State Tax Preferences

20 December 2011

Subject

Proposed elimination of sales, business & occupation, and use taxes exemptions and deductions (tax preferences).

Current Status

The Washington State Senate has final authority on the review of tax preferences.  Historically, the legislature has followed the recommendation of the Joint Legislative Audit and Review Committee, which in turn, since 2007, has followed the recommendations of the Citiizens Commission for Performance Measurement of Tax Preferences.

Background

As state governments continue to struggle with balancing their budgets, many are chipping away at the tax preferences needed by nonprofit organizations.  Washington state relies heavily on business & occupation and sales and use taxes.  Many exemptions to these taxes are enjoyed by nonprofit organizations, either directly or indirectly. 

In the current fiscal crisis, proposals have been put forth to eliminate many of these tax preferences, including one comprehensive proposal introduced in the 2011 legislative session covering most, if not all, of the exemptions and deductions.  While that proposal never got out of committee, it demonstrates a new view of tax preferences.  The fiscal impact of the loss of these exemptions to nonprofit organizations is not known yet. 

Discussion

In other states, Michigan Governor Rick Snyder recently proposed eliminating all of the state’s charitable giving tax credits, resulting in costs to the nonprofit sector of $50 million annually. Targeted for cuts are credits for public institutions such as universities, public broadcasting and libraries, as well as credits for donations to homeless shelters and food banks, and for contributions to community foundations. 

Legislatures in Georgia and Oregon considered bills to strictly curtail tax exemptions and credits that enable nonprofit organizations to provide community-based services.  Georgia legislation would repeal existing sales and other tax exemptions for purchases and sales by nonprofit organizations.  In Oregon, a bill would sunset all tax credits and deductions at the end of 2015.

The bills in Washington did not get far during the regular session in 2011.  One comprehensive bill, however, was re-introduced in the special legislative session held during the summer.

Any legislation that would increase tax revenue must constitutionally be approved by a super-majority (two-thirds) of the state legislators before being sent to the Governor.   

Conclusion

It is vital to let our delegation know the value of these tax preferences to nonprofit organizations.  Although revenue raised by the state from elimination of tax preferences may benefit services, those revenues, if retained by nonprofit organizations, would be used more specifically for programs, and likely more efficiently than if the revenues had to partially support government administration.  The unintended consequences of broad tax preference reductions or elimination could have a detrimental effect on the work of nonprofits.