BILL REQ. #:  H-1467.2 

Read first time 02/12/2003.   Referred to Committee on Finance.

     AN ACT Relating to performance audits of tax preferences; adding new sections to chapter 43.136 RCW; and repealing RCW 43.136.010, 43.136.020, 43.136.030, 43.136.040, 43.136.050, and 43.136.070.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature recognizes that tax preferences are enacted to meet objectives which are determined to be in the public interest. However, some tax preferences may not be efficient or equitable tools for the achievement of current public policy objectives. Given the changing nature of the economy and tax structures of other states, the legislature finds that periodic performance audits of tax preferences are needed to determine if their continued existence will serve the public interest.
     It is the intent of this act to foster a competitive business climate through periodic performance audits of tax preferences that affect the business climate.

NEW SECTION.  Sec. 2   As used in this chapter, "tax preference" means an exemption, exclusion, or deduction from the base of a state tax; a credit against a state tax; a deferral of a state tax; or a preferential state tax rate.

NEW SECTION.  Sec. 3   (1) The citizen commission for performance measurement of tax preferences is created.
     (2) The commission has nine voting members, appointed by the governor as follows:
     (a) Two persons representing labor;
     (b) Two persons representing business;
     (c) Three persons representing the general public;
     (d) Two tax specialists from the state university system, one from western Washington and one from eastern Washington.
     (3) The commission has four nonvoting members, one appointed by each of the following: The governor, the president of the senate, the speaker of the house of representatives, and the director of the department of revenue.
     (4) The commission shall elect a chair from among its voting or nonvoting members.
     (5) Appointees representing the general public should be individuals who have a basic understanding of state tax policy, government operations, and public services. They should have knowledge and expertise in performance management, fiscal analysis, strategic planning, performance assessments, or closely related fields.
     (6) Appointed members serve for terms of four years, with the terms expiring on June 30th on the fourth year of the term. However, in the case of the initial members, three members shall serve four-year terms, three members shall serve three-year terms, and three members shall serve a two-year term, with each of the terms expiring on June 30th of the applicable year. Appointees may be reappointed to serve more than one term.
     (7) The joint legislative audit and review committee shall provide clerical, technical, and management personnel to the commission to serve as the commission's staff.
     (8) The commission shall meet at least once a quarter and may hold additional meetings at the call of the chair or by a majority vote of the members of the commission. The members of the commission shall be compensated in accordance with RCW 43.03.220 and reimbursed for travel expenses in accordance with RCW 43.03.050 and 43.03.060.

NEW SECTION.  Sec. 4   (1) The citizen commission for performance measurement of tax preferences shall develop a schedule to accomplish an orderly review of tax preferences at least once every six years. In developing the schedule, the commission shall include tax preferences that it determines are appropriate for review, with particular consideration of tax preferences that affect the business climate of the state. The commission may omit from the schedule tax preferences that are required by constitutional law, or that primarily benefit government agencies, charities, nonprofit organizations, or individuals.
     (2) The commission shall revise the schedule as needed each year, taking into account newly enacted or terminated tax preferences. The commission shall deliver the schedule to the joint legislative audit and review committee by September 1st of each year.

NEW SECTION.  Sec. 5   (1) The joint legislative audit and review committee shall review tax preferences according to the schedule developed under section 4 of this act. The committee shall consider, but not be limited to, the following factors in the review:
     (a) The persons or organizations whose state tax liabilities are directly affected by the tax preference;
     (b) Public policy objectives that might provide a justification for the tax preference, including the extent to which the preference encourages business growth or relocation into this state, promotes growth or retention of high wage jobs, or helps stabilize communities;
     (c) Evidence that the existence of the tax preference has contributed to the achievement of any of the public policy objectives;
     (d) The extent to which continuation of the tax preference might contribute to any of the public policy objectives;
     (e) The feasibility of modifying the preference to provide for adjustment or recapture of the tax benefits of the preference if the objectives are not fulfilled;
     (f) Fiscal impacts of the tax preference, including past impacts and expected future impacts if it is continued;
     (g) The extent to which termination of the tax preference would affect the distribution of liability for payment of state taxes.
     (2) For each tax preference, the committee shall provide a recommendation as to whether the tax preference should be continued without modification, modified, scheduled for sunset review at a future date, or terminated immediately. The committee may recommend accountability standards for the future review of a tax preference.

NEW SECTION.  Sec. 6   (1) The joint legislative audit and review committee shall report its findings and recommendations for scheduled tax preferences to the citizen commission for performance measurement of tax preferences by August 30th of each year. The commission may review and comment on the report of the committee. The committee may revise its report based on the comments of the commission. The committee shall prepare a final report that includes the comments of the commission and submit the final report to the finance committee of the house of representatives and the ways and means committee of the senate by December 30th.
     (2) Following receipt of the report, the finance committee of the house of representatives and the ways and means committee of the senate shall jointly hold a public hearing to consider the final report and any related data.
     (3) Following the joint hearing, the committees may separately hold additional meetings or hearings to come to a final determination as to whether a continuation, modification, sunset review, or termination of a tax preference is in the public interest.

NEW SECTION.  Sec. 7   Upon request of the citizen commission for performance measurement of tax preferences or the joint legislative audit and review committee, the department of revenue shall provide information needed by the commission or committee to meet its responsibilities under this chapter.

NEW SECTION.  Sec. 8   The following acts or parts of acts are each repealed:
     (1) RCW 43.136.010 (Legislative findings -- Intent) and 1982 1st ex.s. c 35 s 39;
     (2) RCW 43.136.020 ("Tax preference" defined) and 1982 1st ex.s. c 35 s 40;
     (3) RCW 43.136.030 (Legislative budget committee and department of revenue -- Review of tax preferences -- Reports) and 1982 1st ex.s. c 35 s 41;
     (4) RCW 43.136.040 (Legislative budget committee review of tax preferences -- Factors for consideration) and 1982 1st ex.s. c 35 s 42;
     (5) RCW 43.136.050 (Powers and duties of ways and means committees) and 1982 1st ex.s. c 35 s 43; and
     (6) RCW 43.136.070 (Report on existing tax preferences to be provided -- Additional information to be provided) and 1982 1st ex.s. c 35 s 45.

NEW SECTION.  Sec. 9   Sections 1 through 7 of this act are each added to chapter 43.136 RCW.