Refineries don’t need tax exemption

February 26, 2013 

Before leaving office in January, former Gov. Chris Gregoire left her successor and the Legislature with one obvious method of closing a small portion of the state’s budget shortfall.

In her last biennium budget, Gregoire proposed closing the extracted fuel exemption, a $63 million loophole that amounts to nothing more than a fossil fuel subsidy to the state’s five oil refineries.

The extracted fuel exemption allows companies to avoid paying use taxes on fuel they both produce and consume on-site. The Legislature created the exemption in 1949 for sawmills – the state’s top industry at the time – which burned wood scraps (called hog fuel) to power its machinery.

But the exemption has turned into an unintended subsidy for oil companies.

The state’s five oil refineries are not paying any tax on the petroleum fuel they produce internally – about 60 percent of their total consumption – to make other petroleum products.

No oil refineries existed in Washington in 1949. The first refinery came in 1954, and five are operating today. Those refineries receive 98 percent of the fuel exemption today. The wood industry receives only 2 percent.

It’s not uncommon for states to create tax exemptions in an attempt to woo individual businesses or industries to relocate or stay home. We have made deals for Boeing, like Oregon has made for Nike.

But in these extraordinary cases, there has always been a strategic purpose or a clear policy objective.

That is not the case with the accidental gift to the oil refineries. The exemption wasn’t intended for them and there is simply no good reason to give away millions of dollars every year to an already highly profitable industry.

The Legislature and Gov. Jay Inslee should cut this exemption without hesitation.

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