Inslee proposes cutting oil industry tax break

Apr 19, 2013

The search for ways to reduce Washington’s more than $1 billion budget shortfall has led Gov. Jay Inslee to suggest eliminating some little-known tax breaks long enjoyed by various industries.

One of these loopholes saves millions each year for an industry that didn’t even exist in the state when the tax break was created.

It started with hog fuel—wood scraps that timber mills burn to power their boilers. In 1949, Washington lawmakers exempted companies that burn a fuel they make for their own use from paying tax on that fuel.

At the time, hog fuel was pretty much the only thing that fit that description. But when oil refineries started springing up in Washington in the mid-1950s, they also began taking advantage of the so-called “extracted fuel” exemption.

Now, the state’s five refineries get 98 percent of the benefits from that tax break, totaling more than $20 million a year. Kerry McHugh with the Washington Environmental Council says it’s time for that gravy train to end.

“We don’t think that, in light of climate change, Washington State should be giving handouts to oil companies. And we also think that the state budget could use the infusion of cash,” he said.

But Franks Holmes at the Western States Petroleum Association says oil refineries are already heavily taxed, and adding to that burden could backfire.

“Anytime you start adding additional incremental costs to any industry through additional taxes, you’re going to hurt the economy,” he said.

The state Office of Financial Management notes that other industries are taxed when they produce materials they use themselves. The governor’s budget eliminates the extracted fuels exemption for oil refineries. A Senate committee is currently studying the issue.