Washington State

House of Representatives

Office of Program Research

BILL

ANALYSIS

Ways & Means Committee

HB 1286

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Brief Description: Concerning the tax preference review process.

Sponsors: Representatives Orcutt, Hasegawa, Kelley, Santos and Reykdal.

Brief Summary of Bill

  • Replaces the mandatory requirement to schedule tax preferences according to the date of enactment with a more flexible approach.

  • Eliminates the $10 million threshold for the Citizen Commission for Performance Measurement of Tax Preferences to recommend an expedited review of a tax preference.

  • Provides the Joint Legislative Audit Review with flexibility in determining which factors to evaluate for a particular tax preference.

Hearing Date: 2/1/11

Staff: Jeffrey Mitchell (786-7139).

Background:

State law requires a periodic review of most excise and property tax preferences to determine if their continued existence or modification serves the public interest. A "tax preference" is a tax exemption, deduction, credit, or preferential tax rate. The enabling legislation assigns specific roles in the review process to two different entities. The job of scheduling tax preferences, holding public hearings, and commenting on the reviews is assigned to the Citizen Commission for Performance Measurement of Tax Preferences (Commission). The responsibility for conducting the reviews is assigned to the staff of the Joint Legislative Audit and Review Committee (JLARC). The Commission develops a schedule to accomplish a review of tax preferences at least once every 10 years. The Commission is authorized to omit certain tax preferences from the schedule such as those required by constitutional law, the sales and use tax exemptions for machinery and equipment and food, the small business B&O tax credit, the property tax relief program for retired persons, and tax preferences that the Commission determines are a critical part of the tax structure. The Commission considers two additional factors in developing its schedule. First, as a general matter, the Commission must schedule tax preferences for review in the order in which the preferences were enacted into law. Second, the Commission must schedule tax preferences that have a statutory expiration date before the preference expires. Through 2010, 95 tax preferences have been reviewed.

When reviewing tax preferences, the JLARC is required to consider the following factors:

After evaluating these factors, the JLARC provides 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.

As an alternative to the process described above, the Commission is authorized to recommend an expedited review process for any tax preference that has an estimated biennial fiscal impact of $10 million dollars or less. Generally, an expedited review process is limited to the identification of public policy objectives of the tax preference and its primary beneficiaries as well as revenue impacts.

Summary of Bill:

The mandatory requirement that the Citizen Commission for Performance Measurement of Tax Preferences (Commission) schedule tax preferences in the order tax preferences are enacted into law is replaced with a more flexible approach. The modified approach allows the JLARC to consider the date of enactment as one factor. However, the JLARC is allowed to consider other factors including, but not limited to, grouping preferences for review by type of industry, economic sector, or policy area in determining the schedule.

The requirement that an expedited a review can only be applied to preferences with a biennial fiscal impact of $10 million or less is eliminated. The Commission is authorized to recommend an expedited review for any tax preference.

In evaluating tax preferences, the JLARC may determine which factors should be included in the review of a particular preference based on the factor's relevance to that preference.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.