Read first time 01/12/11.   Referred to Committee on Ways & Means.

     AN ACT Relating to the tax preference review process; and amending RCW 43.136.011, 43.136.045 and 43.136.055.

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

Sec. 1   RCW 43.136.011 and 2006 c 197 s 1 are each amended to read as follows:
     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. The legislature further finds that tax preferences that are enacted for economic development purposes must demonstrate growth in full-time family wage jobs with health and retirement benefits. Given that an opportunity cost exists with each economic choice, it is the intent of the legislature that the overall impact of economic development-focused tax preferences benefit the state's economy.

Sec. 2   RCW 43.136.045 and 2006 c 197 s 4 are each amended to read as follows:
     (1) The citizen commission for performance measurement of tax preferences ((shall)) must develop a schedule to accomplish an orderly review of tax preferences at least once every ten years. ((The commission shall schedule tax preferences for review in)) In determining the schedule, the commission must consider the order the tax preferences were enacted into law, ((except that)) in addition to other factors including but not limited to grouping preferences for review by type of industry, economic sector, or policy area. The commission may elect to include, anywhere in the schedule, a tax preference that has a statutory expiration date. The commission ((shall)) must omit from the schedule tax preferences that are required by constitutional law, sales and use tax exemptions for machinery and equipment for manufacturing, research and development, or testing, the small business credit for the business and occupation tax, sales and use tax exemptions for food and prescription drugs, property tax relief for retired persons, and property tax valuations based on current use, and may omit any tax preference that the commission determines is a critical part of the structure of the tax system. As an alternative to the process under RCW 43.136.055, the commission may recommend to the joint legislative audit and review committee an expedited review process for any tax preference ((that has an estimated biennial fiscal impact of ten million dollars or less)).
     (2) The commission ((shall)) must revise the schedule as needed each year, taking into account newly enacted or terminated tax preferences. The commission ((shall)) must deliver the schedule to the joint legislative audit and review committee by September 1st of each year.
     (3) The commission ((shall)) must provide a process for effective citizen input during its deliberations.

Sec. 3   RCW 43.136.055 and 2006 c 197 s 5 are each amended to read as follows:
     (1) The joint legislative audit and review committee ((shall)) must review tax preferences according to the schedule developed under RCW 43.136.045. The committee ((shall)) 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.
     (2) For each tax preference, the committee ((shall)) 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.