Editor’s note: Earlier posts in this series used the figures $63 and $41 million in referring to the size of the loophole. The $59 million figure used below draws on newly available calculations from the WA OFM.
Facing a Supreme Court order to fund public education, Governor Inslee and others have combed through the state tax code in search of outdated and perverse tax loopholes. Perhaps none of them is more bizarre than the “extracted fuel use tax exemption”—a purely accidental giveaway to oil refineries that costs the state $59 million each budget cycle.
Oil companies are stalling to prevent paying the same taxes everyone else does, even though the cost of closing the loophole would represent only a tiny fraction—less than 1 percent—of their overall costs.
Editor’s note: Later posts in this series revise the loophole’s size to $59 million, according to newly available 2014 data from the WA OFM. The $41 million noted below is based on earlier calculations. Big Oil companies in Washington get $41 million from an accidental tax loophole that was never designed to benefit them. It’s enough … Read more
Editor’s note: Later posts in this series revise the loophole’s size to $59 million, according to newly available 2014 data from the WA OFM. The $41 million noted below is based on earlier calculations.
It’s game on. Washington state representative Reuven Carlyle introduced a bill (HB 2465) yesterday that would close big oil’s tax loophole and redirect the money to public education. Properly referred to as the “extracted fuel use tax exemption,” the loophole—an outdated accident from decades ago—confers a $41 million benefit to oil refineries each budget cycle.
Sightline has written extensively about the loophole. When it was created in 1949, the tax break was intended to benefit sawmills. In the years that followed, however, oil refiners moved into the state and took advantage of the law’s broad language—so much so that they now claim fully 98 percent of the value of the loophole. It’s money that could be put to better use in classrooms.
Even as Rep. Carlyle was introducing the bill in the House, the state Senate held a “work session” on the tax loophole that centered on Sightline’s research and analysis of the issue. For a taste of what it’s like to take on Big Oil in the state legislature—or for those who simply enjoy looking at the back of my head—you can watch the 45 minute session here:
[sightline-embed]
My slide deck is here. If you follow along with the slides, my presentation and the subsequent questions from the committee will make a lot more sense.
Editor’s note: Later posts in this series revise the loophole’s size to $59 million, according to newly available 2014 data from the WA OFM. The $41 million noted below is based on earlier calculations.
With the Supreme Court demanding more money for basic education, both Governor Inslee and the House have moved to close the loophole. Both aim to redirect the $40.8 million from oil companies to classrooms, but some in the Senate are defending the refiners.
So as a way to make clear what closing the loophole would do for public education, here’s a simple graphic explanation:
Editor’s note: Later posts in this series revise the loophole’s size to $59 million, according to newly available 2014 data from the WA OFM. The $41 million noted below is based on earlier calculations.
Big news just now on Washington’s accidental tax loophole for big oil: the House voted to close it as part of a larger package of reforms to even out the state’s tax code and raise money for public education. Closing the “extracted fuel use tax exemption”—the tongue-twisting name for our special giveway to big oil—will redirect $41 million per biennium from oil refiners to classrooms.
Governor Inslee has already endorsed the move in his budget, so the last obstacle to the loophole’s closure is the state Senate where a functional Republican majority appears more inclined to protect the tax preference for oil companies.
That’s a troubling position because there are few clearer cases of mistaken tax policy than this one. The loophole was first created in 1949, apparently as a small benefit to sawmills. At the time, Washington was home to exactly zero oil refineries, but when they later moved into the state, refiners ended up claiming fully 98 percent of the loophole’s benefit. Even the state’s formal bipartisan tax review committee can identify no public policy purpose for the loophole.
Editor’s note: Later posts in this series revise the loophole’s size to $59 million, according to newly available 2014 data from the WA OFM. The $41 million noted below is based on earlier calculations. Washington’s accidental tax loophole for oil refiners is getting a hearing at the state capitol. Targeted for closure by Governor Inslee and … Read more
Editor’s note: Later posts in this series revise the loophole’s size to $59 million, according to newly available 2014 data from the WA OFM. The $41 million noted below is based on earlier calculations. Governor Inslee’s budget, released just minutes ago, tightens or closes several tax loopholes. At least two of them are stellar public policy … Read more
Editor’s note: Later posts in this series revise the loophole’s size to $59 million, according to newly available 2014 data from the WA OFM. The $63 million noted below is based on earlier calculations.
In a nutshell, the “Extracted Fuel Exemption” is an accidental tax loophole that hands oil refineries $63 million each biennium, which works out to about seven percent of the state’s current $900 million budget shortfall. (For a primer on how the loophole works and what it refers to, see here.)
Editor’s note: Later posts in this series revise the loophole’s size to $59 million, according to newly available 2014 data from the WA OFM. The $63 million noted below is based on earlier calculations.
Over the past six decades, Washington has given away hundreds of millions of dollars in tax revenue through a loophole that no one, in 63 years, has been able to properly justify or explain. The main beneficiaries of the loophole are some of the most profitable, and least responsible, companies in the world. And what’s more, the loophole was never intended to be used by these companies at all.
This loophole will cost the state at least $63 million over the next two years, at the same time we are facing a $1 billion dollar shortfall. So it was a credit to outgoing Governor Gregoire that her proposed 2013-15 budget closed this wasteful exemption, though it was almost entirely overlooked in news accounts.
The Extracted Fuel Exemption is a loophole in the state’s use tax, which you may never have heard of, so here’s a quick backgrounder. The use tax applies to things that are purchased for use in Washington, but that are not subject to sales tax. For example, if you buy a vehicle in Oregon, where the state does not assess a sales tax, you pay Washington’s use tax when you register your car back home in the Evergreen State. The use tax is also applied to substances used in manufacturing processes in cases when sales tax has not been levied on those substances.
In the case of “extracted fuel,” the exemption allows firms to avoid paying use tax on fuel that they produce and use internally. In the heyday of Washington’s timber industry, it was common for sawmills to use the wood scraps created by milling lumber—called “hog-fuel” in the industry—to produce energy to run the plant. It’s a classic form of energy efficiency: sawmills could re-use waste by burning their hog fuel to power the plant.
According to the “2011 Tax Preference Performance Reviews” by the Joint Legislative Audit and Review Committee (JLARC), in 1948, the state supreme court ruled in favor of a tax exemption for hog-fuel. Then, in 1949, the legislature changed the tax code for use taxes, and to avoid over-ruling the decision from the year before, the legislature created the extracted fuel exemption that we have today. The JLARC report mentions that, “It is not clear why the legislature carved out a specific preference for fuel produced and used by the extractor/manufacturer that produced it.”
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognizing you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Strictly Necessary Cookies
Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.
3rd Party Cookies
This website uses Google Analytics to collect anonymous information such as the number of visitors to the site, and the most popular pages.
Keeping this cookie enabled helps us to improve our website.
Please enable Strictly Necessary Cookies first so that we can save your preferences!
Additional Cookies
This website uses social media to collect anonymous information such as which platform are our users coming from.
Keeping this cookie enabled helps us better reach our audiences.
Please enable Strictly Necessary Cookies first so that we can save your preferences!
