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Originally published June 29, 2013 at 6:50 PM | Page modified June 29, 2013 at 9:06 PM

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Tax breaks instrumental in reaching state budget deal

As lawmakers pieced together enough money to plug a large budget shortfall, they also agreed to give businesses — from beekeepers to investment firms to dance clubs — millions in tax breaks.

Seattle Times Olympia bureau

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OLYMPIA — Something interesting happened when lawmakers finally scraped together enough money to plug a large budget shortfall and increase funding for education — they also gave businesses millions in tax breaks.

Republican and Democratic lawmakers, as part of the budget deal, approved 16 tax breaks worth roughly $13 million. They would benefit restaurants, mint farms, nonprofit gun clubs, beekeepers, and international investment firms, among others.

In the context of a $33.6 billion, two-year operating budget, this is what government number crunchers often call “budget dust,” as in it’s almost too small to notice.

But legislators have bogged down over smaller amounts of money, and Democrats this session unsuccessfully pushed to close many tax breaks as a way to raise more money.

House Appropriations Chairman Ross Hunter, D-Medina, said he’s not a fan of creating tax breaks, including the ones in the new budget.

“I am a fan of coming to closure on the budget and coming to agreement with Republicans who control the Senate,” Hunter said.

Specifically, Hunter said, the tax exemptions were needed for Senate Republicans to agree to end a tax break for residential phone service that’s expected to net about $85 million over the next two years. Closing the exemption was a key hurdle to reach a broader budget agreement.

Senate Ways and Means Chairman Andy Hill, R-Redmond, agreed it was part of the broader budget deal, but said there was no direct tie to ending the tax break for phone service.

Hill said exemptions are sometimes needed to level the playing field for business or to protect industries and boost growth.

“They are important because there are clearly opportunities where they do create jobs and stimulate economic development,” he said.

In addition to ending the tax break for phone service, Democrats also got an agreement to set expiration dates on tax breaks, and to disclose the value of future exemptions, said Rep. Reuven Carlyle, D-Seattle, chairman of the House Finance Committee.

“The only way we were able to get the bill through (the Democratically controlled House) was because of that,” Carlyle said.

The House and Senate approved the operating budget on Friday with large majorities and adjourned on Saturday. Gov. Jay Inslee is expected to sign the budget Sunday, in time to avert a government shutdown Monday.

The tax breaks are contained in a separate measure, Senate Bill 5882, which also cleared both chambers with large majorities.

While Republicans may have led the charge for the tax breaks, they note that Democratic lawmakers signed onto most of them and urged their passage as well.

“It’s a common addiction,” Hunter said when that was pointed out. “I have to tell all my friends, ‘You can’t have that tax exemption,’ just to protect them from themselves.”

Senate Democratic Leader Ed Murray, D-Seattle, said tax breaks can serve a useful purpose. He sponsored one dealing with cover charges for dance bands and signed onto others approved Friday, including the break for international investment firms.

The state currently levies a tax on businesses that offer attendees the “opportunity” to dance. Cover charges and tickets for movies, plays and concerts are exempt from that tax.

The dance tax has been applied inconsistently by the state, said Murray, who is running for mayor of Seattle. “The nightlife dance industry is fairly big in my district. They have, first through the mayor, and now through me, tried to get this thing fixed,” he said.

Murray said there are “tax loopholes we absolutely need to close, but there are tax incentives that I think are valid. (In the past) we closed the tax loopholes for banks, but we gave one to newspapers and the dairy industry ... Not every tax break is necessarily bad.”

Newspapers, including The Seattle Times, benefit from a reduction in state business-and-occupation taxes passed in 2009.

Democratic Sen. Mark Mullet, of Issaquah, was the prime sponsor of the break for investment firms that would provide a sales-and-use tax exemption from the sale of financial information. The tax break will mean $683,000 less in tax revenue for the state over the next two years.

Mullet noted that he used to be a managing director at Bank of America, serving as the global head of foreign-currency-options trading.

“I want more financial-service companies to relocate to Washington state. I think we should be able to get a lot of jobs here in that industry. Part of that is showing everybody we are favorable to an industry. We don’t think they’re evil,” he said, adding with chuckle, “I’m not in the majority opinion of the Democratic caucus on that.”

Some of the tax breaks approved were just extending exemptions that were due to expire soon, like the one for beekeepers, worth $120,000 over two years.

The bill report for the tax break said the industry is still suffering from a “colony collapse disorder” and that the intent of the Legislature is for the tax break to go away when the bee survivorship improves.

Others, such as one for “items that impart flavor for food during the cooking process” are new.

According to the state Department of Revenue, the restaurant industry wanted to change the law so mesquite and other things they use to flavor foods are considered ingredients that wouldn’t be subject to sales tax. The state projects the exemption is worth $78,000 over two years to the industry.

Hill said it’s been his experience that some lawmakers critical of tax breaks “are more than happy to trash them until they have a business that’s hurting” in their district.

Material from The Associated Press was included. Andrew Garber: 360-236-8266 or agarber@seattletimes.com

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