United States

Washington: Voters to Decide on New Carbon Tax; Reductions to Other Taxes

Oct 31, 2016
From KPMG TaxWatch

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On Election Day, Washington State voters will decide if Washington will become the first state to tax carbon emissions. If approved, the Washington State Carbon Emission Tax Initiative 732 will create a new carbon pollution tax administered by the Department of Revenue. The tax would be levied on (1) the carbon content of fossil fuels sold or used in Washington State, and (2) the carbon content inherent in electricity consumed within Washington, including electricity generated within Washington. Carbon content is generally calculated by measuring carbon dioxide emitted from fossil fuels. The tax rate would be equal to $ 15-per metric ton of carbon dioxide as of July 1, 2017. The tax would increase to $25-per metric ton of carbon dioxide as of July 1, 2018. After that, the tax would be increased annually by 3.5 percent with adjustments for inflation. The rate would ultimately be capped at $100-per metric ton in 2016 dollars.

A key element of the proposal is that it purports to be revenue neutral. Revenues raised from the tax would be offset by a state sales tax reduction, from 6.5 percent to 5.5 percent over a two-year period, tax rebates for low-income families, and a reduction in the B&O tax rate applicable to manufacturers. Initiative 732 is modeled after a 2008 carbon tax implemented in British Columbia that likewise increased costs of gas and electricity, but offset such tax increases by personal income tax cuts and other reductions. Proponents argue that Initiative 732, if approved, could become a model for other states interested in considering similar measures. Somewhat surprisingly, opponents of the measure include certain environmental groups, who argue that the measure falls short by not investing in renewable energy and mass transit (in lieu of cutting the sales tax). Please stay tuned to TWIST for updates on Washington’s carbon tax initiative. 

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.