Tax exemptions under microscope

If state lawmakers wanted to raise money by closing tax exemptions, there are 567 to choose from. Taken together, the tax breaks cut $53 billion in potential revenues that the state might have received and $45 million more to local governments.

Of those exemptions, 147 of have been added to the tax rolls since the 2001 legislative session.

Of the grand total, 158 were exemptions to the retail sales and use taxes. These include exemptions on sales of food, medicines and the like, which are worth $30 billion in the 2007-09 budget cycle, according to the Department of Revenue's Tax Exemptions 2008 guide. One hundred and three others are property-tax exemptions worth $9 billion.

Other exemptions are small. One mentioned frequently in recent years for elimination is a $1.2 million exemption for sales of precious metals and bullion.

Larger tax breaks are given to intangibles, such as stocks and bonds. Another large tax break exempts personal and professional services, which is saving customers of lawyers, doctors and other service providers some $3.9 billion in state taxes and $1.2 billion more in local government taxes during the 2007-09 cycle.

The sales-tax exemption on food and food ingredients is predicted to save taxpayers $1.7 billion in state and $526 million in local taxes.

Senate Majority Leader Lisa Brown, D-Spokane, said recently that closing tax loopholes could be an option for lawmakers trying to raise revenues. But any effort to close loopholes in the tax code first would look to recommendations of a citizen committee that reviews tax breaks for worthiness, she said.

That committee is known formally as the Citizen Commission for Performance Measurement of Tax Preferences, and it was created by the Legislature in 2006 under House Bill 1069. The seven-member commission has included lawmakers, a banker, a university professor, the state auditor and, at one time, a lobbyist for small businesses.

The group's task is to review all of the state's exemptions on a 10-year cycle, starting with the oldest ones. The commission this year focused on several exemptions adopted from 1925 to 1935, and the group recommended that many remain on the books, according to staff with the Joint Legislative Audit and Review Committee, which held a hearing on the recommendations in July.

The commission wanted lawmakers to consider a repeal or clarification of a few tax breaks. The questioned tax-breaks include a $28.8 million exemption for agricultural producers, a $6.2 million exemption on public utility taxes and $110 million on sales of items used by cruise ships or airplanes passing through the state.

The commission also raised questions about tax breaks worth $669,000 for irrigation, $2 million for radio and television broadcasting, and $2 million for farm auction sales. Recommended for termination was a $2.5 million gas-tax exemption for fuel-­handling losses, which has been on the books since 1949.

Most tax-repeal recommendations from 2007 were ignored by the Legislature. Those included elimination of a $2 million break for horse racing and $2 million for club membership dues and fees. Also ignored was a recommendation to re-examine a $47 million break given to nonprofit hospitals and $17 million to nonsectarian organizations.

Lawmakers did manage to get rid of one exemption in 2007. That was a temporary tax break for beef producers enacted after the mad-cow disease scare a few years ago, and lawmakers did not extend its life.