Tax Review Committee Holds Fall Hearing on Tax Preferences

The Citizen Commission for Performance Measurement of Tax Preference—the committee created by legislation to review all Washington state legislative tax preferences every 10 years—met on Friday, Sept. 23, and approved a 10-year tax preference review schedule.

The approved schedule was made possible by legislation enacted earlier this year, under which the Washington State Legislature gave the commission additional discretion to schedule tax preferences outside of a rigid every-10-years-in-the-order-enacted framework. Preferences slated for review in 2012 vary from taxes applicable to travel agents and precious metal bouillon to stevedoring. By grouping tax preferences by topic, the commission will be better able to review preferences more efficiently while considering each tax preference’s public policy impact to the state.

Following approval of a revised tax review schedule, the commission took public comments and questions on the tax preferences reviewed this year. Cindi Holmstrom testified concerning the B&O tax exemption for interest earned on first mortgage loans by banks—a tax preference tentatively recommended for legislative review and clarification by the commission. Holmstrom argued that the tax exemption encourages portfolio lending and financial institution flexibility. She told the commission that home loans have relatively low margins, and that tax increases targeting residential lenders would result in higher costs to borrowers and decreased loan availability. She also argued that the removal of the deduction could lead to an increased dominance of out-of-state banks.

Holmstrom currently represents the Washington Financial League (community banks) and the Washington Mortgage Lenders Association, and served as the Director of the Department of Revenue in 2010. Prior to joining the Department of Revenue in early 2005, Holmstrom was employed as Executive Director of the Joint Legislative Audit and Review Committee (JLARC). JLARC is responsible for researching tax preferences on behalf of the Citizen Commission.

Citizen Commission Chair William Longbrake prefaced the hearing by noting that he did not have a conflict of interest in hearing testimony on the first mortgage loan deduction. Longbrake is a director on the board of a national bank headquartered in Washington, D.C., and was the former chairman of Washington Mutual (WaMu).

When asked whether the deduction should only be maintained by portfolio lenders, Holmstrom indicated that her first preference would be to maintain the exemption as written. Her next choice would be to maintain the deduction for portfolio lenders.

The state credit union tax exemption was scheduled for review by the commission this year; however, the commission has not recommended any changes to the exemption. Under the 10-year schedule approved by the commission, the credit union tax exemption will once again be reviewed in 2021.

The commission’s ultimate recommendations concerning all tax preferences reviewed in 2011 will be reported at its final meeting of the year, scheduled for Oct. 11.

Commission members include:

  • William Longbrake, Governor’s Council of Economic Advisors (and former WaMu Chairman)
  • Lily Kahng, Seattle University Law School
  • James Bobst, Pacific Fibre Products, Inc.
  • Paul Guppy, Washington Policy Center
  • Stephen Miller, Washington Education Association
  • Craig Pridemore, Washington State Senate (non-voting member)
  • Brian Sonntag, State Auditor (non-voting member)

The list of tax preference recommendations made by the commission can be found on the commission’s web site.

Questions? Contact a member of the Association’s Legislative Affairs team:

Jennifer Wagner, Director of Legislative Advocacy
Mark Minickiello
, Vice President, Legislative Affairs
Stacy Augustine
, Senior Vice President & General Counsel

Posted in Advocacy News, Business Solutions.