staff presentation to dana lynn citizen commission rachel ......2017/08/10 · 2017 tax preference...
TRANSCRIPT
![Page 1: Staff Presentation to Dana Lynn Citizen Commission Rachel ......2017/08/10 · 2017 Tax Preference Performance Review August 2017 1 Dana Lynn Rachel Murata Pete van Moorsel John Woolley](https://reader036.vdocuments.us/reader036/viewer/2022071401/60ecd1a3efc22e4f48199bc6/html5/thumbnails/1.jpg)
August 20172017 Tax Preference Performance Review 1
Dana LynnRachel Murata Pete van Moorsel John Woolley2017 Tax Preference Reviews
Staff Presentation to Citizen Commission
August 2017
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August 20172017 Tax Preference Performance Review 2
2006 legislative mandate: conduct performance audits of tax preferences
Legislature (Chapter 43.136 RCW):• Created the Citizen Commission for Performance
Measurement of Tax Preferences
• Specified JLARC to review preferences over 10‐year cycle
• Outlined specific questions for JLARC staff to answer
• Required audit recommendation
• Key questions: public policy objective stated? Achieved?
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August 20172017 Tax Preference Performance Review 3
Steps in process repeated each yearIn 2016, Commission determined 10‐year review schedule and preferences for JLARC staff review
Staff presented to JLARC Committee
Staff present to Citizen Commission
Commission will take public testimony
Commission will adopt comments
JLARC will hear final report
Joint fiscal committee hearing
July 2017
August
September
October
December
January 2018
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August 20172017 Tax Preference Performance Review 4
16 Preferences reviewed in 2017
4 Renewable and Clean Energy
3 Financial Industry
4 Preferences Expiring Soon
5 Other
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August 20172017 Tax Preference Performance Review 5
Renewable and Clean Energy Preferences
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August 20172017 Tax Preference Performance Review 6
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Cogeneration Facilities and Renewable ResourcesPublic Utility TaxNo Expiration Date
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August 20172017 Tax Preference Performance Review 7Cogeneration Facilities/Renewable Resources
30‐year deduction for operating costs of facilities constructed between 1980 and 1990
No expiration date
Cogeneration Facilities and Renewable Resources (Public Utility Tax)
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August 20172017 Tax Preference Performance Review 8
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Cogeneration Facilities/Renewable Resources
$0None since 2013
Terminate
Cogeneration Facilities and Renewable Resources
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August 20172017 Tax Preference Performance Review 9
Not contributing towards stated objective
Renewable energy resourcesEncourage efficient energy use and a reliable supply of energy based upon renewable energy resources
Not currently achievingThe preference may have met its objective at one time, but is not currently contributing because no taxpayers are claiming it
Cogeneration Facilities/Renewable Resources
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August 20172017 Tax Preference Performance Review 10
Legislative Auditor Recommends
TerminateAdd an expiration date to terminate the preference because it is not being claimed and no utilities will be eligible within a few years
Cogeneration Facilities/Renewable Resources
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August 20172017 Tax Preference Performance Review 11
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Electric Vehicle Batteries and Charging Stations Sales and Use Tax; Leasehold Excise TaxPreferences expire January 1, 2020
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August 20172017 Tax Preference Performance Review 12EV Batteries and Charging Stations
1. Sales/use tax exemption for:• Electric vehicle (EV) battery
purchases, installation and repair services
• EV charging station parts, construction, installation and repairs
All expire January 1, 2020
Electric Vehicle Batteries and Charging Stations (Sales and Use Tax, Leasehold Excise Tax)
2. Leasehold excise tax (LET) exemption for private use of publicly owned property to build or operate EV charging stations
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August 20172017 Tax Preference Performance Review 13
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
$ Limited impact Less than three identified
Review and clarify if meeting legislative expectations
EV Batteries (Sales and Use Tax)
EV Batteries and Charging Stations
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August 20172017 Tax Preference Performance Review 14
Batteries - stated intent to encourage transition to EVs, develop EV infrastructureEV batteries (sales & use)Exemption for sales, installation, repair services
Objective not being metNot used as anticipated when enacted in 2009• “Lease and swap” scenario did not materialize• Unclear level of activity
Less than 3 businesses reported sales in 2016, none in 2014 or 2015
EV Batteries and Charging Stations
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August 20172017 Tax Preference Performance Review 15
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
$1.8 to $3.4 millionPublic entities, individuals and businesses that construct, install charging stations or equipment at public areas, homes or businesses
Review and clarify to set target for number of stations
EV Charging Stations (Sales and Use Tax)
EV Batteries and Charging Stations
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August 20172017 Tax Preference Performance Review 16
Level 2 and Level 3 Chargers Qualify for Preference
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August 20172017 Tax Preference Performance Review 17
Charging stations - stated intent to encourage transition to EVs, develop EV infrastructureEV charging stations (sales & use)Exemption for parts and construction, repair, improvement services
Preference being used, unclear if objective being achievedSince 2009, 1,663 publicly available EV charging stations added – most are Level 2, not Level 3• Unclear if this growth meets legislative goal
for expanded EV infrastructure• Preference also applies to private charging
stations – likely Level 2JLARC staff estimate a range between 4,000 to 13,000 private outlets installed
EV Batteries and Charging Stations
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August 20172017 Tax Preference Performance Review 18
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
$ UnknownPrivate businesses using publicly owned property to operate EV charging stations
Clarify to add reporting requirement
EV Charging Stations (Leasehold Excise Tax)
EV Batteries and Charging Stations
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August 20172017 Tax Preference Performance Review 19
Private use of public land – stated intent to encourage EV use and develop EV infrastructureExempts private leases of publicly owned land (LET) No LET owed by private businesses that lease or use public lands to build or operate EV charging stations
Preference being used but details are unclear Extent of use unknown• No data or records available to determine
extent this is used, the value of preference, or if it is achieving public policy objective
EV Batteries and Charging Stations
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August 20172017 Tax Preference Performance Review 20
Legislative Auditor recommends Before January 1, 2020, expiration date:
EV Batteries and Charging Stations
EV charging stations (sales & use) –Review and clarify Set a target for number of new EV charging stations. Consider a metric for number of stations sufficient to achieve public policy objective.
EV charging stations (LET) – ClarifyAdd a reporting requirement to identify who is using the preference and the extent to which they benefit.
EV batteries (sales & use) – Review and clarifyDetermine if use matches legislative expectations for preference.
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August 20172017 Tax Preference Performance Review 21
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Wood Biomass Fuel ManufacturingBusiness and Occupation TaxNo Expiration Date
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August 20172017 Tax Preference Performance Review 22Wood Biomass Fuel Manufacturing
Wood Biomass Fuel Manufacturing(B&O Tax)
Preferential B&O tax rate (0.138%, vs. 0.484%) for manufacturers of wood biomass fuel
No expiration date
Qualifying wood biomass fuel:• Liquid, used in internal combustion
engine• Produced from wood, forest, or
field residue, or dedicated energy crops
• Manufactured through pyrolysis or gasification
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August 20172017 Tax Preference Performance Review 23
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Wood Biomass Fuel Manufacturing
$0Businesses that manufacture wood biomass fuel – No beneficiaries identified
Terminate
Wood Biomass Fuel Manufacturing (B&O Tax)
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August 20172017 Tax Preference Performance Review 24
Preference is one of five enacted in 2003 and the only one still in effect
Wood Biomass Fuel Manufacturing
2003 2008 2017
Citizen Commission recommended allow to expire
2009 - 2015
Preferential rate and 4 other preferences enacted to benefit wood biomass fuel production
Four other preferences expired
This preference, with no expiration date, is the only one still in effect
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August 20172017 Tax Preference Performance Review 25
Two qualifying manufacturing processes to create liquid fuel from wood biomass
Wood Biomass Fuel Manufacturing
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August 20172017 Tax Preference Performance Review 26
JLARC staff infer three public policy objectives
Wood Biomass Fuel Manufacturing
Encourage wood biomass fuel productionTo support creation of alternative fuels that lessen dependence on foreign oilReduce air pollutionIncrease use of a carbon‐neutral source of fuel
Increase wood biomass demandTo help offset costs of forest thinning, wildfire prevention
Preference is not being claimed
Not achieving objectives
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August 20172017 Tax Preference Performance Review 27
Legislative Auditor recommends
TerminateThe Legislature should terminate the tax preference because it is not being used and other tax preferences directed at wood biomass fuel manufacturing are no longer in effect.
• Initially enacted in 2003 with other wood biomass fuel tax preferences • None appear to have been claimed • Only this wood biomass fuel tax preference remains, it may not provide
sufficient incentive to meet the public policy objectives
Wood Biomass Fuel Manufacturing
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August 20172017 Tax Preference Performance Review 28
Financial Industry Preferences
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August 20172017 Tax Preference Performance Review 29
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International Banking Facilities
Business and Occupation TaxNo expiration date
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August 20172017 Tax Preference Performance Review 30International Banking Facilities
International banking facilities do not pay B&O taxes on their gross receipts
IBFs are separate accounts established on the books of qualifying financial institutions in the United States
No expiration date
International Banking Facilities (B&O Tax)
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August 20172017 Tax Preference Performance Review 31
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
International Banking Facilities
$208,000International banking facilitiesJLARC staff estimate one IBF in Washington
Review and clarify
International Banking Facilities (B&O Tax)
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August 20172017 Tax Preference Performance Review 32
Preference established shortly after IBFs were first authorized
International Banking Facilities
1981 1982 2016
Washington exempts IBF receipts from B&O tax
2010
Federal Reserve approves establishment of international banking facilities
Apportionment rules changed to single‐earnings factor
One IBF in Washington
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August 20172017 Tax Preference Performance Review 33
IBFs are subject to different regulations than domestic banks IBFs are not subject to reserve requirements, interest rate ceilings and deposit insurance assessments
The Federal Reserve established rules specific to IBFs, including:
• Limiting who can borrow from and deposit with IBFs;
• Requiring business financed through IBFs be outside of the U.S.
International Banking Facilities
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August 20172017 Tax Preference Performance Review 34
IBFs earnings from foreign customers not apportioned to Washington, not subject to B&O tax
2010 apportionment rule change from 3‐factor to single‐factor formula:• Before change, financial institution earnings apportioned to
Washington based on the average share of property and payroll in Washington, and earnings from Washington sources
• After change, earnings apportioned to Washington based only on share of earnings from Washington sources
International Banking Facilities
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August 20172017 Tax Preference Performance Review 35
JLARC staff infer one public policy objective
Encourage establishment of IBFs in WashingtonExempting IBFs from state taxation to make them competitive with offshore financial centers
Unclear if achieving inferred objectiveJLARC staff identified one IBF in Washington However, apportionment rules may limit the value of the preference and its ability to influence IBFs’ decisions to locate in Washington
International Banking Facilities
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August 20172017 Tax Preference Performance Review 36
Legislative Auditor recommends
Review and clarify To provide an explicit public policy objective and metrics to determine if the objective has been achieved Review the relevance of the preference given changes to Washington’s apportionment laws
• 2010 legislative changes to the apportionment formula may have diminished the value of this preference
International Banking Facilities
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August 20172017 Tax Preference Performance Review 37
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Standard Financial InformationSales and Use TaxExpires July 1, 2021
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August 20172017 Tax Preference Performance Review 38Standard Financial Information
International investment management companies do not pay sales or use tax on the first $15 million of standard financial information they purchase each year Standard Financial
Information(Sales and Use Tax) Standard financial information is
financial data, facts or information services (e.g., financial market data, bond ratings, credit ratings, and deposit, loan, or mortgage reports)
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August 20172017 Tax Preference Performance Review 39
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Standard Financial Information
$3.1 millionInternational investment management companies that buy standard financial information – three in 2016
Clarify
Standard Financial Information (Sales and Use Tax)
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August 20172017 Tax Preference Performance Review 40
Three legislative efforts to exempt standard financial information from sales and use tax
Standard Financial Information
2007 2009 2013 July 1, 2021
Exemption repealed, replaced with broader exemption for some digital goods
2010
Legislature creates exemption for standard financial information
DOR interprets some financial information purchases are searchable databases, subject to SUT
Legislature creates current preference
Scheduled expiration date
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August 20172017 Tax Preference Performance Review 41
Legislature stated two public policy objectives
Exempt sales of standard financial informationTo conform with a previously determined policy objective
Preference achieving objective
By exempting sales of standard financial information, the preference is meeting this objective
Standard Financial Information
Provide exemption with minimal fiscal impactSo actual fiscal impact on state revenues “reasonably conforms” to the estimate in the fiscal note
Unclear if preference is achieving objectiveFiscal impact depends on share of SFI that is considered a searchable databaseShare is unknown, JLARC staff illustrated 3 scenarios
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August 20172017 Tax Preference Performance Review 42
Legislature stated two public policy objectives
Standard Financial Information
Percentage of SFI that is Online Searchable
Database
Fiscal Note Estimate, State Revenue (FY16)
Estimated Revenue Impact
(FY16)
Difference ($)
Difference (%)
Scenario 3 100%
Scenario 2 50%
Scenario 1 42%
($469,000)
($469,000)
($469,000)
($1,125,000)
($563,000)
($469,000)
$656,000
$94,000
$0
140%
20%
0%
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August 20172017 Tax Preference Performance Review 43
Legislative Auditor recommends
ClarifyThe preference is meeting the stated objective of exempting sales of standard financial information.Because there is no metric, unclear if the actual fiscal impact reasonably conforms to the 2013 fiscal estimate.
Standard Financial Information
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August 20172017 Tax Preference Performance Review 44
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State-Chartered Credit UnionsBusiness and Occupation TaxNo expiration date
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August 20172017 Tax Preference Performance Review 45State‐Chartered Credit Unions
State‐chartered credit unions do not pay B&O tax on their gross income
No expiration date
State-Chartered Credit Unions(B&O Tax)
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August 20172017 Tax Preference Performance Review 46
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
State‐Chartered Credit Unions
$47.9 million55 state-chartered credit unions
Clarify
State-Chartered Credit Unions (B&O Tax)
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August 20172017 Tax Preference Performance Review 47
JLARC staff infer two objectives Keep state C.U.s under state regulationRemove potential incentive to switch to federal charter to avoid B&O tax
Inferred objective achieved
State‐chartered C.U.s exempt from B&O tax in same manner as federally chartered C.U.s
Support serving low-income populationsPast statements suggest C.U.s had underlying purpose to serve low‐income people
Unclear if Legislature had specific goal to serve low-income populationsNot explicitly stated in C.U. law or regulationsBroad field of membership allows to serve, but doesn’t limit to just low‐income
State‐Chartered Credit Unions
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August 20172017 Tax Preference Performance Review 48
Legislative Auditor recommends
ClarifyTo identify the pubic policy objectives, as none are stated in statute.As part of clarification, provide a performance statement that provides targets and metrics to measure if the public policy objectives have been achieved. Consider if an objective to serve low‐income populations is consistent with other state‐chartered credit union policy objectives, such as providing a broad field of membership.
State‐Chartered Credit Unions
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August 20172017 Tax Preference Performance Review 49
Preferences That Expire Soon
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August 20172017 Tax Preference Performance Review 50
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Auto Adaptive Equipment for Veterans/Service Members with DisabilitiesSales and Use TaxExpires July 1, 2018
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August 20172017 Tax Preference Performance Review 51AAE for Disabled Veterans & Service Members
Disabled veterans and service members do not pay sales or use tax for add‐on AAE to help enter, exit, or safely operate vehiclesAAE must be prescribed by physician and paid for by V.A. or other federal agency
Expires July 1, 2018
Automobile Adaptive Equipment (AAE) for Disabled Veterans & Service Members (Sales and Use Tax)
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August 20172017 Tax Preference Performance Review 52
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
$194,000Veterans and service members who are disabled – VA reports 185 approved applications in 2016
Clarify for fiscal impact
AAE for Disabled Veterans & Service Members (Sales & Use Tax)
AAE for Disabled Veterans & Service Members
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August 20172017 Tax Preference Performance Review 53
Legislature stated public policy objectives
Provide financial reliefDisabled veterans/service members often: need specialized transportation equipment; have lower incomes; cannot afford AAE to customize vehicles
Achieving stated objectiveReduces cost for add‐on AAE by 9% (average sales tax rate)
Offset competitive issuePerceived competitive disadvantage for WA AAE businesses competing with OR
Perceived disadvantage removedEliminates perceived disadvantage for WA businesses compared with businesses located in states with low or no sales tax
AAE for Disabled Veterans & Service Members
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August 20172017 Tax Preference Performance Review 54
Legislature wanted to reexamine in 5 years
Compare actual use to 2013 estimate Legislature wanted to compare cost of preference with 2013 fiscal note estimate
Beneficiary savings consistently exceed 2013 fiscal note estimateDOR tax data for the 3 fiscal years available reflects beneficiary savings consistently exceed 2013 fiscal estimate by at least 267%
AAE for Disabled Veterans & Service Members
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August 20172017 Tax Preference Performance Review 55
Legislative Auditor recommends
Clarify While the preference provides financial relief and removes a perceived competitive disadvantage, the estimated beneficiary savings exceeded the 2013 fiscal note estimate for the past three fiscal years.
AAE for Disabled Veterans & Service Members
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August 20172017 Tax Preference Performance Review 56
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Clean Alternative Fuel VehiclesSales and Use TaxExpires July 1, 2019, at the latest
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August 20172017 Tax Preference Performance Review 57Alternative Fuel Vehicles
No sales or use tax owed on first $32,000 of sale or lease for AFVs with MSRP of $42,500 or less for lowest base model
Expires earliest of: • Target of 7,500 qualifying AFVs
titled since July 15, 2015 • July 1, 2019
Alternative Fuel Vehicles (AFVs)(Sales and Use Tax)
Qualifying AFVS:• Exclusively powered by electricity,
natural gas, propane, or hydrogen• Plug‐in hybrids that travel at least
30 miles using only battery power
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August 20172017 Tax Preference Performance Review 58
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Alternative Fuel Vehicles
$14.8 millionIndividuals and entities that buy or lease qualifying AFVs – 3,520 titled as of 3/31/17
Review in 2019 session if target not reached
Alternative Fuel Vehicles (Sales and Use Tax)
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August 20172017 Tax Preference Performance Review 59Alternative Fuel Vehicles
January 2009 July 1, 2015
July 1, 2016 July 1, 2019
Exemption expired
Legislature has tried different options to increase clean AFVs in Washington
July 15, 2015
Sales/use tax exemption for clean AFVs began – no $ limitations
New sales/use exemption for clean AFVs $35,000 or less
Exemption changed to first $32,000 for vehicles with MSRP of $42,500 or less
Latest expiration date
January 2009 July 1, 2015
Sales/use tax exemption for clean AFVs began – no $ limitations
Exemption expired
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August 20172017 Tax Preference Performance Review 60
Legislature stated public policy objective
Increase clean vehicle useIncrease use of qualifying clean AFVs by reducing their price
Preference achieving objectivePreference reduces price for qualifying new AFVs on first $32,000 of sale or lease price
Alternative Fuel Vehicles
Price without preference Price with preference Savings with preference
Vehicle purchase price $42,500 $42,500Cap on exemption ($32,000)
Taxable amount $42,500 $10,500Sales tax owed (Avg 9.3%) $3,953 $977
Total price paid $46,453 $43,477 $2,976
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August 20172017 Tax Preference Performance Review 61
Legislature set metric for JLARC review and target for titled AFVsReport on new titlesLegislature directed JLARC to report on number of new qualifying AFVs titled
Qualifying AFV titles increasing
Alternative Fuel Vehicles
Unclear if titles will hit 7,500 before 7/1/2019As of March 31, 2017:47% progress to 7,500 target 44% of time elapsed to last expiration date
UPDATE: As of July 31, 2017, 4,752 qualifying AFVs titled
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August 20172017 Tax Preference Performance Review 62
Legislative Auditor recommends
Review in 2019 Review the preference during the 2019 legislative session if the number of qualifying vehicles titled in Washington has not yet reached the 7,500 vehicle target.
Alternative Fuel Vehicles
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August 20172017 Tax Preference Performance Review 63
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Electricity for Electrolytic Processors
Public Utility TaxScheduled to expire June 30, 2019
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August 20172017 Tax Preference Performance Review 64Electricity for Electrolytic Processors
Public utilities do not pay public utility tax on their sales of electricity to processors when the electricity is used to convert dissolved salt into chemicals like chlorine through electrolysisProcessors must use on average 10 megawatts of electricity per month to qualify
Set to expire June 30, 2019
Electricity for Electrolytic Processors (Public Utility Tax)
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August 20172017 Tax Preference Performance Review 65
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Electricity for Electrolytic Processors
$1,344,000Electrolytic processing firms –Two beneficiaries in 2016
Clarify
Electricity for Electrolytic Processors(Public Utility Tax)
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August 20172017 Tax Preference Performance Review 66
The value of the preference depends on the price of electricity
Electricity for Electrolytic Processors
The cost of electricity represents about 50 percent of production costs, depending on the price of power
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August 20172017 Tax Preference Performance Review 67
JLARC staff infer two public policy objectives
Allow processors to continue productionSo industry remains competitive and positioned to preserve and create new jobs
Achieving inferred objective
In 2004, one electrolytic processor operated in Washington. Today, there are two. Total production also increased
Electricity for Electrolytic Processors
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August 20172017 Tax Preference Performance Review 68
JLARC staff infer two public policy objectives
Retain family-wage jobs Achieving inferred objective
Electricity for Electrolytic Processors
At least 75% of the jobs that were on the payroll for electrolytic processors in January 1, 2004
In 2004, one beneficiary employed 33 workers, making the target 24.75 jobs In 2015, two beneficiaries employed 106 workers
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August 20172017 Tax Preference Performance Review 69
Legislative Auditor recommends
Clarify The inferred objectives are being met. The Legislature repealed the stated public policy objectives in 2010.If the Legislature is interested in family wage jobs, a jobs target and definition of “family wage jobs” would inform future reviews.If the Legislature is interested in allowing the industry to continue production, clarifying criteria to assess competitiveness and production would help future reviews.
Electricity for Electrolytic Processors
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August 20172017 Tax Preference Performance Review 70
Other Preferences Reviewed in 2017
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August 20172017 Tax Preference Performance Review 71
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Coal Plant Preferences
Sales and Use Tax, Property TaxNo expiration dates
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August 20172017 Tax Preference Performance Review 72Thermal Plant Preferences
Coal plants constructed after December 3, 1969, and before July 1, 1975, do not pay sales and use tax on:• Coal used to generate electricity• Air pollution control equipment Air pollution control equipment is also exempt from property tax
No expiration dates
Coal Plant Preferences (Sales and Use Tax, Property Tax)
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August 20172017 Tax Preference Performance Review 73
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Thermal Plant Preferences
$6.1-$16.6 millionCoal-fired electric plant in Centralia
Continue
Coal for Thermal Generating Plants(Sales and Use Tax)
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August 20172017 Tax Preference Performance Review 74
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Thermal Plant Preferences
$0Coal-fired electric plant in Centralia
Continue
Air Pollution Control Equipment(Sales and Use Tax)
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August 20172017 Tax Preference Performance Review 75
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Thermal Plant Preferences
$2,249,000Coal-fired electric plant in Centralia
Continue
Air Pollution Control Equipment(Property Tax)
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August 20172017 Tax Preference Performance Review 76
Legislature stated three public policy objectives
Update pollution control equipmentRegulatory agencies in 1995‐97 ordered reduction of air pollution, requiring installation of sulfur dioxide scrubbers
Achieving stated objectivePlant installed:• Sulfur dioxide scrubbers in 2001‐02• Nitrogen oxide reduction technology in
2011‐12
Thermal Plant Preferences
Abate pollution Achieving stated objectiveCoal preference contingent emitting <10,000 tons of sulfur dioxide in any 12‐month period
Sulfur dioxide emissions below 10,000 tons each year since 2003
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August 20172017 Tax Preference Performance Review 77
Legislature stated three public policy objectives
Play long-term economic role in community
Achieving stated objective
Plant employs 200 peopleTransAlta makes $55m in financial assistance payments, contingent on availability of tax preferences
Thermal Plant Preferences
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August 20172017 Tax Preference Performance Review 78
Legislative Auditor recommends
ContinueUntil the coal‐fired boilers at the plant are decommissioned.Preferences meet objectives of helping Washington’s only coal‐fired power plant to update air pollution control equipment, abate pollution, and play an economic role in its community through 2025.As the plant transitions away from coal by 2025, coal purchases and beneficiary savings attributable to those purchases will reduce to zero.
Thermal Plant Preferences
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August 20172017 Tax Preference Performance Review 79
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Vessel DeconstructionSales and Use TaxExpires January 1, 2025
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August 20172017 Tax Preference Performance Review 80Vessel Deconstruction
Sales and use tax exemption for vessel deconstruction work when performed at either: • Qualified vessel deconstruction
facility or• Over the water in an area
permitted under federal law
Vessel Deconstruction(Sales and Use Tax)
Expires January 1, 2025
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August 20172017 Tax Preference Performance Review 81
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
$246,000Authorized public entities (i.e., DNR, DFW, other government entities), private organizations, individuals
Review and clarify
Vessel Deconstruction (Sales & Use Tax)
Vessel Deconstruction
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August 20172017 Tax Preference Performance Review 82
Stated objective - decrease abandoned/derelict vessels by removing them from WA waters
Vessel Deconstruction
Metrics provided for JLARC review:If Either… Results in… Then:An increase in available capacity to deconstruct derelict vessels
ORA reduction in the average cost to deconstruct vessels
An increase in the number of derelict vessels removed from Washington waters
(compared to before June 12, 2014)
The Legislative Auditor should recommend extending the January 1, 2025, expiration date
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August 20172017 Tax Preference Performance Review 83Vessel Deconstruction
No clear trend for vessel removals since 2006
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August 20172017 Tax Preference Performance Review 84
Slight increase in removals recently, but unclear if due to preference or other factors Vessel removals have varied since 2006 Removals up slightly recently• Before: 29.5 every 6 months • After: 31.8 every 6 months
Unclear if preference caused the increaseNot all removals require deconstruction• 78 of 205 vessels removed between Oct 2014
– Sept 2016 were deconstructed
More capacityEncourage increased capacity for vessel deconstruction work in Washington
Not being achievedSince enacted, no additional deconstruction businesses or increased capacity • Deconstruction minor part of business, too
sporadic for successful business modelVessel Deconstruction
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August 20172017 Tax Preference Performance Review 85
Legislative Auditor recommends
Review and clarify While the average cost for deconstruction is lower, it is unclear if preference led to changes in vessel removals.When reviewing, the Legislature might consider:1. Adopting a metric other than number of vessels removed to
measure if public policy objective is achieved.2. Re-categorizing the purpose of the preference as intended to
provide tax relief rather than to induce a certain behavior.
Vessel Deconstruction
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August 20172017 Tax Preference Performance Review 86
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Electric Power Sold in Rural AreasPublic Utility TaxNo expiration date
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August 20172017 Tax Preference Performance Review 87Electric Power Sold in Rural Areas
Deduction based on the number of customers per mile of power line and the average retail power rate, up to $400,000 per month
No expiration date
Electric Power Sold in Rural Areas (Public Utility Tax)
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August 20172017 Tax Preference Performance Review 88
2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Electric Power Sold in Rural Areas
$1.7 million17 utilities in FY 2016 with156,000 customers
Continue
Electric Power Sold in Rural Areas
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August 20172017 Tax Preference Performance Review 89Electric Power Sold in Rural Areas
1 2 3Percentage of wholesale power costs based on customers per mile of line:
<6 customers 50%6-10 customers 40%11-17 customers 30%>17 No deduction
Percentage of wholesale power costs based on average retail power rate:
10% above average 10%30% above average 30%50% above average 50%
$400,000 per month
Deduction = Lowest of three calculations
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August 20172017 Tax Preference Performance Review 90
Preference is meeting inferred objective
Provide tax reliefTo utilities and their customers in rural areas where retail power rates exceed the state average
Achieving the objectiveStructure ensures that only utilities with above average rates and low customer density benefit
Electric Power Sold in Rural Areas
22 2123
21 20 20 20 20 1916 15 16 17 16 15
13 1316 16
18 17
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of utilities has varied over the years
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August 20172017 Tax Preference Performance Review 91
Legislative Auditor recommends
Continue ConsiderMeeting inferred objective of providing tax relief to rural utilities with higher electricity costs and their customers
Stating the public policy objective in statute
Electric Power Sold in Rural Areas
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August 20172017 Tax Preference Performance Review 92
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Manufactured Home CommunitiesReal Estate Excise TaxExpires December 31, 2018
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August 20172017 Tax Preference Performance Review 93Manufactured Home Communities
Exemption for sellers when they sell a manufactured home community to an organization for the purpose of preserving it
Current expiration date: 2018
Manufactured Home Communities (Real Estate Excise Tax)
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2017‐19 Estimated Beneficiary Savings
Beneficiaries
Legislative Auditor recommends
Manufactured Home Communities
$96,000Two sellers in FY 201610 sales since 2008
Continue
Manufactured Home Communities
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August 20172017 Tax Preference Performance Review 95Manufactured Home Communities
Washington has 1,377 registered communities with 69,279 spaces for homes
Tenants do not own the land under their homes
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How it works – example sale
Manufactured Home Communities
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August 20172017 Tax Preference Performance Review 97
Preference meeting its stated objective
Encourage preservationEncourage and facilitate preservation of communities and involve community tenants
Achieving the stated objectiveIncreases potential purchasing power of tenant organizations relative to other buyers
Manufactured Home Communities
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Community closures continue to occur
Manufactured Home Communities
Upcoming closures planned for development: apartments, hotels, schools, hospitals
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August 20172017 Tax Preference Performance Review 99Manufactured Home Communities
Ten communities purchased since 2008
480 spaces for homes
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Legislative Auditor recommends
Continue ConsiderMeeting its stated objective of facilitating preservation
Communities continue to close across the state
In extending, Legislature should consider adding a performance statement with metrics for future reviews
Manufactured Home Communities
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Next Steps
Full Report
Citizen Commission Takes Public CommentSeptember 2017
http://leg.wa.gov/jlarc/taxReports/2017/default.htm
Proposed Final Report
December 2017
Presentation to Legislative Fiscal Committees
January 2018
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Contact Us
Dana Lynn360‐786‐5177
John WoolleyProject Coordinator
360‐786‐5184
Rachel Murata360‐786‐5293
Pete van Moorsel360‐786‐5185
Eric Whitaker360‐786‐5618