KING 5 Ad Watch: No new tax on blueberry pancakes

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by ROBERT MAK / KING 5 News

KING5.com

Posted on October 11, 2010 at 5:47 PM

Updated Tuesday, Oct 12 at 8:23 AM

Commercial: "The new tax scheme that politicians in Olympia put on grocery items, makes no sense."

Supporters of Initiative 1107 want you to vote "yes" and repeal a number of taxes lawmakers passed earlier this year, in an effort to balance the state budget.

Commercial: "They put new taxes on bottled water, and other common beverages, on foods made with meat, fruit and vegetables."

You might get the impression from these ads that your grocery store is filled with new taxes. That's not the case. Virtually all the money for this campaign comes from the American Beverage Association, and there's a reason for that. The biggest impacts of the new taxes are on soda, bottled water, and candy - about $100 million a year. Only a very small part of the new taxes - about $4 million - involves some processed foods.

Commercial: "Even worse, they put new taxes on food products made by Washington companies, like locally made chili and pancake mix, but not on similar products made by their competitors in other states or countries."

If you buy any of these products (chili or pancake mix), there's no new sales tax that you, the consumer, would pay at the grocery store today. What this ad refers to, is that some of these manufactuers pay business taxes to the state because they do business and have a plant in Washington.

There's a simple reason why Kellogg's, for example, doesn't pay our state business and occupation tax. That's because under the U.S. Constitution, Washington state has no authority to reach across state lines and tax an out-of-state business. The state does tax wholesalers and retailers who bring the product into the state. But as a rule, manufacturers pay business taxes in the state where they make their product.

Commercial: "They put new taxes on food products made by Washington companies, like locally made chili and pancake mix."

Let's consider first, the chili. In Washington state, the standard manufacturing tax rate for a business is .484 percent of gross income. But processors that slaughter meat or make perishable meat products get a lower tax rate --.138 percent of their income. Five years ago, the parent company of Nalley's, with a plant in Tacoma, went to court arguing that because it puts meat in its products like chili, it should be eligible for that lower rate. The state Supreme Court agreed based on the way the law was written.

Lawmakers argue that was never the intent, and this year, they rewrote the law to make it clear that only meat packers and companies that process perishable meat are eligible for the lower tax rate. So it's true that the state is collecting more from local manufacturers of chili and some processed meat products.

But what about that blueberry pancake mix? Just as meat packers get a lower rate, Washington state gives a tax break to producers of fruits and vegetables. State lawmakers worried that if you follow the same logic the state Supreme Court used on meat, a maker of blueberry pancakes, for example, could try to claim a lower rate just because there's some fruit in the pancake.

So lawmakers cleaned up that language as well to make it clear the lower rate for processing fruits and vegetables does not apply to companies that just happen to have a little fruit or vegetable in their products.

Commercial: "They put new taxes on food products made by Washington companies, like locally made chili and pancake mix."

There's one problem with this claim. The legislature added that language about fruits and vegetables just to be proactive. The state revenue department says local companies, like Krusteaz, that make blueberry pancake mix, never even tried to get that lower tax rate.

Bottom line: The makers of blueberry pancake mix have always paid the higher business and occupation tax rate. And the state says they're paying the same today as they always have. And that's why the claim in the commercial is false.

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