Introduction

The Citizen Commission for Performance Measurement of Tax Preferences was established by the 2006 Legislature (EHB 1069). The seven-member Commission is made up of five appointees: two appointed by the House, two appointed by the Senate, and one appointed by the Governor; and two non-voting members: the State Auditor and the Chair of the Joint Legislative Audit and Review Committee. Members serve four-year terms and may be reappointed to serve more than one term.

Background

For the purposes of the Commission, the Legislature has defined a “tax preference” as an exemption, exclusion, or deduction from the base of a state tax; a credit against a state tax; a deferral of a state tax; or a preferential state tax rate. The Department of Revenue has on record more than 500 such tax preferences.

Purpose

The primary role of the Commission is to develop a schedule to review all tax preferences at least once every ten years. Exceptions to the review process are:

• tax preferences required by constitutional law;
• sales and use tax exemptions for machinery and equipment for manufacturing, research and development, or testing;
• the small business credit for the business and occupation tax;
• sales and use tax exemptions for food and prescription drugs;
• property tax relief for retired persons;
• and property tax valuations based on current use.

The Commission may exempt any preference it determines to be a “critical part of the structure of the tax system,” and may recommend an expedited review process for any tax preference that has an estimated biennial fiscal impact of $10 million or less.

Process

The Commission meets quarterly in effort to consider citizen input and establish a schedule for review of tax preferences. They may hold additional meetings as necessary. The schedule is delivered to the Joint Legislative Audit and Review Committee (JLARC). The Commission takes into account any newly enacted or terminated tax preferences and revises the schedule as needed each year.

Reviews and Findings

Tax preference reviews are conducted by the Joint Legislative Audit and Review Committee (JLARC) according to the schedule established by the Commission. For each tax preference, JLARC will evaluate whether the public policy objective is being met and provide recommendations to continue, modify, schedule for future review, or terminate the preference. JLARC may also recommend accountability standards for future reviews of tax preferences. JLARC must report its findings and recommendations for scheduled tax preferences to the Commission by August 30th of each year. The Commission will review and comment on the JLARC report. The final JLARC reports will be submitted to House Finance and Senate Ways & Means Committees for joint public hearings.