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Spokane, Washington  Est. May 19, 1883

Spin Control: Drafting in dark messed up soda tax

OLYMPIA – Not to be a nag about the value of public hearings for important stuff government wants to do to us, but legislators’ penchant for closed-door, back-room discussions of the tax plan they passed may have bit them in the posterior.

Or more appropriately, bit them in the soda bottlers.

The tax on soda pop goes up 2 cents per 12-ounce can on July 1. Among all the taxes considered by the Legislature this year, the pop tax got the least public airing. There were no committee hearings on the pop tax comparable to some other taxes in the plan that passed – or even compared to some that didn’t pass and were never gonna pass, like Sen. Rosa Franklin’s state income tax proposal.

Gov. Chris Gregoire suggested a soda tax early in the session, but it didn’t bubble up in the Legislature until the final days, when word leaked out the weekend before the special session ended. The state’s bottlers and distributors stormed the Capitol on that Friday and Saturday, but there was no bill to look at. Instead, they got assurances of a “break,” with the first $10 million in sales exempt from the tax.

“Every one of my legislators said, ‘You’re going to be exempt,’ ” Tim Martin, president of the Washington Beverage Association, said recently.

No one outside the handful of legislators and governor’s staffers negotiating the budget saw the wording of the bill until about noon on the session’s last day, and if they’re honest, some legislators will admit they didn’t read the tax bill before voting on it that night.

By the time the public saw the bill, it was on Gregoire’s desk, awaiting a signature. At that point some of the soda industry’s tax experts studied the language and discovered a problem: The exemption applied to bottlers but not to distributors.

Many of the companies that have “bottling” in their name don’t put soda in bottles anymore, Martin said. They formed partnerships to pool the bottling operation for economies of scale, and are really distributors, picking up pop at a central location and delivering it in their districts. Martin’s Elma company, Harbor Pacific Bottling, no longer bottles anything.

Marty Brown, the director of the Office of Financial Management, said there was a lack of understanding on the state’s part on how the business is structured. The law is written for bottlers in fact, not in name, and distributors don’t qualify for the tax break, the Department of Revenue said.

Gregoire got a last-minute appeal from the industry to fix the problem. But she couldn’t rewrite the legislation or issue a rule to provide the exemption she and the Legislature thought they were giving when the bill passed. Her only option was to veto the pop tax, which she said she couldn’t do because the Legislature took the tough votes on the tax package and she didn’t want to undo that. Instead, they’ll try to fix it when they come back. Next year.

In the meantime, though, the pop industry is left with a tax law that everyone concedes is clearly not what the Legislature wanted, because they didn’t know how the industry worked. Gregoire discounted any suggestion this could be blamed on pushing out a tax bill in the closing hours of the session with no hearing: “I don’t necessarily think this issue was a time issue. It was just flat a miscommunication.”

But it’s hard to argue that if the bill had been subjected to a hearing, the soda industry’s lobbyists would have done what lobbyists do – pored over the language, picked it apart and communicated to legislators how this is going to hurt their clients. At that point, the legislators could have said “Too bad” or “We can fix it.” Now, all they can say is “Oops.”

Spin Control, a weekly column by veteran reporter Jim Camden, appears online with daily items, reader comments and videos at blogs/spincontrol.