HOUSE BILL REPORT

HB 1296

As Reported by House Committee On:

Finance

Title: An act relating to consolidating and simplifying the annual report and annual survey used for economic development tax incentives.

Brief Description: Consolidating and simplifying the annual report and annual survey used for economic development tax incentives.

Sponsors: Representatives Nealey, Springer, Harris, Vick, MacEwen, Stokesbary, Orcutt, Haler and Condotta.

Brief History:

Committee Activity:

Finance: 1/17/17, 2/3/17 [DPS].

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 10 members: Representatives Lytton, Chair; Frame, Vice Chair; Nealey, Ranking Minority Member; Orcutt, Assistant Ranking Minority Member; Condotta, Dolan, Pollet, Springer, Stokesbary and Wilcox.

Staff: Tracey O'Brien (786-7152).

Background:

Tax Preferences.

A tax preference confers reduced tax liability upon a designated class of taxpayer. Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits. Currently, Washington has over 650 tax preferences.

Annual Surveys and Reports.

Over the last 10 years, the Legislature has required taxpayers to file the Annual Survey (Survey) or the Annual Report (Report) in order to qualify for a variety of new economic development-related tax preferences, or in some cases, when extending existing economic development-related preferences. There are currently 32 economic development-related tax preferences that require one of these supplemental filings. While the Report and the Survey are similar in that both documents require the annual reporting of employment and wage information, there are a couple of differences. Most notably, the Survey requires the taxpayer to report the tax savings associated with a tax preference, and the taxpayer's savings amounts are subject to public disclosure; however, the Report does not require firm-specific tax savings to be reported.

In the 2013 session, the Legislature directed the Department of Revenue (DOR), in consultation with the Joint Legislative Audit and Review Committee (JLARC), to recommend improvements for the Survey and the Report. The DOR made six recommendations to ensure more meaningful data is provided, reduce the administrative burden on taxpayers, and improve transparency, including combining the report and survey into a single tax preference accountability document, eliminate reporting of information that does not inform the JLARC on the effectiveness of the tax preference in achieving its public purpose, and making disclosure of taxpayer information consistent.

Public Disclosure of Tax Information.

Generally, firm-specific tax information is confidential unless a specific exception is provided in the law. Examples of existing exceptions include disclosure of tax information as part of a judicial proceeding and the sharing of tax information, under certain conditions, to legislators on fiscal, economic-development, or industry-related committees. As noted above, firm-specific taxpayer savings reported on the Survey are an exception to this general rule as well, and may be disclosed.

Department of Revenue Tax Exemption Report.

The DOR must produce and submit to the Legislature a tax exemption report every four years. The report includes a listing of the estimated revenue loss from the exemption and the beneficiary of the exemption. The report also includes the estimated revenue loss for other tax preferences including, preferential rates, deductions, and credits. 

Tax Exemption.

The next report is due in January 2016.

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Summary of Substitute Bill:

The separation of annual surveys and annual reports is eliminated, with the consolidation of the requirements in the current annual report statute. The report will be called the "tax performance report." Beginning in calendar year 2018, every person claiming a tax preference that required an annual report or annual survey will file the tax performance report.

As the result of the consolidation of the reports, all persons claiming a tax preference will provide the same information about the amount of the preference claimed, employment, wages, and employer-provided health and retirement benefits. All the information is subject to public disclosure upon request, except any additional information requested by DOR to determine eligibility for the tax preference.

In addition, the expiration dates for the data center preference (RCW 82.08.986) were updated to include the automatic 10-year expiration dates per RCW 82.32.805(1)(a) to provide taxpayers taking advantage of this tax preference clearer notice of the expiration date (on or before January 1, 2026). The DOR notified the Code Reviser as required by law that this preference will be expiring in 10 years.

The report due date for the tax deferral in rural counties preference is moved up one year and is now due December 1, 2018.

Substitute Bill Compared to Original Bill:

The substitute renames the report to "tax preference report." The exemption from the Unemployment Insurance confidentiality statutes is eliminated. Several technical corrections are made to cross-references. The substitute also restores the current prohibition on public disclosure of any additional information provided to the DOR by the taxpayer at the DOR's request.

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Appropriation: None.

Fiscal Note: Available.

Effective Date of Substitute Bill: The bill takes effect on January 1, 2018.

Staff Summary of Public Testimony:

(In support) This bill builds upon the tradition of improving the reporting requirements for taxpayers. The reporting process is thorough, but it can be more efficient. This bill builds upon the recommendations from the DOR and ensures that the JLARC receives the information necessary to evaluate the efficacy of tax preferences. In practical terms, this bill will decrease the many pages of information currently required of taxpayers to a more manageable and meaningful document; thus, reducing the possibility of unintentional errors.

(Opposed) None.

Persons Testifying: Representative Nealey, prime sponsor; and Eric Lohnes, Association of Washington Business.

Persons Signed In To Testify But Not Testifying: None.