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Published on Friday, March 13, 2015

Sales tax exemption in Senate transportation package would hit local governments hard

As we reported immediately after the Senate passed their transportation package, it came with an unpleasant surprise. One of the policy bills passed as part of the package, ESB 5990, would exempt WSDOT projects from the sales tax, including the local portion of the tax. This was significantly different from the underlying bill that would have transferred the state sales tax paid on state transportation projects from the state general fund to the account that pays for transportation projects. It left the local portion of the sales tax untouched so AWC had been neutral on this original proposal.

As we have now had some time to analyze the sales tax exemption impacts of ESB 5990 it is clear that it would have a significant negative impact on local sales tax revenues and we will be actively expressing our opposition to this particular component of the transportation package as it passed out of the Senate.

The Office of Financial Management has not yet released a revised fiscal note for ESB 5990 but based on our own estimates and those done by others, the overall loss in sales tax revenues to local governments (specifically cities, counties and transit agencies) over the 16 year life of the package would be approximately $350 – $400 million, and potentially more than that depending on which projects would be deemed exempt from the sales tax. To put this number in perspective, over that 16 year period the direct distribution of new gas tax revenues from the package is projected to be $375 million to cities and counties.

AWC is still encouraged that the Senate was able to pass a bipartisan package and we will continue to urge legislators to pass a new transportation package this year. The focus has now shifted to the House where initial indications are that the sales tax exemption is much less likely to be received positively. ESB 5990 has been referred to the Appropriations Committee in the House but has not yet been scheduled for a public hearing.

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