B&O TAX CREDITS

82.04.427 POLLUTION CONTROL CREDIT

82.34.060(2)

Description: A B&O tax credit is allowed for up to 50 percent of the cost of required pollution control facilities. Up to 2 percent of the total credit may be taken per year.

Purpose: The purpose of the program was to encourage pollution control and to compensate Washington companies, because in 1967 Washington State standards were more stringent than federal standards.

Category/Year Enacted: Economic development; 1967 (new applications were cut off in 1981).

Primary Beneficiaries: Firms required to install pollution control facilities, primarily in the lumber and wood products, paper, aluminum, and food products industries. A total of 151 firms applied for the B&O, public utility or use tax credits; 60 firms have a remaining balance which totals $46.2 million at the end of FY 1999.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 3,340 2,914 2,484 2,333
Local taxes - - - - - - - -

If the credit were repealed, would the estimated revenue be realized? No; new applications are not allowed. Credits now being taken are those authorized under prior law.

82.04.4333 CREDIT FOR JOB TRAINING SERVICES

Description: Twenty percent of the amount spent on job training by firms that are eligible for the distressed area sales tax deferral/exemption after December 31, 1995 may be taken as a credit against B&O tax. The training must be designed to enhance job performance in a state-approved program which is sponsored or provided by the employer. The amount of credit for a particular firm is limited to $5,000 annually.

Purpose: To encourage firms in distressed areas to employ local residents who may need training.

Category/Year Enacted: Economic development; 1996.

Primary Beneficiaries: Manufacturing and R&D firms located in distressed areas. Only one firm has utilized this credit.

Conflict With Other Programs: None evident.

Tax Savings ($000): Due to confidentiality requirements, the impact of this tax credit cannot be publicly stated because it is believed to affect fewer than three taxpayers.

82.04.434 CREDIT FOR TESTING/SAFETY LABORATORIES

Description: The value of services and information provided to the state of Washington free of charge by a laboratory which tests for public safety purposes may be credited against B&O tax liability. The information must be related to standards and testing for public safety and be provided by a firm which is exempt from federal income tax as long as it is not affiliated with any industry group.

Purpose: To provide tax treatment similar to other states where a testing/safety laboratory of this type is located and ensure that these services are available in Washington.

Category/Year Enacted: Economic development; 1991.

Primary Beneficiaries: One firm.

Conflict With Other Programs: None evident.

Tax Savings ($000): Due to confidentiality requirements, the impact of this tax credit cannot be publicly stated because it is believed to affect fewer than three taxpayers.

82.04.440(2&3) MULTIPLE ACTIVITIES TAX CREDIT: INTRASTATE

Description: Until 1987, businesses were subject to B&O tax only under a single classification for income associated with a particular activity or product. However, on June 23, 1987 the U.S. Supreme Court ruled that the B&O tax cannot discriminate against firms operating on an interstate basis. (There had been the potential for gross receipts taxes in more than one state to apply to the same income, whereas strictly intrastate activities were subject to tax only once.) Part of the legislative solution was to subject products produced and sold in Washington to tax on both the production and selling activity, i.e., taxable under the extracting or manufacturing classifications and the retailing or wholesaling classifications. However, this credit allows the amount of manufacturing or extracting tax to be credited against the wholesaling or retailing B&O tax which would equalize taxation for intrastate and interstate firms.

Purpose: Elimination of the previous exemption from extracting or manufacturing tax for firms that both produce and sell within the state is intended to avoid the discrimination against firms that produce outside the state but sell within Washington. However, without this credit it would also subject firms that both produce and sell within the state to double taxation.

Category/Year Enacted: Commerce; 1987.

Primary Beneficiaries: Approximately 2300 firms that extract or manufacture and sell the products at wholesale or retail within the state.

Conflict With Other Programs: None evident.

Tax Savings ($000)*: FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes (171) (176) (184) (192)
Local taxes - - - - - - - -

*The B&O tax has always intended to tax the income of a particular firm associated with a specific product or activity only once; this credit assures that result. However, since the manufacturing/extracting B&O tax rate (0.484 percent) is slightly higher than the retailing rate (0.471 percent), a small tax increase occurs for firms that produce and sell at retail within the state because there is not sufficient retail tax to absorb the entire manufacturing/extracting tax. The impact estimate reflects this increase in overall B&O tax liability.

82.04.440(2&4) MULTIPLE ACTIVITIES TAX CREDIT: INTERSTATE

Description: Until 1987, businesses were taxable under the B&O tax only under a single classification for income associated with a particular activity or product. However, on June 23, 1987 the U.S. Supreme Court ruled that the B&O tax cannot discriminate against firms operating on an interstate basis. (There had been the potential for gross receipts taxes in more than one state to apply to the same income, whereas strictly intrastate activities were subject to tax only one time.) A 1985 statute provided for this situation and established a credit for Washington manufacturers and extractors for the amount of gross receipts taxes paid in other states on the sale of such products. This contingency legislation became effective on July 18, 1987. In 1987 a similar credit was established as a result of the court decision for out-of-state firms selling at wholesale or retail in Washington equal to the amount of gross receipts tax paid as a manufacturer or extractor in other states or countries.

Purpose: The credits for interstate transactions eliminate the possibility of discrimination between taxpayers and provide equal and uniform tax treatment regardless of where the activities are performed or taxed.

Category/Year Enacted: Commerce; 1985 and 1987.

Primary Beneficiaries: Interstate firms that either (1) produce products outside of Washington and sell the products at wholesale or retail within this state, or (2) produce or extract products in Washington and sell them outside the state. In both cases, the activity that occurs outside of Washington must be within jurisdictions (local, state or other countries) that levy gross receipts taxes which are essentially similar to the Washington B&O tax. According to the latest available data, approximately 40 firms are currently taking this credit.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 1,636 1,677 1,752 1,831
Local taxes* - - - - - - - -

*Some cities have revised local B&O tax ordinances, consistent with the requirements of the U.S. Supreme Court decision.

82.04.4451 SMALL BUSINESS CREDIT

Description: The small business credit provides a credit of up to $35 per month against B&O tax that is due, phasing out completely when the tax liability reaches $70. Originally, the credit was phased out dollar-for-dollar by the amount that B&O tax liability exceeded $35. This calculation proved to be difficult for many taxpayers; therefore legislation adopted in 1997 authorized the Department to prepare a ranged chart which shows credit amounts in $5 increments for various levels of tax liability. As use of the table may not result in any taxpayer owing a greater amount than would be the case under the original calculation, this has resulted in some additional reduction in B&O tax receipts. This additional impact is included in the estimated tax savings given below.

Purpose: To provide tax relief to small businesses and encourage the growth of new firms.

Category/Year Enacted: Economic development; 1994.

Primary Beneficiaries: An estimated 107,000 small businesses pay no B&O tax as a result of the credit. Another 34,000 firms have their B&O tax liability reduced.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 24,224 25,047 25,897 26,776
Local taxes - - - - - - - -

If the credit were repealed, would the estimated revenue be realized? Yes.

82.04.4452 RESEARCH AND DEVELOPMENT

Description: The 1994 Legislature established a B&O tax credit equal to 2.5 percent (or 0.515 percent for nonprofit firms) of research and development expenditures other than for capital improvement purposes. The credit is available for the following high technology areas of R&D: advanced computing, advanced materials, biotechnology, electronic device technologies and environmental technologies. The credit is limited to a maximum of $2 million per firm per year. The rate of credit decreases to 1.5 percent (or 0.484 percent for nonprofit firms) on July 1, 1998.

Purpose: To stimulate the creation of high wage jobs in high technology industries.

Category/Year Enacted: Economic development; 1994.

Primary Beneficiaries: Manufacturers and research firms involved in high technology research and development activities.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 17,752 19,913 22,677 26,075
Local taxes - - - - - - - -

If the credit were repealed, would the estimated revenue be realized? Yes.

82.04.44525 INTERNATIONAL SERVICES

Description: A tax credit of $3,000 per new job created by firms engaged in international services is provided. Such firms must be located in community empowerment zones or international services districts in cities or groups of cities with a population of at least 80,000.

Purpose: To encourage economic development and the creation of new jobs in economically distressed areas.

Category/Year Enacted: Economic development; 1998.

Primary Beneficiaries: Firms engaged in providing services to residents of other countries. However, to date no firms have participated in the program.

Conflict With Other Programs: None evident.

Tax Savings ($000)*: FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 180 286 390 413
Local taxes - - - - - - - -

*Estimate is based on the potential of firms to participate in the program; to date it is believed that none of the eligible firms have chosen to utilize the credit.

If the credit were repealed, would the estimated revenue be realized? Yes.

82.04.4453 RIDE-SHARING INCENTIVES

Description: Tax credits are provided to employers in any county who participate in a commute trip reduction program and provide financial incentives to their employees to ride-share. The amount of credit is limited to $60 per employee and $100,000 per calendar year; and the overall credit statewide is limited to $2.25 million per calendar year. The credit is scheduled to expire on June 30, 2000. (Funding sources for the credit were effectively repealed by Initiative 695, effective January 1, 2000.)

Purpose: The purpose is to provide an incentive for employers to encourage their employees to reduce the number of vehicles on Washington's highways by carpooling or vanpooling, so as to reduce related air pollution, energy consumption and traffic congestion and forestall the need for capital improvements to roads, parking facilities and transportation systems.

Category/Year Enacted: Other; 1994; revised and extended in 1996.

Primary Beneficiaries: Nearly 300 firms which take this credit and their employees whose carpooling is subsidized by the employer.

Conflict With Other Programs: None evident; however, the program is credit by transfers from other programs.

Tax Savings ($000): Minimal. The funding for this program comes from the Clean Air Fund, which is funded by a $2 fee on motor vehicle licenses and amounts from transportation accounts. These funds depend upon motor vehicle excise tax revenues. Since this tax was largely eliminated by Initiative 695, it is presumed that funding for the ride-sharing programs will be curtailed.

82.04.4456 SOFTWARE DEVELOPMENT CREDIT

Description: A tax credit is provided to firms engaged in the manufacturing or programming of computer software in rural counties. The amount of credit is equal to $1,000 for each new job created. The credit for each new job may be taken for up to five years. Rural counties are those with a population density of less than 100 persons per square mile. This credit is scheduled to expire on December 31, 2003.

Purpose: To encourage economic development in rural counties.

Category/Year Enacted: Economic development; 1999.

Primary Beneficiaries: As of October 1, 1999, 16 firms have utilized this credit.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 383 966 1,522 2,133
Local taxes - - - - - - - -

If the credit were repealed, would the estimated revenue be realized? Yes.

82.04.4457 HELP-DESK SERVICES CREDIT

Description: A tax credit is allowed for firms engaged in providing third-party help desk services in rural counties. The amount of credit is equal to 100 percent of the income derived from this activity. Help desk services mean providing electronic or telephone communication to assist customers with installation, maintenance, diagnostics, repair, training and upgrading of computer software and hardware. Rural counties are those with a population density of less than 100 persons per square mile. This credit is scheduled to expire on December 31, 2003.

Purpose: To encourage economic development in rural counties.

Category/Year Enacted: Economic development; 1999.

Primary Beneficiaries: As of October 1, 1999, approximately 9 firms had taken this credit.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 191 295 374 465
Local taxes - - - - - - - -

If the credit were repealed, would the estimated revenue be realized? Yes.

82.35.050 CREDIT FOR COGENERATION FACILITIES

Description: Cogeneration is defined as the sequential generation of electricity or mechanical power and useful heat from the same energy source or fuel. A B&O tax credit can be claimed amounting to three percent of the cost of a cogeneration facility per year. The total credit is limited to 50 percent of the capital cost of the facility. The maximum facility cost to which a cogeneration credit may be applied is $10 million. New applications were terminated at the end of 1984.

Purpose: The purpose is to promote cogeneration in Washington and save energy.

Category/Year Enacted: Economic development; 1979, new applications terminated, 1984.

Primary Beneficiaries: Approximately five cogeneration facilities have utilized credit under this program.

Conflict With Other Programs: None evident.

Tax Savings ($000): It is believed that the final credit authorized under this program was taken in 1998. No other firms are currently eligible, so it is presumed that the program has effectively terminated.

82.62.030 CREDIT FOR NEW JOBS

82.62.045

Description: A credit against B&O tax liability is allowed at the rate of $2,000 or $4,000 per new job created by manufacturing, research and development or computer service firms in certain rural counties and community empowerment zones. The higher credit amount is allowed if the new jobs are paid at least $40,000 per year (including benefits). The increase in employment must be part of an expansion that increases the firm's total employment at the facility by at least 15 percent. The total credits for all firms may not exceed $7.5 million annually. In 1999 legislation replaced the former distressed area requirements with a definition of rural counties, which are those with a population density of less than 100 persons per square mile.

Purpose: This economic development legislation is intended to encourage firms to expand in rural areas.

Category/Year Enacted: Economic development, 1986; program expanded in 1993, 1996, 1997 and 1999 and program expiration repealed in 1997.

Primary Beneficiaries: Business firms expanding employment in rural areas. Applications for 844 firms have been approved through June, 1999.

Conflict With Other Programs: None evident.

Tax Savings ($000)*: FY 2000 FY 2001 FY 2002 FY 2003
   
State taxes 7,500 7,500 7,500 7,500
Local taxes - - - - - - - -

*Based on estimates of applications for credits; but experience has shown that many firms are not able to reach the new employment requirement, and thus are unable to take the full amount of credit that has been authorized.

If the credit were repealed, would the estimated revenue be realized? Yes, but part of the amount represents credit previously authorized, and it would be difficult to rescind these credits. The credit could be terminated prospectively, but the incentive to create new jobs would be lost.