The 2019 short session is in its final days and House Bill 354 (HB 354) – the “tax clean-up” bill, the original purpose of which was specifically to address unintended consequences of 2018 legislation – went to free conference committee where the conferees added several new, expensive tax breaks. The free conference committee report will be voted on by the House and Senate without the ability to amend the bill to clean up this assortment of tax breaks.
The fiscal context for the conferees’ agreement on changes to our tax system is serious: In this non-budget year, revenues are already projected to be lower than the estimates on which the budget is based, even though the budget included many deep cuts including no resources all at to pay for textbooks, teacher professional development and other critical needs.
Yet despite this grim situation, the free conference committee agreed to several new tax breaks estimated to cost over $106 million annually when fully implemented. Rather than preserving our already insufficient General Fund, HB 354 instead provides more tax breaks for:
- Banks – which are the biggest winners of all with a cut of close to 50 percent of the amount currently paid under the bank franchise tax – at an estimated cost of $56 million;
- Corporations seeking to shift taxable income to tax havens in no- or low-tax jurisdictions through a weakening of the language from the 2018 tax bill that requires combined reporting, a model method used by states to prevent corporations from shifting income to avoid state taxes;
- Companies that lease heavy equipment, which will receive a substantially reduced rate, and will eventually receive an income tax credit for every dollar paid in property taxes on the leased equipment;
- Companies that process raw materials owned by others;
- Companies that purchase materials and equipment through more generous income tax expensing provisions;
- People who borrow money for activities like flipping houses;
- People who place losing bets at the track; and
- People who enter for profit fishing tournaments or pay to dock boats at boat ramps.
Two bright spots in HB 354 are language that will require marketplace providers like Amazon to collect and remit sales tax for sales made using their platforms, and language that will include streaming services as multichannel video programming so that those services will be subject to the communications tax. New revenue from these provisions is sorely needed to help shore up our General Fund and to support appropriations already made in the 2018-2020 budget. But instead, what it generates is far less than the cost of the long list of new and unnecessary special interest tax breaks in the bill.
HB 354 should have focused on simply making the changes needed to correct mistakes from last year’s legislation and ensure proper administration of the tax code. Yet as it stands now, the “clean up” bill has become the latest vehicle to punch additional holes in our tax code, reducing future revenues we need for schools, health, pensions and other needs. Research does not support the claim that tax breaks such as these help states’ economies, but they do make it harder for states to invest in the building blocks of growth.