Washington state lawmakers should end a tax break for mint oil processors and review a longstanding law that lowers the sales tax on some farm equipment purchases, according legislative auditors.
The recommendations are in an annual report on tax preferences presented Wednesday to a joint House and Senate committee.
Auditors said a sales tax exemption for propane used to power spearmint and peppermint oil distilleries was not justified because the savings were not enough to encourage processors to replace diesel-powered stills.
Meanwhile, a trade-in deduction, used mostly by car buyers but applicable to virtually all goods, including tractors, has failed to increase tax revenue by stimulating sales, as promised by its proponents three decades ago, according to auditors.
The Legislature began requiring yearly studies a decade ago to scrutinize the public benefit of tax exemptions.
Over the 10 years, auditors have analyzed 235 tax exemptions. Lawmakers have terminated two.
This year’s report included a look at a tax break lawmakers passed in 2013 to help mint processors meet clean-air standards.
Since then, six more of the state’s 28 mint oil distilleries have converted from diesel to propane or natural gas, Washington State Mint Commission Executive Director Shane Johnson said Thursday.
The state has six diesel-fueled stills left. Converting to cleaner-burning fuels can cost up to a quarter-million dollars, Johnson said.
“I would say (the tax incentive) has been successful,” he said. “Any bit helps. It isn’t a cheap conversion.”
The tax exemption will expire July 1, 2017, unless renewed by the Legislature.
Auditors estimate that the exemption saves 12 processors who use propane a total of about $100,000 a year.
Processors who use natural gas don’t see any saves because they pay a public utility tax, not a sales tax.
Diesel used on farms also is exempt from sales taxes and costs less than propane, according to auditors.
Auditors suggested that lawmakers consider finding another way to encourage processors to convert the six remaining diesel-powered stills.
Johnson said he welcomed discussing other incentives, but said he hoped growers and processors who have converted to cleaner-burning fuels won’t lose the tax exemption.
“It would be great to encourage the stills that have not converted to do so, but my concern is how it would affect the growers who already have made the conversion,” he said.
Washington is the leading producer of spearmint oil and second in peppermint oil production behind Oregon.
Washington mint oil had a farm gate value of about $68 million in 2014, according to the U.S. Department of Agriculture.
In 1984, voters approved an initiative that allows consumers to deduct the value of trade-ins when calculating the sales tax on new purchases. Car buyers received more than 80 percent of the savings in fiscal year 2015, while buyers of farm equipment pocketed about 2 percent, or nearly $5 million, according to auditors.
Supporters in the 1984 voters guide stated that the trade-in deduction would stimulate sales of consumer goods and actually increase tax revenues.
Auditors concluded that has failed to happen. They estimate the deduction costs state and local governments $182 million a year. Auditors recommended lawmakers review the law and clarify the reason for it.
Rep. Drew Macewen, R-Union, rejected the idea that the state was being deprived of money.
“A tax structure that has been on the books for 32 years — kind of hard to say that we are losing revenue,” he said.