Aircraft for Air Ambulances
One Page OverviewTax exemptions for nonprofits that own aircraft used exclusively for emergency medical transportation
An aircraft excise tax exemption and a property tax exemption are provided for nonprofit 501(c)(3) organizations that own aircraft used exclusively for emergency medical transportation.
The preferences are scheduled to expire January 1, 2020.
Estimated Biennial Beneficiary Savings
$0
Inferred public policy objective met
The Legislature did not state a public policy objective for either preference when they were passed in 2010. JLARC staff infer an objective based on testimony to the Legislature.
| Objective (inferred) | Results |
|---|---|
| Provide tax relief to nonprofit organizations that own aircraft used exclusively for emergency medical transportation. | Met. The preferences provided tax relief to a nonprofit air ambulance service provider for six years. No organizations currently qualify for the preferences, but they could provide tax relief to qualifying nonprofits in the future. |
Legislative Auditor's Recommendation: Continue and clarify (structural purpose)
The Legislature should clarify the two preferences to add performance statements, specify public policy objectives, and eliminate expiration dates.
More information is available on the Recommendations Tab.
Commissioners' Recommendation
The Commission endorses the Legislative Auditor’s recommendation without comment.
Committee Action to Distribute Report
On December 12, 2018 this report was approved for distribution by the Joint Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees with the Legislative Auditor recommendations.
Corporate Headquarters Investment Projects
One Page OverviewSales & use tax deferral for businesses locating in community empowerment zones
The preference provides a sales and use tax deferral on building expenses for businesses that establish corporate headquarters in a designated community empowerment zone (CEZ).
The deferred taxes are fully waived if:- The Department of Revenue certifies the investment project meets all eligibility requirements.
- The completed project meets eligibility requirements for a total of eight years.
The company must pay back a portion of the waived taxes if it does not continue to meet eligibility requirements for a total of eight years.
The preference took effect July 1, 2009. The Legislature did not set an expiration date, but did establish that no new applications can be submitted after December 31, 2020.
Estimated Biennial Beneficiary Savings
$0 - Preference has not been used
One of two inferred public policy objectives met
The Legislature did not state a public policy objective when it passed this preference in 2008. JLARC staff infer two public policy objectives based on the eligibility requirements, other related legislation, and testimony to the Legislature.
| Inferred Objectives | Results |
|---|---|
Encourage private sector investment and employment in community
empowerment zones
(CEZs)
|
Not currently met. Department of Revenue tax records indicate the preference has never been used. |
Better compete with Oregon and Idaho for private sector investment
|
Met. The preference makes Washington more competitive with Oregon for attracting corporate headquarters. Idaho repealed a similar preference in 2008 after this bill passed. |
Many factors influence where businesses locate and invest
Evidence from corporate relocations and academic research suggest that tax incentives are one of many factors considered when businesses locate their headquarters. Many of these factors are not present in CEZs. Other states and local governments have used strategies beyond tax incentives to revitalize economically distressed areas.
Recommendations
Legislative Auditor's Recommendation: Allow to expire and consider other strategies
The Legislature should allow the preference to expire if no business has applied to use it by December 31, 2020. The Legislature may want to consider other strategies beyond tax incentives to encourage economic development in CEZs.
More information is available on the Recommendations Tab.
Commissioners' Recommendation
The Commission endorses the Legislative Auditor’s recommendation with comment. The Legislature should clarify the public policy objectives and performance metrics in the event a business applies for the incentive before it is set to expire. In the event the exemption is used in the next two years and does not expire, it would be helpful to have clearly stated policy objectives and performance metrics for future review.
Committee Action to Distribute Report
On December 12, 2018 this report was approved for distribution by the Joint Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees with the Legislative Auditor recommendations.
Custom Farming and Hauling Farm Products
One Page OverviewB&O and public utility tax exemptions for those who provide services or haul goods for farmers
The Legislature enacted these preferences for farms in 2007:
- Custom farming and specific farm services: A B&O tax exemption for farmers who provide custom farming services (e.g., planting or harvesting of agricultural products) to other farmers. The exemption also applies to those who provide specific farming services (e.g., farm management) to related farmers.
- Hauling farm products and equipment: A public utility tax exemption for those who haul farm machinery, equipment, or agricultural products for a related farmer or person performing custom farming services.
"Related" farmer means a family member or a relationship established through a corporation or trust, as specified by the Internal Revenue Service.
Both preferences are scheduled to expire December 31, 2020.
Estimated Biennial Beneficiary Savings
$67,500 (Custom Farming)
Unknown (Hauling Farm Products)
Inferred public policy objective met by one preference. Impact of second preference unknown.
| Preference | Objectives (inferred) | Results |
|---|---|---|
| Custom farming and specific farm services (B&O tax preference) | Provide tax relief | Met. Preference is providing tax relief to six to seven businesses annually. |
| Hauling farm products and equipment for related farmers (Public utility tax preference) | Provide tax relief | Unknown. Structurally, the preference would provide tax relief. No data or information is available to determine if it is being used. |
Some Washington farmers reorganized their farms in response to federal regulations. This had state tax consequences.
Under Bureau of Reclamation regulations, a farm owner can receive irrigation water from a federal reclamation project on no more than 960 acres. To remain eligible for federal irrigation water, some farm owners split their farm among multiple owners but continued to operate as one farming operation.
This created an unintended structural tax issue. If one owner provided a service or hauled products/equipment for another owner on the same farm, these services could be subject to B&O or public utility tax. The preferences eliminate potential taxation in these situations.
Farmers who meet all eligibility criteria but were not impacted by the federal regulations also qualify for these preferences.
Recommendations
Legislative Auditor's Recommendation: Continue and clarify (structural purpose)
The Legislature should continue and clarify the two preferences to add performance statements, specify public policy objectives, and eliminate the expiration dates.
More information is available on the Recommendations Tab.
Commissioners' Recommendation
The Commission endorses the Legislative Auditor’s recommendation without comment.
Committee Action to Distribute Report
On December 12, 2018 this report was approved for distribution by the Joint Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees with the Legislative Auditor recommendations.
Government-Funded Behavioral Health Services
One Page OverviewB&O tax deduction for government-funded behavioral health care
The preference allows two types of entities to deduct the amount of government funding spent on behavioral health services:
- Health or social welfare organizations--nonprofits that provide mental health and chemical dependency services to patients (i.e. behavioral health) can deduct the amount of government funding they receive.
- Behavioral Health Organizations (BHOs)--regional health care entities that contract with providers for government-funded behavioral health services can deduct the amount they pay to health or social welfare organizations.
The preference is scheduled to expire January 1, 2020.
Estimated Biennial Beneficiary Savings
$10.9 Million
Inferred public policy objectives met
The Legislature did not state a public policy objective when it passed this preference in 2011. JLARC staff infer two public policy objectives based on testimony to the Legislature when the legislation was passed.
| Objectives (inferred) | Results |
|---|---|
| Increase the amount of funding available for behavioral health services. | Met. The preference reduces the amount of tax collected on government-funded behavioral health services so that more money goes directly to treatment. |
| Provide similar tax treatment for all entities that receive government funding for behavioral health services. | Met. The preference allows privately run BHOs to deduct from B&O taxes the amount of government funding they spend on behavioral health services. It also allows health or social welfare organizations to deduct from B&O taxes the amount of government funding they receive from privately run entities. |
Changes in Washington's management of Medicaid funding will affect how health care providers are taxed
The state is currently in the process of integrating Medicaid-funding of behavioral health services with physical health services. This will change how health care entities and providers are taxed. As a result, more providers -- in Pierce County and other parts of the state -- are likely to use the preference until it expires in 2020.
When the preference expires, more government funding for behavioral health services will be taxed, so less money may go directly to behavioral health service treatment.
Recommendations
Legislative Auditor's Recommendation: Determine whether to continue (policy decision)
The Legislature should determine whether to continue the preference. If the Legislature wants to continue the tax deduction for government-funded behavioral health care, it will need to take action. Otherwise, behavioral health will be treated the same as physical health services and providers will pay B&O taxes beginning in 2020.
More information is available on the Recommendations Tab.
Commissioners' Recommendation
The Commission endorses the Legislative Auditor's recommendation with comment. The preference should be continued because it supports mental health services that can prevent more serious and costly health issues.
Committee Addenda
The Committee strongly endorses the Citizen Commission recommendation to enact a new revised preference without allowing the preference to expire. Any gap in the preference would be a setback for the Legislature’s efforts to increase support for mental and behavioral health services at a critical time. Failure to act would also harm state policy on integration of behavioral and physical health services. Essentially, the Legislature would likely need to increase direct support for Behavioral Health Organizations by the same amount to avoid a cut in services. Therefore, the Committee recommends passage of a new deduction for government funded behavioral health services in the 2019 Session, with appropriate tax preference performance measures and review.
Committee addenda available on the Recommendations & Responses Tab.
Committee Action to Distribute Report
On December 12, 2018 this report was approved for distribution by the Joint Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees with the Legislative Auditor recommendations.
Investment Projects in High Unemployment Counties and Community Empowerment Zones
One Page OverviewSales and use tax deferral for qualifying businesses that invest in facilities, machinery, or equipment in certain distressed areas
Qualifying businesses located in economically distressed areas do not pay sales or use tax on the following investments:
- New construction, or expansion or renovation of existing facilities.
- New machinery or equipment.
The preference applies to two types of economically distressed areas:
- A high unemployment county designated by the Employment Security Department based on recurring above average unemployment rates.
- A community empowerment zone (CEZ) designated by the Department of Commerce. CEZs are located in cities or unincorporated areas and are characterized by limited employment opportunities and educational services, a lack of affordable housing, and deteriorating infrastructure.
The deferred taxes are waived if businesses continue to use the facilities, machinery, or equipment as intended for a total of eight years.
The preference has no expiration date, but the Department of Revenue cannot issue deferral certificates after July 1, 2020.
Estimated Biennial Beneficiary Savings
$5.8 Million
Stated public policy objectives
The Legislature stated its objectives in 2010 when it restructured a previous deferral program to encourage investment in high unemployment counties and CEZs.
| Objectives (stated) | Results |
|---|---|
| Stimulate economic development and job growth in distressed areas | Mixed. Businesses are using the preference in eight out of 22 high unemployment counties and four out of six CEZs. These beneficiaries have created new jobs, but fewer than they originally estimated. It is unclear if the job growth meets legislative expectations. |
| Reduce poverty in distressed areas | Unclear, but likely nominal impact. JLARC staff estimate the potential reduction to the poverty rate is at most 0.07 percent in qualifying areas. |
Recommendations
Legislative Auditor's Recommendation: Review sufficiency of outcomes and add metrics
The Legislature should review the sufficiency of outcomes and add metrics for the preference. While businesses are using the preference in eight high unemployment counties and four CEZs, estimates vary on the extent to which the preference has impacted job growth. Businesses reported creating 87 percent fewer jobs than they originally estimated. It is unclear if the job growth meets legislative expectations.
It is also unclear whether the preference reduced poverty in distressed areas. At most, JLARC staff estimate the potential reduction in the poverty rate to be 0.07 percent in qualifying areas. The data necessary to determine a more precise impact on poverty rates does not exist.
More information is available on the Recommendations Tab.
Commissioners' Recommendation
The Commission endorses the Legislative Auditor’s recommendation with comment. Metrics should be designed to capture not only the impact of the preference across all applicable counties and community empowerment zones, but also within each county and community empowerment zone. If the preference is creating new jobs or otherwise having a positive economic impact on one county or zone, then it may be worth maintaining. Specific to metrics, in many rural counties the unemployment rate is based on very small sample sizes. Therefore, the unemployment rate may be an incomplete indicator of economic distress.
Committee Addenda
The report notes that beneficiaries can receive a tax benefit for up to eight years. The 44 beneficiaries’ total deferral amount accumulated across multiple years is $9,629,349. The total cumulative cost per job for the 131 jobs reported in 2016 is $73,506.
The intent of this exemption to reduce poverty is not being met. There are numerous policy options that would provide targeted benefits with far higher returns per job created. The loss of $9.6 million in revenue translates to a reduction in services for the people intended to benefit. The Legislative Auditor found: “Preference likely had nominal impact on reducing poverty.” In their applications, businesses stated they would be creating an estimated 989 new full-time jobs. They only created 131. The Legislative Auditor found that the number of new jobs created by businesses claiming the deferral were below the average for similar manufacturers statewide and that there is no evidence that the new jobs would not have been created without the preference.
The Committee recommends developing new policy and criteria for reviewing and approving applications, perhaps modeled on the approach of the Community Economic Revitalization Board (e.g., new family wage jobs, above the community median wage with health benefits, and applicants demonstrating that the tax payments avoided will be directly invested in creating new jobs).
Committee addenda available on the Recommendations & Responses Tab.
Committee Action to Distribute Report
On December 12, 2018 this report was approved for distribution by the Joint Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees with the Legislative Auditor recommendations.
Multifamily Housing in Mason County
One Page OverviewProperty tax exemption for Multifamily Housing in Mason County
The preference provides a property tax exemption to owners for new, expanded, or updated multifamily housing in targeted areas of rural counties. Mason County is the only rural county that qualifies under current law.
The housing must have at least four units and include affordable housing. The property remains exempt for eight to twelve years, depending on the percent of units that are affordable. Affordability and income limits are defined by Mason County.
The preference was created in 2014. Developers may not apply after January 1, 2020.
Estimated Biennial Beneficiary Savings
$0
The stated public policy objective is not being met
The Legislature stated a public policy objective in the tax preference performance statement for the preference when it was enacted in 2014.
| Objective (stated) | Results |
|---|---|
| Stimulate construction of multifamily housing in target areas of rural counties where housing options, including affordable housing options, are severely limited. | Not met. No developers have built multifamily housing in Mason County since 2014. |
Preference related to a broader exemption that JLARC staff will review in 2019
The preference is related to an exemption that is commonly referred to as the Multifamily Property Tax exemption (MFTE). Like this preference, the MFTE allows a larger number of local governments to provide a property tax exemption to stimulate the construction of multifamily housing within designated areas.
This preference for Mason County has more stringent income and project eligibility requirements than MFTE. For example, at least 20% of units must be affordable to qualify for the preference. An upcoming 2019 JLARC review of MFTE may identify factors that help multifamily housing preferences achieve their goals. That review may also be informative for the Mason County preference.
Recommendations
Legislative Auditor's Recommendation: Allow to expire and consider other strategies
The Legislature stated it intended to extend the preference if at least 20 percent of new housing units were occupied by low or moderate income households. However, there has been no new multifamily housing developed in Mason County since the preference was enacted.
The Legislature should allow the preference to expire and consider whether different strategies would be more successful for attracting new development.
While it has not achieved its objective to stimulate housing development, an upcoming 2019 JLARC review of a related preference may provide information to improve the incentive.
More information is available on the Recommendations Tab.
Commissioners' Recommendation
The Commission endorses the Legislative Auditor's recommendation without comment.
Committee Action to Distribute Report
On December 12, 2018 this report was approved for distribution by the Joint Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees with the Legislative Auditor recommendations.
Nonprofit or Library Fundraising
One Page OverviewUse tax exemption for items acquired at nonprofit or library fundraising events
The preference provides a use tax exemption for individuals who purchase or win items at qualifying nonprofit or library fundraising events or activities.
Items are exempt from use tax if they are:
- Valued at less than $12,000.
- Obtained at an event that is exempt from collecting sales tax.
Qualifying fundraising events must be exempt from B&O tax, time-limited, and intended to raise money to further the goals of the nonprofit or library.
Estimated Biennial Beneficiary Savings Unknown - Beneficiaries not required to report savings.
Stated public policy objective met
The Legislature stated a policy objective when it passed this preference in 2013.
| Objective | Results |
|---|---|
| Provide use tax relief to individuals who purchase or win items at qualifying fundraising events. | Met. |
Absent legislative action, the preference will expire on July 1, 2020.
Recommendation
Legislative Auditor's Recommendation: Continue and clarify (structural purpose)
The Legislature should continue and clarify the preference because it is achieving its objective of providing use tax relief to individuals who purchase or win items at qualifying nonprofit or library fundraising events.
If the Legislature does continue this preference, it should consider making the preference permanent, adding a mechanism to allow the exempt value of items to increase with time, and recategorizing the preference as one intended to provide tax relief.
More information is available on the Recommendations Tab.
Commissioners' Recommendation
The Commission endorses the Legislative Auditor’s recommendation with comment. This is an important preference, not only from a policy perspective, but also from an administrative efficiency perspective. The Legislative Auditor restates the objective of the preference as providing tax relief to individuals who purchase or win items at qualifying fundraising events. However, while this is the direct effect of the preference, it is unlikely the true objective or purpose of the preference despite the tax performance statement. This exemption coupled with RCW 82.08.02573 avoids the requirement that would otherwise be placed on libraries and nonprofit organizations (hereinafter referred to collectively as “nonprofits”) to collect retail sales or use tax from donors that purchased or won such items in connection with the fundraising conducted by nonprofits. While donors do receive a tax benefit, this preference primarily benefits nonprofits in two separate ways. First, it allows nonprofits to avoid the administrative burdens associated with collecting and reporting use tax at fundraising events. Second, it avoids decreased donations from donors who would otherwise likely reduce the amount of their auction bids in order to pay the 8-10% use tax due on the donation/bid. The Citizen Commission would have the Legislature recognize the true beneficiaries of the preference and categorize the preference as one intended primarily to provide administrative relief and benefit to nonprofit organizations.
Committee Action to Distribute Report
On December 12, 2018 this report was approved for distribution by the Joint Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees with the Legislative Auditor recommendations.
