Taxes on the movement of cargo

Background
The House Democratic budget proposal released on April 10 includes two new taxes on international trade: a 550% increase in the B&O tax on stevedoring services; and a new 1.926% tax on gross revenue associated with interstate cargo passing through Washington state.

Washington state cargo is discretionary

70% of cargo passing through the Port of Tacoma is bound for destinations outside of Washington state. It does not have to pass through Washington state to get to its destination. Shippers could easily divert the cargo to ports in Canada, California, or the Gulf Coast if costs become too high. Washington exporters rely on imports to provide a cheap supply of empty containers to carry their goods during the backhaul to foreign markets. Increasing taxes on trade may divert discretionary import cargo away from the state, depriving Washington exporters access to empty containers.

Port of Tacoma position The Port opposes increases in taxes on the movement of cargo, which would increase the cost of calling on Washington state ports and may result in the diversion of cargo and jobs to other states.

Price matters
"The competitiveness of our ports is determined by two basic factors: the direct costs to shippers and their customers, and the speed and convenience that it takes to get goods from our ports to their ultimate destination, explains the Washington Council on International Trade (WCIT) in their recently released International Competitiveness Strategy. Recognizing the negative impacts taxes have on trade, the Legislature in 2012 confirmed the state's longstanding commitment to existing tax policy when it passed Leasehold Excise Tax (LET) legislation. The two new proposals to tax trade would similarly impact the direct costs to ocean carriers as the LET increase the Legislature proactively prevented from occurring last year.

Studies confirm price sensitivity

The Legislatures Joint Transportation Committee found that a tax as low as $30/TEU (twenty-foot equivalent unit container), or 1.5 percent per cost of moving a container, could divert as much as 30% of Washington cargo out of state. According to one report author, Puget Sound ports have significant competition and imposition of a fee could lead to a significant loss of container trafficDecision makers should proceed with care. The Federal Maritime Commission (FMC) has also validated this correlation between cargo taxes and cargo diversion. In 2012, the FMC found that approximately half of U.S.-bound cargo passes through Canadian ports primarily because of the cost impacts associated with the federal Harbor Maintenance Tax. The Joint Legislative Audit and Review Committee (JLARC) also acknowledged the price sensitivity of cargo taxes. In voting to accept the 2012 Tax Preference Performance Reviews Report, JLARC on February 20, 2013, expressed disagreement with a Citizens Commission on Tax Preference recommendation to increase the stevedoring tax.

Contact:
Sean Eagan Government Affairs Director seagan@portoftacoma.com (253) 428-8663
(Printed April 11, 2103)

Lost cargo = lost jobs

According to WCIT, 40% of jobs in Washington are connected to international trade. "The ports of Washington are key enablers for our state's trade economy." The loss of discretionary cargo would mean a loss of family-wage jobs-- not just longshore, but also railroad workers, truck drivers, distribution center employees, tug operators and more. For example, a 30% loss in cargo would result in an estimated loss of 9,416 jobs in Washington and $58.4 million in state and local tax revenue per year.