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Originally published Saturday, March 30, 2013 at 4:01 PM

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Editorial: Target tax exemptions for needed state revenue

It’s time for the Washington Legislature to close some tax exemptions in order to raise revenue.

Seattle Times Editorial

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TIME for the Washington Legislature to systematically review and justify tax preferences.

For several years, this page has pushed first for reform of how state money is spent. The Times has argued, for example, that students would be better served if principals had the authority to dismiss teachers and hire the ones they wanted; that the public schools should be more accountable for the use of state money; and that in the Legislature, such reforms should come before new revenue.

Now the revenue side can no longer wait. The words should be, “reform and revenue.”

A technology boom has begun in the Seattle area. To make sure as many of the new jobs are taken by people already here, the state’s colleges must graduate more students in math, engineering and the health sciences. To maximize that, the whole educational system, for ages 3 to 23, needs to be upgraded, so that more students are prepared for college work.

And that means money, which is why the Legislature needs to review tax preferences.

For each one, it needs to look at how much revenue the state is giving up and what sort of economic and social benefit it is getting. Some preferences make sense. Others don’t.

Over the next decade, these reviews should be done for all tax breaks. The Legislature should take the advice of Rep. Reuven Carlyle, D-Seattle, chairman of the House Finance Committee, and require that the Legislature periodically re-enact preferences, else they expire. (That includes tax preferences granted to the newspaper industry.)

On Thursday Gov. Jay Inslee presented a budget outline with $1.2 billion of new revenue, part of it from ending tax preferences. Here are several preferences that should be considered for elimination, some from Inslee’s list and some flagged by the state’s Joint Legislative and Audit Review Committee:

Extracted fuel. The tax on fuel used in the refining process by the company that refined it. Passed in 1949, this was meant for sawmills that burned “hog” fuel, but is almost entirely used by five petroleum refineries. Repeal for petroleum use would raise $40.8 million per biennium.

Spilled fuel. Since 1939, wholesale fuel buyers can deduct a small amount for fuel assumed to have been spilled at the terminal rack. The spillage has been reduced. Ending the break raises $5.5 million.

Horse racing. Since 1935, state-licensed horse-racing venues have been exempt from ordinary business-and-occupation (B&O) tax on betting revenue. Ending this break raises $3.3 million.

Insurance sold by fraternal societies. Since 1935, insurance premiums on policies sold by fraternal benefit societies such as the Grange have been exempt from B&O tax. Collecting the tax would raise $5.4 million.

Telephone landlines. In 1983, the charge for ordinary telephone service was exempted from the tax now charged to cellphone owners. The cellphone companies have sued, demanding the tax come off. Instead, the state could collect the tax on landlines, too: $83.2 million.

Farm auctions. A buyer of used farm equipment at auction pays no sales tax if the auction is on a farm. Remove this exemption: $5.6 million.

High-technology research and development. R&D is crucial, but a state study found that the R&D tax credit produces few jobs at great cost. Repeal this break for companies with more than $25 million in total revenue: $32 million.

Bottled water. It has been exempt from sales tax since 2010, though bottled water is not food. Tax it: $51.5 million.

These are just examples. The total two-year revenue from this list would be more than $227 million.

That is less than the governor’s proposal. His proposal calls for an 11 percent increase in state spending, which is too much to lay on an economy that still has a 7.5 percent unemployment rate.

A significant amount of revenue does need to be raised. Perhaps necessary will be the extension of some taxes set to expire. And more efficiencies.

Reform is as urgent as always. Now, also revenue.

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