BILL REQ. #:  H-2971.2 

Read first time 01/17/12.   Referred to Committee on Ways & Means.

     AN ACT Relating to requiring a rate of return analysis for state tax preferences; amending RCW 43.136.055; and creating a new section.

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

NEW SECTION.  Sec. 1   (1) The legislature finds that to effectively fulfill its role as a financial steward of state tax dollars, the legislature must understand the return on investment associated with each tax preference.
     (2) The legislature therefore intends to add a return on investment measurement to the duties of the joint legislative audit and review committee to provide a rigorous and measurable analysis of value of each tax preference.

Sec. 2   RCW 43.136.055 and 2011 c 335 s 3 are each amended to read as follows:
     (1) The joint legislative audit and review committee must review tax preferences according to the schedule developed under RCW 43.136.045. The committee must consider, but not be limited to, the following factors in the review as relevant to each particular tax preference:
     (a) The classes of individuals, types of organizations, or types of industries 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 but not limited to the legislative history, any legislative intent, or the extent to which the tax 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 extent to which the tax preference may provide unintended benefits to an individual, organization, or industry other than those the legislature intended;
     (f) The extent to which terminating the tax preference may have negative effects on the category of taxpayers that currently benefit from the tax preference, and the extent to which resulting higher taxes may have negative effects on employment and the economy;
     (g) The feasibility of modifying the tax preference to provide for adjustment or recapture of the tax benefits of the tax preference if the objectives are not fulfilled;
     (h) Fiscal impacts of the tax preference, including past impacts and expected future impacts if it is continued. For the purposes of this subsection, "fiscal impact" includes an analysis of the general effects of the tax preference on the overall state economy, including, but not limited to, the effects of the tax preference on the consumption and expenditures of persons and businesses within the state;
     (i) The extent to which termination of the tax preference would affect the distribution of liability for payment of state taxes;
     (j) The economic impact of the tax preference compared to the economic impact of government activities funded by the tax for which the tax preference is taken at the same level of expenditure as the tax preference. For purposes of this subsection the economic impact shall be determined using the Washington input-output model as published by the office of financial management;
     (k) Consideration of similar tax preferences adopted in other states, and potential public policy benefits that might be gained by incorporating corresponding provisions in Washington;
     (l) The rate of return of the tax preference. The "rate of return" is the ratio of: (i) The amount of direct, indirect, and induced state taxes that are paid to the state as a result of the tax preference; and (ii) the amount of state tax savings claimed by taxpayers as a result of the tax preference. Local taxes may be included as part of the ratio calculation under (l)(i) and (ii) of this subsection if the tax preference provides for a reduction in local taxes. The committee may determine the length of the time period used in the ratio calculation. The rate of return of the tax preference may be considered only where a purpose of the tax preference is job creation or retention. Where appropriate, the committee may deem the seller as the taxpayer with respect to sales and use tax exemptions. The factor under this subsection (1)(l) is not required to be part of a tax preference review until 2013 and thereafter.
     (2) For each tax preference, the committee must 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.