Washington state gave Boeing a free ride on $19.5 million in sales tax

Two years ago, state politicians approved a record-setting set of tax breaks to keep Boeing building jets in Everett.

Now, thanks to a tax-transparency provision that passed the same year, the precise value of one piece of the tax-break package to the company is becoming public.

Tapping a tax exemption on construction of its airplane-manufacturing buildings, the aerospace giant avoided nearly $20 million in sales taxes it otherwise would have owed Washington last year.

The figure, released to the Seattle Times by the state Department of Revenue after a public-records request and appeal, represents just a small slice of the aerospace giant’s expected annual savings from the record-setting tax-incentive package.

In addition to the sales-tax exemption, the total tax-break package – approved during a special legislative session in 2013 to land production of the 777X in Everett – included larger savings from a hefty reduction in the state tax on business revenues.

Yet disclosure of the sales-tax savings of $19,586,512 in 2014 is significant because it’s the first time precise savings claimed by Boeing from part of the suite of aerospace tax breaks has been publicly released by the state.

The disclosure was made possible due to a tax-transparency provision in a bill approved by the Legislature in 2013, before the Boeing special session.

The provision, championed by state Rep. Reuven Carlyle, D-Seattle, requires tax savings claimed by individual businesses to be made public within two years for any new or expanded tax break passed by lawmakers.

“It’s the beginning of a new era in opening the books,” Carlyle said.

‘Swiss-cheese’ system

Previously, taxpayer confidentiality laws have, with few exceptions, shielded disclosure of tax-break benefits enjoyed by individual companies. Instead, such information has been largely limited to estimates of how the tax breaks apply to broad industry sectors.

Under the transparency law for new tax breaks, company-specific disclosure will be the rule, instead of the exception.

That means Boeing will be far from alone in seeing its precise benefits revealed. In coming years, tax savings claimed by aluminum smelters, farms, data centers and newspapers will be made public under the new law. Smaller Boeing aerospace suppliers benefiting from the 2013 tax package also will be subject to disclosure.

As chairman of state House Finance Committee for the past three years, Carlyle has been frustrated with what he sees as too little information available on who benefits from the more than 600 tax breaks strewn throughout Washington’s tax code. Only a small slice of those have required benefits to individual companies or institutions to be made public.

“My philosophy is that with such a poorly designed, swiss-cheese tax system, the Legislature has a higher public responsibility to push for true transparency and openness of data,” Carlyle said.

Like most state legislators, Carlyle backed the Boeing tax-break package in 2013. However, he has also supported “clawback” proposals that would take away some of the company’s tax breaks if it continues to reduce its overall workforce in Washington.

Unions have unsuccessfully sought such legislation, complaining that Boeing has shipped engineering jobs out of Washington to lower-wage states.

The 2013 aerospace tax- incentive package was estimated to be worth $8.7 billion over 16 years – ranking it as the largest state corporate subsidy in U.S. history.

Supporters say it was worth it to keep Boeing manufacturing in the state, generating jobs and taxes.

“The aerospace tax incentives provide a tremendous return to taxpayers. The state’s own estimate is they will generate more than $21.3 billion in state and local tax revenue over 16 years – nearly three dollars in increased revenue for each dollar of incentives,” Boeing spokesman Paul Bergman said in a statement.

Delay in disclosure

Boeing initially indicated it would try to block disclosure of its tax-break savings to the Seattle Times, according to agency officials. But the company backed down, according to Revenue spokeswoman Kim Schmanke.

The full extent of Boeing’s annual tax savings won’t be revealed for another decade under the current interpretation of the law by Revenue.

Why the delay? Revenue officials say most of the aerospace tax breaks approved two years ago were just extensions of incentives first approved by lawmakers in 2003. That initial set of tax breaks had been set to expire in 2024. The new legislation extended them until 2040.

Because the new portion of the tax breaks won’t start until 2025, the public won’t get to see tax data on them for Boeing or other firms until 2026, according to the agency.

Carlyle disagrees with Revenue’s interpretation. The intent of the law was that even the slightest change in a tax break – including an extension – ought to trigger the transparency law, he said.

Schmanke, the Revenue spokeswoman, said in an email the 2013 provision written by Carlyle was unclear on whether extending the length of a tax break caused it to be a “new” tax break under the law. “The agency applies the law in a way that attempts to avoid extreme outcomes that the legislation did not intend,” she wrote.

The Seattle Times is appealing Revenue’s interpretation and seeking earlier disclosure of the full Boeing tax-break benefit.

Despite its limitations, the new tax-break disclosures in Washington drew praise from Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based policy group that tracks tax subsidies nationally.

“We view company-specific disclosure of tax breaks as the most fundamental reform of economic-development incentives,” said LeRoy.

It would be even better, he argued, if the policy were broadened so it revealed beneficiaries of the hundreds of other tax breaks created before the 2013 law.

“You’ve got so many holes in the bucket,” LeRoy said.