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Legislative auditor recommends changes to multiple tax preferences, finds emissions and reporting gaps
Summary
JLARC presented nine tax-preference reviews to the Senate Ways and Means Committee, recommending action on eight. Key findings: natural-gas transport preferences fell short of emissions targets; Puget Sound Energy and Toad Maritime Alaska identified as major beneficiaries; JLARC urged continued exemptions with added reporting and improved metrics for several preferences.
The legislative auditor told the Senate Ways and Means Committee on Jan. 15 that nine tax-preference performance reviews completed for 2025 merit legislative action on eight of them.
The reviews, presented by Aileen Mezzona of the Joint Legislative Audit and Review Committee (JLARC), examined a range of preferences — from tax treatment of natural gas used in transportation to preferential B&O rates for travel agents and a property-tax exemption for nonprofit low-income housing developers. The auditor recommended continuing some exemptions, modifying others to require better reporting or performance metrics, and allowing unused preferences to expire.
Mezzona said the review of preferences related to compressed and liquefied natural gas was among the most detailed. The report found that three preferences reduced the cost of using natural gas for transportation but that the legislature’s emissions‑reduction targets were not met because “fewer ships and vehicles use natural gas as a transportation fuel” than anticipated. Using public data from an LNG facility review, JLARC staff noted one private shipping company, Toad Maritime Alaska, converted two vessels and — combined with vehicle conversions — reached about 45% of a stated CO2 reduction target; had state ferries and other ships converted as well, the reduction would have reached roughly 98% of the target, the presentation showed.
JLARC recommended continuing the public utility tax (PUT) and natural-gas use tax exemptions to preserve uniform taxation of natural gas regardless of seller, while modifying the PUT exemption to require beneficiaries to report natural‑gas volumes used, produced and sold. The report identified Puget Sound Energy as a likely sole beneficiary of the PUT exemption and estimated beneficiary savings in the millions of dollars, noting precise use of the preference is not publicly reported.
On the preferential business‑and‑occupation (B&O) rates for travel agents and tour operators, JLARC found that savings in recent years have become concentrated among larger beneficiaries while the number of small beneficiaries and their savings have declined. The auditor recommended continuing the 0.275% preferential rate for small beneficiaries, adding an objective and performance metrics for that rate, and reviewing the 0.9% rate for higher earners.
The report on the 2016 property‑tax exemption for nonprofit low‑income housing developers concluded that nonprofit developers were building homes for qualifying households “as intended,” but that the statutory performance metric — the share of revenue spent on housing — does not reliably capture outcomes. Between 2017 and 2024, 30 nonprofit developers claimed exemptions, including 21 Habitat for Humanity affiliates. JLARC flagged data and reporting problems — including failures by developers to notify the Department of Revenue (DOR) when exempt parcels were sold and inconsistent parcel subdivision reporting by assessors — and recommended the legislature consider whether to continue the preference and, if so, revise metrics and require more frequent renewals to improve oversight.
Several shorter reviews led to straightforward recommendations: the multipurpose nonprofit senior‑center exemption (effective 2017) meets inferred objectives and JLARC recommended continuation (with an option to make it permanent); a disabled‑veteran adapted housing remittance preference provides limited relief owing to low take‑up (JLARC recommended continuing as scheduled and consulting the Department of Veterans Affairs); a trade‑convention nexus preference met its inferred objective and was recommended for continuation; and three energy preferences tied to a proposed silicon smelter that were never used were recommended to expire.
The JLARC presenters paused for questions and closed the work session; no committee action was taken at the meeting.
JLARC’s full reports, appendices and fiscal estimates are referenced in the presentation and available in the committee packet for legislators seeking details.
