Tax Preference Performance Requirements.  State law provides a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer.  Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits.  Washington has over 700 tax preferences, including a variety of sales and use tax exemptions. 

Legislation that establishes or expands a tax preference must include a tax preference performance statement that identifies the public policy objective of the preference, as well as specific metrics the Joint Legislative Audit and Review Committee (JLARC) can use to review the effectiveness of the preference.  Tax preferences must be reviewed by JLARC at least once every ten years, unless state statute requires otherwise.  The following tax preferences are specifically omitted from any review schedule developed by the Citizens Commission on Performance Measurement of Tax Preferences (Citizen's Commission):

• any tax preferences required by constitutional law;
• sales and use tax exemptions for machinery and equipment for manufacturing, research and development, or testing;
• small business credit for the business and occupation (B&O) 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
• any tax preference that is a critical part of the structure of the tax system.

All new tax preferences automatically expire after ten years unless an alternative expiration date is provided or the tax preferences is exempted from expiration. 

Disclosure of Tax Information.  Returns and tax information are confidential.  Neither the Department of Revenue (DOR) nor any other person may disclose any return or tax information, unless expressly authorized to do so in statute.

Tax Exemption Report.  DOR must submit a report to the Legislature every four years, prior to the start of the legislative session, that lists the amount of reduced state and local tax revenue for each tax preference.  The last tax exemption report was submitted to the Legislature in 2020.    

Tax Preference Data Collection.  A taxpayer required to file a return with DOR to report B&O or public utility taxes (PUT) must separately report the amount of any tax deduction on such return. 

DOR must establish reporting codes to identify selected business tax incentives.
 
Selected business tax incentives includes the following tax preferences, if DOR determines that all or a majority of the taxpayers entitled or likely to claim the tax preference are businesses:

• deductions and credits for the B&O tax and PUT;
• sales and use tax exemptions and credits; and
• preferential business and occupation tax rates.

 
A tax preferences is not considered a selected business tax incentive if it:

• was enacted as part of the Revenue Act of 1935;
• ensures compliance with the state or federal constitution;
• eliminates multiple taxation of the same activity, transaction, or income;
• requires taxpayers to file an annual report with DOR; or
• is obsolete or redundant.

 
Reporting codes for selected business tax incentives must be established by January 1, 2023.  DOR may also establish reporting codes to identify any other tax preferences reported to DOR on a return, as required by state law.
 
DOR must provide a list of all selected business incentives and must endeavor to keep the rule up-to-date.

Public Disclosure of Certain State Tax Information.  DOR may disclose the following information:

• the amount of any tax preference claimed by a taxpayer filing an annual tax preference report or any new tax preference subject to tax preference performance statement requirements; and
• the return or tax information of any taxpayer that is a local governmental entity or nonprofit organization.  

Joint Legislative Audit and Review Committee Review of the Senior Citizen Property Tax Relief Program and Research and Development Incentives.  The senior citizen property tax relief program and the research and development tax incentives are removed from the list of tax preferences that do not require review by JLARC at least once every ten years.  

Legislators to Request Additional Information on Fiscal Notes for Tax Incentives.  A legislator may request that the fiscal note of any legislative proposal creating a new tax preference designated as an economic development incentive must include information regarding existing tax preferences currently available to taxpayers who would qualify for the new tax preference.  The information, to the extent practicable, must include a brief description of any such existing tax preference and its total annual and biennial fiscal impact.  If an existing tax preference's approximate fiscal impact is unknown, it must be noted in the fiscal note for the new tax preference.

Clawback Provisions in Economic Development Tax Preferences Targeting a Small Number of Taxpayers.  If the legislative purpose of a new tax preference is to improve industry competitiveness or to create or retain jobs, and the fiscal note for the new tax preference indicates that at least 90 percent of the benefit of the tax preference will accrue to ten or fewer taxpayers, then the new tax preference must include provisions requiring taxpayers using the tax preference to pay back the amount of the tax savings from the preference if the employment or wage standards specified in the tax preference performance statement are not met.

Department of Revenue Tax Exemption Report.  Beginning in 2025, DOR must submit a tax exemption report to the Legislature every two years, rather than every four years. 

The January 2026 report must include the following information:

• the estimated effective tax rate for each industry, including an estimate for each industry of employment levels, major taxes paid per employee within each industry, and the industry's average wage;
• state general fund collections as a percentage of state gross domestic product and state personal income;
• a summary of the tax preference transparency and accountability requirements; and
• JLARC's recommendation for the tax preference, along with the Citizen's Commission recommendation, for the most recent analysis of the tax preference, if a review has been completed.

PRO:  There is a misconception that all tax preferences expire after ten years.  Washington has over 700 tax preferences.  The tax preference performance statement is valuable for providing information to the public.  It is time for the Legislature to expand transparency requirements for tax preferences.  Legislators should have more information when deciding to enact a tax preference, such as the benefit amount and beneficiary. 
 
CON:  The reporting requirements in this bill are redundant.  It is wrong to make this type of taxpayer information subject to public disclosure.  Tax preferences should never contain a clawback provision.  Washington already has one of the broadest public disclosure policies with regard to tax preferences.  The administrative burden caused by this bill is likely to have a fiscal impact.  DOR is already auditing the business that would be impacted by this bill.  Subjecting businesses to the public disclosure provisions under this bill puts the state at a competitive disadvantage.