Shipping Farm Products to Interim Storage

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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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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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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