Putting the proposal to tax recycled refinery fuels in context – the exemption makes sense

As we have written, the governor, Senate Democrats and House Democrats have all proposed new or increased taxes (generally characterized as repealing preferences) to fund education. The House and Senate Democratic plans propose

…applying the sales tax to bottled water, ending the sales tax exemption for out-of-state residents, taxing recycled fuel (“extracted” or “hog fuel”) and increasing the tax rate for resellers of prescription drugs.

These were among the taxes recommended by the governor in January. They’ve been considered and rejected before. But one of the four, the tax on extracted or recycled fuels is often misunderstood. It’s time for a refresher on why this exemption makes sense.

The Research Council has periodically examined the economic contributions of the state’s five oil refineries. One clear conclusion: The refineries pay a heavy tax load. Consider this comparison with California.

We focus on six major taxes. One of these taxes—the corporate income tax— is levied in California but not in Washington. Two of these taxes—the business and occupation tax and the hazardous substance tax—are levied in Washington but not in California. The remaining three taxes—the sales and use tax, the property tax and the oil spill tax—are levied in both states.

The overall 2008 tax burden in Washington, $76.4 million, is more than four times the burden in California, $17.5 million. This is largely due to the fact that the Washington refinery pays considerably more in B&O and hazardous substance taxes than the California refinery pays in corporate income tax.

See the study for more detail on the calculations. Kriss has also taken a look at the contribution of a single refinery.

 In 2011, [a 160,000 barrel per day] refinery would have provided 552 jobs, and its workers would have received $66.4 million in wages and salaries and $23.6 million in benefits. In addition to the direct jobs and income, the refinery would have generated 6,747 additional jobs and $389.9 million additional personal income elsewhere in the state’s economy. The refinery itself would have paid $72.6 million in state and local taxes. In addition to these direct taxes, the indirect and induced activities generated by the refinery would have generated $4.2 million in sales, use and B&O tax revenue.

It’s a competitive industry, one which should not be taken for granted.

Most states do not tax recycled fuel, as we pointed out last year, for sound reasons. The argument for repeal, explicitly made in the Senate Democrats flyer, is simple:

Oil company profits are high enough already – our children’s education is far more important.

No one is saying that education is unimportant. It is. It’s also very important to retain profitable, taxpaying businesses in the state. When the justification for tax policy is, “profits are high enough,” then anything goes. That’s not a message any state wants to send.

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