JLARC > JLARC Reports > 2015 Tax Preferences > Aluminum Industry Tax Preferences

JLARC Final Report: 2015 Tax Preference Performance Reviews

Report 15-5, January 2016

Aluminum Industry Tax Preferences

The Preference Provides Tax Type Est. Beneficiary Savings in 2015-17 Biennium
Group A:
A reduced business and occupation (B&O) tax rate for manufacturers, wholesalers of aluminum that are also manufacturers, and processors for hire of aluminum. The Legislature reduced the rate from 0.484 percent to 0.2904 percent. B&O
RCW
82.04.2909
$2.4 million
A B&O tax credit for the amount of taxes paid on property owned by a direct service industrial customer and reasonably necessary for the purposes of an aluminum smelter. Property
RCW
82.04.4481
$2.9 million
A sales and use tax credit for the state portion (6.5 percent) of taxes paid for personal property, materials incorporated into structures, and labor and services performed on buildings and property at an aluminum smelter. Businesses take the credit against their B&O liability. Sales and Use
RCWs
82.08.805;
82.12.805
$1.5 million
A brokered natural gas use tax exemption for purchases of natural gas delivered through a pipeline and used by an aluminum smelter. Use
RCW
82.12.022(5)
$0.5 million
Group B:
A Public Utility Tax (PUT) credit for electric and gas sales made by light and power firms selling to aluminum smelters, provided the price charged is reduced by an amount equal to the credit claimed. Public Utility
RCW
82.16.0498
Not disclosable
A B&O tax credit for electric and gas sales to aluminum smelters made by non-light and power businesses, provided the price charged is reduced by an amount equal to the credit claimed. B&O
RCW
82.04.4482
$0
Public Policy Objective
The Legislature stated a public policy objective for the four preferences available to aluminum smelters (B&O preferential rate; B&O tax credit for property taxes paid; sales and use tax paid for building-related spending; and use tax exemption for purchases of natural gas):
  • Preserving employment in the aluminum manufacturing industry in Washington.

JLARC staff infer two public policy objectives for the two preferences available for businesses selling power to aluminum smelters:

  • Retain family wage jobs in rural areas; and
  • Sustain the aluminum industry through a period of high energy prices.
Recommendations
Legislative Auditor's Recommendation: Review and Clarify

Because future reviews will be facilitated by:

  • Specifying jobs and commodity pricing metrics that can be used to determine if the objective for the four preferences directly available to aluminum smelters (Group A) has been achieved;
  • Providing a performance statement that includes a public policy objective and specifies metrics to determine if the objectives for the two preferences available for businesses selling power to aluminum smelters (Group B) have been achieved; and
  • Adding a requirement for the beneficiaries of the aluminum preferences to disclose their beneficiary savings because otherwise the fiscal impact of the preferences may not be identified in the future (Groups A and B).

Commissioner Recommendation: The Commission endorses the Legislative Auditor’s recommendation for Group A with comment.

In reviewing these preferences, the Legislature should consider industry testimony suggesting that the aluminum market is facing a significant downturn due to weak global demand and over production from Chinese producers.

The Commission endorses the Legislative Auditor’s recommendation for Group B without comment.

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