Democrats in the state House are gearing up for another fight with the Senate over tax disclosures as the Legislature moves toward a March 13 adjournment.
Democratic Rep. Reuven Carlyle of Seattle is pushing a bill that would make tax data public — by company, amount and effective tax rate — for about 13 new categories of tax breaks related to economic development.
The extra information would be added to annual reports already required for 19 tax breaks, raising the total to 32. The company-specific data — required only for publicly traded firms accepting more than $10,000 of tax benefit — would need to be at least two years old to reduce impacts on the firm’s competitive position.
Carlyle says some companies’ tax break benefits already are disclosed, and that making public the amount of tax avoided for 32 of the state’s 650 total tax exemptions is necessary for lawmakers to understand more clearly how much value a specific break has for a business.
For example, he noted that a representative of Shell’s refinery in Anacortes testified this year that the company pays $50 million in Washington taxes each year, and a repeal of a tax break on its use of recycled fuel waste-products would add 10 percent to the company’s tax burden.
Carlyle said his proposal would clarify which taxes the company was paying — whether they are business and occupation taxes on gross receipts, or other levies — and the tax break’s effect on the firm’s bottom line.
“We don’t know if that is B&O. Is that public utilities (tax)? Is that fuel? And is that $50 million on $100 million of revenue or $3 billion in revenue? We do not know,” Carlyle said recently.
Business lobbyists say it is not the public’s concern to pry into such details of a firm’s internal finances. Lobbyist Amber Carter of the Association of Washington Business led a panel last month that testified in favor of the portion of Carlyle’s legislation that would cut tax-reporting forms from 15 pages to five by consolidating two yearly tax reports into one.
But Carter and the others were dead set against the new disclosures of tax breaks an individual firm might receive.
“I have grave concerns about this bill as it impacts the businesses of Washington state,” warned tax consultant and CPA Darcy Kooiker of Seattle. Kooiker said confidentiality of business information is important enough that one client is forgoing a tax break rather than submitting reporting requirements.
“It’s worth $150,000 per year, but because the knowledge about their business would be out there … this company chooses not to claim this incentive,” Kooiker said.
Carter said last year’s reforms already require that beneficiaries of new tax breaks show how much public good is done by a tax break.
Indeed, Washington’s Legislature reached agreement last June and enacted a law that says companies receiving new tax breaks based on a promise of job creation must file yearly performance reports with the state showing what impacts tax favoritism produces. But those disclosure demands are forward-looking.
That Senate measure took a lot of negotiating to pass in a divided Legislature, but it survived as part of a late-session deal that also closed a couple of tax loopholes caused by court rulings. Lawmakers also added nearly $13 million of new tax breaks for business sectors that the Senate wanted to help.
This year, Carlyle’s House Bill 2201 passed the House and awaits action in the Senate. But the 52-45 vote last week was largely partisan.
All but three Democrats voted in favor. The holdouts were Reps. Kathy Haigh of Shelton, Chris Hurst of Enumclaw and Monica Stonier of Vancouver.
So far, no Republicans have publicly supported Carlyle’s proposal. Senate Republican Leader Mark Schoelser of Ritzville called the House vote “a bipartisan no vote” and questioned whether Carlyle’s bill would hurt businesses.
“Some people just want to make it as difficult to lower taxes as they can and as easy as possible to raise them,’’ Schoesler said.
In the House floor debate, Republican Rep. Terry Nealey of Dayton warned of a “chilling effect” on businesses that might not want to use the tax break or move into the state. And Republican Rep. Jay Rodne of Snoqualmie questioned why lawmakers were not also acting on bills to study how much burden regulatory rules are having on businesses and economic competitiveness in Washington.
“Those bills have gone nowhere, Mr. Speaker,” Rodne told the House. “Until this body is really wanting to look at the full spectrum of competitive issues — not only tax preferences but also the rule making and regulatory burdens imposed on businesses, and the job losses incurred, I’ll be a ‘no’ (vote).”
But Carlyle said more information is needed to properly assess the economic value of tax breaks and ensure legislators are making the best decisions they can on tax policy. He noted that many research and development tax breaks for high-tech industries are subject to the kind of disclosure he is seeking.
Because of those disclosures, the public can find out that, while Microsoft received more than $20 million in research and development tax subsidies in 2012, most firms getting the breaks are smaller outfits or startups.
And, Carlyle said, the state has all kinds of disclosure about spending — including a website at fiscal.wa.gov where a person can track down nearly every penny the state spends.
“That is the context I am trying to deliver for the people of this state. That’s not anti-business. It’s pro-taxpayer,’’ Carlyle said. “There is no way to assess whether the damn things work without access to basic information.
“My view is it is getting harder and harder for Republicans to argue that the public does not have a right to know the value of a tax preference. I think we can get to ‘yes’ on this policy.’’