The Budget

Eliminating and limiting tax loopholes

The Senate promised to take a close look at closing tax loopholes this session to help close a historic budget shortfall. And it successfully included language in the budget creating a task force to reform the executive and legislative procedures dealing with tax preferences. This will require a rigorous review of hundreds of tax preferences already embedded in the tax code and increase scrutiny to the process of adopting or extending tax preferences in the future. The task force will provide recommendations to the governor and Legislature regarding their findings.

But most notably, the revenue package approved by the Legislature as part of a balanced solution to re-balance the state budget closes or limits eight tax preferences to generate $205 million during the remainder of the current two-year budget cycle.

Repeal B&O tax exemption for direct sellers (Dot Foods)
A recent court ruling extended an unintended tax break to out-of-state businesses that sell products in Washington. That gave them an unfair advantage over in-state businesses. Senate Bill 6143 repealed the tax break restoring the Legislature’s original intent to save $155 million.

Sales tax applied to candy and gum
The state’s tax code contains a sales tax exemption on food. This year’s revenue package eliminates that exemption for candy and gum to generate $30.5 million. The package also includes a per-job tax credit for in-state manufacturers to mitigate the tax increase.

Property Management B&O
The exemption for property management salaries is limited to nonprofit property management companies and property management companies that contract with a housing authority to save $6.9 million

First Mortgage B&O Tax Deduction (HomeStreet case)
The deduction of fees for the servicing of loans is limited to the original lender. In order to save $3.9 million, fees for loans sold on the secondary market will no longer qualify for the deduction.

B&O Rate for Processing Meat, Fruits or Vegetables (Agrilink)
Limits the tax preference so that it exclude large companies manufacturing products such as chili to save $4.1 million.

Suspend the Sales and Use Tax Exemption for Livestock Nutrient Management
The exemption on purchases related to livestock management equipment is suspended to save $1.5 million.

Tax on Corporate Board of Director Fees
No taxes are currently paid on the compensation companies pay to members of their corporate boards of directors. Senate Bill 6143 closes this loophole to generate $2.1 million.

Bad debt
The credit or refund against current sales tax liability on debts that are deductible as worthless for federal income tax purposes is limited to the seller in order to save $1.7 million.