of 0.138 percent. The bill would extend the exemption through July of 2017.
•    Enact larger B&O tax breaks for newspapers: SB 6635 would provide a preferential B&O rate of 0.365 percent for newspapers. That rate would fall to 0.35 percent after July 1, 2013. Under current law, different B&O rates are applied to various activities related to newspaper publishing. The activity of printing a newspaper currently receives a preferential rate of 0.2904 percent while publishing a newspaper online is taxed at the ordinary rate for service businesses of 1.8 percent. The bill would consolidate these activities into single new category taxed at 0.365 percent, which would then fall to 0.35 percent at the end of the 2013 fiscal year.
•    Codify an exemption for shipping and cargo companies: Historically, the state Department of Revenue (DOR) has not collected Leasehold Excise Taxes (LET) from companies that lease publicly-owned cranes and docking facilities to unload cargo. After reviewing this activity, however, the Department recently announced these activities are subject to the LET. SB 6635 would create a LET exemption for these companies.

SB 6635 is a good first step in addressing our flawed revenue structure through closing tax breaks and loopholes. However, with proposed deep cuts to essential public services such as healthcare and economic services, now is not the time to extend and enlarge other tax preferences.