Under House plan, tax breaks for processors face expiration

Don Jenkins/Capital Press House Finance Committee Chairman Rueven Carlyle, D-Seattle, talks about plans to fund state spending over the next two years, as Majority Leader Pat Sullivan, D-Covington, looks on March 27 in Olympia. Carlyle's proposal would end tax exemptions that food processors have enjoyed for a decade.

OLYMPIA — A House budget proposal does not renew tax exemptions that Washington food processors have received for a decade, potentially raising taxes on fruit, vegetable, seafood and dairy handlers by a total of $12.2 million over the next two years.

House Finance Committee Chairman Reuven Carlyle, D-Seattle, held open the possibility that he would eventually support renewing the tax breaks. But he said he wants the Senate to propose ways to make up for the lost revenue.

“We are open to those discussions,” he said.

The Democratic-controlled House on Friday rolled out a two-year, $38.8 billion spending proposal, which would take effect July 1. The budget relies on an improving economy and nearly $1.5 billion in tax increases to raise spending by about $5 billion over the current budget.

The tax exemptions for some 242 food processors are due to expire June 30. Gov. Jay Inslee has proposed renewing the exemptions for 10 years. Renewal of the exemptions will also likely have strong support in the Republican-controlled Senate, which has yet to release a budget proposal.

Carlyle, however, argues that Washington’s tax code has too many exemptions — more than 600.

“Our tax system is unfair. It’s full of more exceptions to the rule than rules itself,” he said.

He proposes to repeal several tax exemptions, including sales tax-free shopping in Washington by Oregonians. Under Carlyle’s proposal, Oregonians would have to pay sales tax on purchases under $25.

In the case of the food processors’ tax breaks, the House plan would simply let them lapse. Come July 1, food processors would pay the same tax on revenue from out-of-state sales as other agricultural producers.

The governor’s office Thursday reaffirmed its support for renewing the exemptions at a Senate budget hearing. “This is an important bill to our agricultural community in providing jobs, most often in our rural communities,” said John Lane of the Office of Financial Management.

The Northwest Food Processors Association argues the tax exemptions are important for retaining jobs. “This program has done wonders to make Washington food processors more competitive against food processors in other states where there is no (business and occupation) tax,” association lobbyist Dan Coyne said.

The House’s biggest tax proposal is a 5 percent capital gains tax on investment income above $25,000 for an individual and $50,000 for a married couple. The tax would not apply to the sale of a farm or home.

Budget officials estimate 32,000 Washington residents will pay the tax annually. The tax would raise $570 million during the 2015-17 biennium, according to a House estimate.

House Appropriations Committee Chairman Ross Hunter, D-Medina, said the budget proposal would increase spending on K-12 by $3.2 billion, a 21 percent increase.

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