The tax preference achieves the Legislature's goal of continuing the
historical tax treatment of shipping agricultural products to interim storage
facilities.
December 2020
Public utility tax exemption for shipping agricultural products to interim
storage facilities
When a shipping company transports agricultural products to an interim
storage facility, such as a grain warehouse, and those agricultural products
are ultimately shipped out of state by vessel, the company can claim an
exemption for the associated transportation revenues from public utility
taxes.
Public service businesses, such as shipping companies, are subject to a
public utility tax on their gross incomeThe total revenue received in the course of
business.. The public utility tax is in lieu of the business
and occupation (B&O) tax.
The Legislature enacted the preference in 2007. The preference does not have
an expiration date.
Preference applies to a specific part of the supply chain
Other tax preferences exist for agricultural products shipped directly out of
state or to port. The Legislature has established these preferences with the
objective of avoiding taxing activities related to interstate commerce.
To claim the preference reviewed in this report, shipping companies must
deliver agricultural products to an interim storage facility. The shipping
company must obtain a certificate from the interim storage facility indicating
that at least 96% of stored products were delivered to out of state
destinations, by vessel, in the preceding year.
The Commission endorses the Legislative Auditor's recommendation without
comment.
Committee Action to Distribute Report
On December 7, 2020 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.
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December 2020
REVIEW Details
1. Preference achieves inferred objective
The preference is one of many related to agriculture and
interstate commerce
Generally, public utility taxes apply to revenues generated from shipping goods for
intrastate trips (from one point in Washington to another). The public utility tax
applies to the gross income of businesses when providing services such as
shipping.
The preference achieves the inferred objective of continuing prior tax treatment for
shipping agricultural products to interim storage facilities
There are a variety of other tax preferences available to shipping agricultural
products in addition to the one reviewed in this report. These tax preferences are
established in RCW
82.16.050(8) (Interstate Transportation - Through Freight) and 82.16.050(9)
(Interstate Transportation - Shipments to Port).
Prior to 2007, the Department of Revenue interpreted that RCW 82.16.050(8)
was applicable to the transportation of agricultural products to interim storage
facilities. An internal review by the Department in 2007 concluded that this extension
was not supported by state law. Following this conclusion, the Department proposed
legislation to create this tax preference, which was enacted in May 2007.
While the Legislature did not state an objective, JLARC staff infer that the
objective is to continue the tax treatment extended to this activity under prior
interpretations of other statutes. The tax preference achieves this objective by
extending similar tax treatment to the shipment of agricultural products to interim
storage facilities.
The preference provides a deduction from the public utility tax for transportation of
agricultural products, such as wheat and barley, from a location in Washington to an
interim storage facility, provided that:
Products remain in their original form.
96% of the product shipped from the facility in the prior year were exported out
of state by vessel.
The preference applies to transportation by truck, rail, and water vessel.
Interim storage facilities provide temporary storage for agricultural products
Interim storage facilities, such as grain elevators or warehouses, temporarily hold
agricultural products until the product is exported. The interim storage facility must
certify to the shipping company that at least 96% of the same product at the storage
facility in the previous year was exported out of stateThe facility must also certify that if the product is headed
to storage at port, the port storage facility is owned by the same entity and the
agricultural product will be shipped out of state by vessel.. The
Department of Revenue produces a certificate for interim storage facilities to
use.
Exhibit 1.1: Tax preference exempts initial trip to interim storage, to be similar
to other shipments going out of state
Source: JLARC staff analysis.
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December 2020
REVIEW Details
2. Estimated beneficiary savings
The preference has a limited number of known beneficiaries
relative to the size of the agricultural transportation industry in Washington
JLARC staff analyzed Department of Revenue public utility tax data from 2007 through
2019. Beneficiary savings have increased over time, reaching a peak of nearly $16,000
in 2018. DOR does not provide a separate deduction line for claiming this preference,
and businesses are not required to list it separately from other deductions. As a
result, the beneficiary savings estimate is based only on claims that are clearly
identifiable as deductions under this preference. The estimate is likely lower than
the actual savings because it does not include claims that are nondescript or could
not be distinguished from similar deductions.
Exhibit 2.1: Thirteen shipping companies claimed the preference since 2007 (up to
four each year)
Source: JLARC staff analysis.
Few known beneficiaries
Since 2007, a total of 13 shipping companies have claimed the preference.
Interviews with industry stakeholders indicate that transportation from farms to
interim storage facilities is conducted primarily by smaller, owner-operator trucking
companies. Data from the Federal Motor Carrier Safety Administration indicate that
there are 5,768 active, registered businesses in Washington that transport grain,
feed, or hay.
While this does not reflect all transportation companies that may be eligible to
claim the preference, it suggests that a limited number of potential beneficiaries
have claimed the preference.
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December 2020
Review Details
3. Applicable Statutes
RCW 82.16.050(10)
Deductions in computing tax
RCW 82.16.050(10)
(10) Amounts derived from the transportation of agricultural commodities, not
including manufactured substances or articles, from points of origin in the state to
interim storage facilities in this state for transshipment, without intervening
transportation, to an export elevator, wharf, dock, or ship side on tidewater or its
navigable tributaries to be forwarded, without intervening transportation, by vessel,
in their original form, to interstate or foreign destinations. If agricultural
commodities are transshipped from interim storage facilities in this state to storage
facilities at a port on tidewater or its navigable tributaries, the same agricultural
commodity dealer must operate both the interim storage facilities and the storage
facilities at the port.
(a) The deduction under this subsection is available only when the person claiming
the deduction obtains a certificate from the agricultural commodity dealer operating
the interim storage facilities, in a form and manner prescribed by the department,
certifying that:
(i) More than ninety-six percent of all of the type of agricultural commodity
delivered by the person claiming the deduction under this subsection and delivered by
all other persons to the dealer's interim storage facilities during the preceding
calendar year was shipped by vessel in original form to interstate or foreign
destinations; and
(ii) Any of the agricultural commodity that is transshipped to ports on tidewater or
its navigable tributaries will be received at storage facilities operated by the same
agricultural commodity dealer and will be shipped from such facilities, without
intervening transportation, by vessel, in their original form, to interstate or
foreign destinations.
(b) As used in this subsection, "agricultural commodity" has the same meaning as
agricultural product in RCW 82.04.213.
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Recommendations & Responses
Legislative Auditor's Recommendation
The Legislative Auditor recommends continuing the
preference
The Legislature should continue the preference because the preference is
achieving the inferred goal of continuing previous tax treatment.
Legislation Required: No
Fiscal Impact: $25,000 in the 2021-2023 biennium
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December 2020
Recommendations & Responses
Letter from Commission Chair
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December 2020
Recommendations & Responses
Commissioners' Recommendation
The Commission endorses the Legislative Auditor's recommendation without comment.
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December 2020
Recommendations & Responses
Agency Response
20-07 Final Report | Shipping Farm Products to Interim Storage