Groups Lobby for End to Tax Break for Refineries

By Brad Shannon, February 10, 2014, The Olympian

Environmentalists and education-funding advocates are finding common cause at the Capitol this year, throwing support behind a proposal to end a $29 million per-year tax break tapped almost entirely by oil refineries.


The exemption, originally meant for sawmills back in 1949, is one of seven targeted this year by Gov. Jay Inslee in his quest to raise $200 million a year in new funding for K-12 public schools. The break exempts from taxation fuels produced as byproducts of an industrial process. It also was on Inslee’s list a year ago.


“The taxpayer does not need to subsidize British Petroleum, Shell and the other oil refineries in this state in order to increase their margins. It is the ultimate accidental tax preference,” House Finance Committee Chairman Reuven Carlyle, D-Seattle, said Friday. “And these (funds) should be invested in 2,500 elementary, middle and high schools.’’


Republicans in the House and Senate aren’t convinced, remaining as averse to any new taxes as they were in 2013 when they blocked almost all of Inslee’s revenue proposals.


“We’re halfway through a short session. These things are heavy lifts,” said Senate Ways and Means Committee Chairman Andy Hill, R-Redmond. “I’ve always been open to looking at (closing) those that make sense. But at this point in session, it’s a very heavy lift.”


But Inslee and Carlyle both say the world changed in 2012 when the state Supreme Court ruled the state was failing in its constitutional duty to fully pay for basic education. And despite the Legislature’s investment of nearly $1 billion of new money into K-12 schools last year, a new court order in the case known as McCleary said the state isn’t on pace to meet funding requirements by 2018 .


The court’s order was urgent enough that Inslee quickly ditched his no-tax supplemental budget from December and proposed a $200 million package of tax-law changes to increase state funding for school supplies and operating costs as well as give a 1.3 percent cost-of-living raise to teachers and other employees.


Inslee proposed to levy the sales tax on bottled water and janitorial services, limit the sales tax exemption for used-car trade-ins, and replace the sales tax exemption for out-of-state shoppers with a tax refund program. He also proposed to eliminate a favorable tax rate for firms that resell prescription drugs and apply a public-utility tax to the in-state portion of interstate shipments by vehicle, rail, pipeline or ship.


The bulk of those tax proposals haven’t been introduced in either legislative chamber, and House Majority Leader Pat Sullivan, D-Covington, said it will be a while longer before his caucus decides what specific tax proposals it wants to push forward this session. The Senate is expected to produce the first budget of this 60-day session shortly after the Feb. 19 revenue forecast.


On Thursday, Carlyle’s committee heard House Bill 2465 that would close the oil industry loophole.


“This bill asks you to invest in kids before you invest in fossil fuel companies,” said Jessica Finn Coven of Climate Solutions, an environmental group that is critical of fossil fuels.


Adopted in 1949, the tax exemption went mostly unnoticed until 2011 when the Joint Legislative Audit and Review Committee determined that the purpose and intended recipients of the break were unclear.


In testimony last week, Eric de Place of the Sightline Institute said the exemption was meant for the timber and sawmill industry and was created before any refineries were built in Washington. He contended that erasing the tax break would add less than 1 percent to refiners’ costs.


But a panel of oil-industry representatives said their good-paying jobs base could be harmed. They said Washington’s tax burden on refiners is already four times higher than on similar operations in California.


Greg Hanon, a lobbyist for the Western States Petroleum Association, said the industry pays more than $200 million a year in taxes in Washington. In the case of Anacortes, which has two refineries, the industry represents 60 percent of the local school levy tax base.


Tom Rizzo, manager of Shell’s refinery in Anacortes, said the fuel byproduct has no commercial value locally and cannot be stored. So if refiners did not use it, they would burn it off and buy natural gas, which would increase carbon emissions.


Rizzo said his refinery pays about $50 million a year in state and local taxes and would see roughly a 10 percent increase if the tax exemption were repealed. Natural gas is taxed at a rate half of what Carlyle would have the industry pay on its recycled waste products, Rizzo said.


Republican Rep. J.T. Wilcox of Yelm questioned the claims by Carlyle and environmentalists that the tax break enjoyed by fuel refiners was an accident. He said the language of the original break was broad, and other Republicans on the Finance Committee noted the Legislature has let that tax break stand for more than 60 years.


“They just want more money and they want to find some segment of the economy that is unpopular to take it from; that doesn’t seem smart to me,” Wilcox said after the hearing.



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