RETAIL SALES/USE TAX EXEMPTIONS: PRODUCER GOODS

82.04.050(1,d) FERROSILICON

82.04.190(1,d)

Description: Tangible personal property purchased for the production of ferrosilicon which, in turn, is used in the production of magnesium is exempt from retail sales/use tax, if the purpose of the items is to create a chemical reaction with an ingredient of ferrosilicon.

Purpose: To assist one proposed magnesium production facility.

Category/Year Enacted: Economic development; 1986.

Primary Beneficiaries: One proposed facility, not currently in operation.

Conflict With Other Programs: Materials that are used in production but do not actually become incorporated in the finished product or whose purpose is merely to create a chemical reaction are subject to sales tax.

Tax Savings ($000): None.

82.08.0255(1) FUEL FOR AIRCRAFT RESEARCH

82.12.0256(1)

Description: This statute exempts manufacturers of aircraft from sales/use tax liability on motor vehicle fuel used for purposes of research, development, and testing.

Purpose: The purpose was presumably to encourage aircraft research, development, and testing.

Category/Year Enacted: Economic development; 1963.

Primary Beneficiaries: Aircraft manufacturers.

Conflict With Other Programs: Yes; this departs from the component part rule; fuel consumed by an aircraft manufacturer does not become a component part of the final product. Also, fuel used by other types of manufacturers for testing, etc., is not exempt.

Tax Savings ($000) The statute specifies that motor vehicle fuel, not aircraft fuel, is to be exempt. Since any current aircraft testing is presumed to utilize aircraft fuel, this exemption has no current impact.

If the exemption were repealed, would the estimated revenue be realized? No.

82.08.02565 MANUFACTURING MACHINERY

82.12.02565

Description: New or replacement manufacturing machinery and equipment is exempt from retail sales/use tax if it is used in a manufacturing operation. Both materials and installation labor are included for machinery, equipment, pollution control equipment and the internal use portion of cogeneration equipment. Structural investments are not covered under this exemption, but may be included under targeted deferral/exemption programs in RCWs 82.60 and 82.63. Also excluded from this exemption are short-lived tools, hand tools, consumable supplies, repair parts and research and development equipment. In 1996 repair parts and labor for manufacturing machinery and manufacturers R&D equipment were included in the exemption. In 1999 testing equipment was added and certain logging and rock-crushing activities were retroactively added to the definition of manufacturing.

Purpose: To encourage development of manufacturing activity and create family wage employment.

Category/Year Enacted: Economic development; 1995.

Primary Beneficiaries: Approximately 15,000 manufacturing firms in Washington are potentially eligible.

Conflict With Other Programs: None evident, although other programs cover the same assets for some firms (e.g, sales tax deferral/exemptions in RCW 82.60 and 82.63).

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 152,409 156,081 166,900 170,730
Local taxes 39,169 40,113 42,893 43,878

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

82.08.02566 PROTOTYPES OF AIRCRAFT PARTS

82.12.02566

Description: Purchases of materials used to develop prototypes of aircraft parts are exempt from sales/use tax, if the firm that develops the prototype has taxable sales of less than $20 million annually. Further, the statute limits the maximum amount of sales tax exemption to $100,000 per firm.

Purpose: To assist small manufacturers of aircraft parts.

Category/Year Enacted: Economic development; 1997.

Primary Beneficiaries: Small manufacturers of aircraft parts.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 240 250 260 271
Local taxes 62 64 67 70

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

82.08.02567 SOLAR AND WIND GENERATING EQUIPMENT

82.12.02567

Description: Provides a sales/use tax exemption for machinery and equipment used directly in generating electricity using wind, solar or landfill gas energy, and for the labor and services necessary to install such equipment. The facility must be capable of generating a minimum of 200 kilowatts of electricity; this size limitation precludes single-family residential systems from utilizing the exemption. This exemption expires on June 30, 2005.

The costs of solar generation exceed those of conventional generation, although technology improvements may lower the cost for solar power. Wind power costs are higher than the price of electricity from alternative sources. There is currently one power plant in commercial operation using landfill gas. There are no planned wind or solar energy projects at this time. Two proposed wind projects for the Columbia River Gorge are not proceeding.

Purpose: To encourage the development of energy generating facilities that do not utilize fossil fuels.

Category/Year Enacted: Economic development; 1996.

Primary Beneficiaries: None currently.

Conflict With Other Programs: None evident.

Tax Savings ($000): No current impact, since there are no known projects under construction during the forecast period.

82.08.02568 ANODES AND CATHODES

82.12.02568

Description: Anodes and cathodes are used to create aluminum through an electrical process. The exemption conforms the historic practice of exempting anodes (by administrative rule) to statute and also extends the exemption to cathodes.

Purpose: To place in statute the existing tax treatment of anodes and provide uniformity for cathodes. The exemption encourages continuation of the aluminum industry in this state.

Category/Year Enacted: Economic development; 1996.

Primary Beneficiaries: Aluminum manufacturing companies.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 10,226 10,778 11,371 11,996
Local taxes 2,045 2,156 2,274 2,399

If the exemption were repealed, would the estimated revenue be realized? Yes; however, the cost of aluminum manufacturing in this state would be increased.

82.08.026 NATURAL OR MANUFACTURED GAS

82.12.023

82.14.030(1)

Description: Natural or manufactured gas is exempt from state and local retail sales and use tax.

Purpose: Firms that distribute natural gas are ordinarily subject to public utility tax. Large industrial customers have begun to purchase gas directly from out-of-state suppliers through brokers, thus avoiding public utility tax. Legislation in 1989 established new state and local "use" taxes on such gas, equivalent to the public utility tax. These exemptions merely assure that "brokered" natural gas or manufactured gas will be subject to these new taxes and not regular retail sales and use tax.

Category/Year Enacted: Not intended in the tax base; 1989.

Primary Beneficiaries: Large industrial users of natural gas.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 12,149 13,971 16,067 18,477
Local taxes* -17,819 -20,492 -23,566 -27,101

*Includes the local "use" tax at the maximum 6 percent local utility tax rate which exceeds the local use tax. Thus, the overall local impact would be a gain of revenue by shifting from the utility tax to local sales tax and therefore the tax savings would be negative.

If the exemption were repealed, would the estimated revenue be realized? No.

82.08.0274 FORM LUMBER

82.12.0268

Description: Form lumber used in construction is exempt from the retail sales and use tax, if it is used for the molding of concrete in a single project and is then incorporated into the project. The exemption applies only to projects done by contractors for other persons; "spec" building is not exempt under this provision.

Purpose: To exempt the contractor's intervening use as a consumer of form lumber, when the lumber is incorporated into the same project. This simplifies the tax treatment of such lumber.

Category/Year Enacted: Economic development; 1965.

Primary Beneficiaries: The primary beneficiaries of this exemption are contractors and subcontractors who use form lumber in construction.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 485 468 454 449
Local taxes 112 108 105 104

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

82.08.0276 APPAREL USED FOR DISPLAY

82.12.0271

Description: Manufacturers, wholesalers, and retailers of wearing apparel are exempt from sales or use tax on clothing used for display.

Purpose: To eliminate sales/use tax liability for clothing manufacturers' representatives and retail sellers.

Category/Year Enacted: Economic development; 1967.

Primary Beneficiaries: Manufacturers' representatives for clothing manufacturers.

Conflict With Other Programs: Other items used by sellers to effect sales are subject to use tax.

Tax Savings ($000): Minimal; because of the frequent turnover of display merchandise, such items are now commonly sold at retail and therefore subject to tax.

82.08.0298 FISHING BOAT FUEL

82.12.0298

Description: Diesel fuel used by vessels engaged in commercial deep sea fishing or in the operation of commercial charter fishing boats is exempt, if such vessels regularly operate outside of state territorial waters and if the gross income from such fishing activities is more than $5,000 per year.

Purpose: Presumably, this exemption recognizes the fact that the majority of such fuel is consumed outside of the state.

Category/Year Enacted: Economic development; 1987.

Primary Beneficiaries: Commercial deep sea fishermen and sport fishing charter boat operators.

Conflict With Other Programs: Yes; other non-highway uses of fuel are subject to sales tax.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 557 555 566 575
Local taxes 145 144 147 150

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

82.08.0315 FILM AND VIDEO PRODUCTION EQUIPMENT

82.12.0315

Description: Equipment, film and related services used by film and video production businesses are exempt from retail sales and use tax. Equipment includes video, electrical, lighting and motion picture equipment. The exemption also applies to the rental of such equipment and the sale of production services. The exemption was broadened in 1997 to include all vehicles used solely for production activities (previously only vans and trucks were specified).

Purpose: To support the motion picture industry and encourage more film production in this state.

Category/Year Enacted: Economic development; 1995.

Primary Beneficiaries: Various film and video production companies. There is a wide range in the size of businesses that benefit from this exemption.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 515 527 540 554
Local taxes 134 138 141 145

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

82.08.810 AIR POLLUTION CONTROL FACILITIES

82.12.810

Description: Construction of air pollution control facilities at a thermal electric generating facility which was placed in operation after December 31, 1969 and before July 1, 1997 is exempt from sales/use tax. The exemption is contingent upon production being maintained above the 20 percent annual capacity factor for the plant for any year between 2002 and 2023. If production falls below this level, all or a portion of the tax previously exempted under this exemption shall be repaid according to a sliding scale.

Purpose: The exemption helps to make the installation of air pollution control devices economically feasible, thereby assisting the facility to continue production.

Category/Year Enacted: Economic development; 1997.

Primary Beneficiaries: The Centralia thermal generating facility and employees at this plant.

Conflict With Other Programs: None evident.

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

82.08.811 COAL CONSUMED AT THERMAL GENERATING PLANTS

82.12.811

Description: Effective January 1, 1999, purchases of coal used at a thermal electric generating facility which was placed in operation after December 31, 1969 and before July 1, 1997 will be exempt from state and local sales/use tax. The exemption is contingent upon the owners of the facility demonstrating to the Department of Ecology that progress is being made to install the necessary air pollution control devices and that the facility has emitted no more than 10,000 tons of sulfur dioxide during a previous period of 12 consecutive months. If the facility is found to be in violation of the emission criterion, the sales/use tax exemption is curtailed until such time as the plant has been in compliance for 12 consecutive months. If the facility claims the exemption and then abandons the facility before the air pollution control devices are fully depreciated, any tariff filing for a rate increase to recover the abandonment costs are to be considered unjust and unreasonable by the Utilities and Transportation Commission.

Purpose: The exemption helps to make the installation of air pollution control devices economically feasible, thereby assisting the facility to continue production.

Category/Year Enacted: Economic development; 1997.

Primary Beneficiaries: The Centralia thermal generating facility and employees involved with coal production and electric power production at this plant.

Conflict With Other Programs: None evident.

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

82.08.820 WAREHOUSING REMITTANCE

82.12.820

Description: Warehouses over 200,000 square feet in size and grain elevators with more than one million bushel capacity are eligible for an exemption in the form of a remittance for the state sales and use tax paid on purchases of machinery and equipment and on labor and materials for construction of such facilities. Grain elevators with a capacity between one and two million bushels can receive a remittance equal to 50 percent of the state sales/use tax on construction and equipment. The remittance for warehouses that are at least 200,000 square feet and grain elevators with capacity of two million bushels equals 100 percent of the state sales/use tax for construction and 50 percent for purchase of equipment utilized in conjunction with these facilities. The remittance does not cover local sales tax, so there is no impact on local government.

Purpose: The purpose is to increase the competitiveness of the warehouse and distribution industry in Washington state compared with other states. The tax incentive is structured as a remittance of the state sales tax which was paid and therefore does not impact local government revenues.

Category/Year Enacted: Economic development; 1997.

Primary Beneficiaries: The warehouse and distribution industries, ports, and agricultural cooperatives.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 2,421 2,663 2,929 3,222
Local taxes - - - - - - - -

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

82.12.010(1) USE TAX ON RENTAL VALUE

Description: Generally, use tax is measured by the fair market value of items, i.e., the selling price of similar products of like quality. The third paragraph of this statute allows a different valuation basis - reasonable rental price - for items used for temporary business purposes by out-of-state firms. Such items may be used in Washington for no more than 180 days in any period of 365 consecutive days.

Purpose: To allow out-of-state firms to use equipment in Washington on a temporary basis without incurring use tax liability of the full market value of the item.

Category/Year Enacted: Economic development; 1985 (the allowable time for exempt use in Washington was doubled from 90 to 180 days in 1994).

Primary Beneficiaries: Out-of-state firms with contracts in Washington.

Conflict With Other Programs: Use tax is otherwise due on the full market value.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 350 350 350 350
Local taxes 91 91 91 91

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

82.12.0263 EXTRACTED FUEL

Description: Fuel consumed by manufacturers or extractors is exempt from use tax when the fuel is used in the process of manufacturing or extracting at the same plant.

Purpose: The purpose is apparently to avoid imposition of the tax on fuel that is not available for sale.

Category/Year Enacted: Economic development; 1949.

Primary Beneficiaries: Manufacturers and extractors of fuel.

Conflict With Other Programs: Yes; products consumed during the process of manufacturing are liable for use tax.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 1,245 1,218 1,234 1,256
Local taxes 326 318 323 329

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

82.12.0265 BAILED PROPERTY; RESEARCH & DEVELOPMENT

Description: "Bailment" consists of granting the right of possession of tangible personal property to another person, without financial compensation to the property owner (bailor). Under this use tax exemption, bailed property which is entirely consumed in the course of research and development activities is not subject to tax.

Purpose: The apparent purpose is to assist firms that do contract work for the federal government.

Category/Year Enacted: Economic development; 1951.

Primary Beneficiaries: Federal government contractors (e.g., at Hanford).

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 585 603 620 639
Local taxes 189 195 200 206

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

82.12.0272 ITEMS DISPLAYED IN TRADE SHOWS

Description: Tangible personal property held for sale which is displayed in a trade show for up to 30 days is exempt from the use tax. The exemption pertains to items which are actually demonstrated and not simply available for sale as part of the dealer's inventory.

Purpose: The purpose is presumably to stimulate trade and the economy.

Category/Year Enacted: Economic development; 1971.

Primary Beneficiaries: Manufacturers and distributors that exhibit products at trade shows.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 479 493 508 523
Local taxes 125 129 133 137

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

82.12.800 USE OF VESSELS BY MANUFACTURERS/DEALERS

Description: Exemption from state and local use tax is provided for the following uses of vessels and their trailers by the manufacturer: (1) test, set-up, repair, remodel and making the vessel seaworthy; (2) training of manufacturers' employees, (3) activities to promote the sale of the vessel, (4) limited loan or donation of the vessel to nonprofit organizations or governmental entities, (5) transporting, displaying or demonstrating the vessel at boat shows, and (6) delivery, showing and operating the vessel for sale to a prospective buyer.

Purpose: To exempt from use tax any incidental use of vessels and trailers by the manufacturer.

Category/Year Enacted: Economic development; 1997.

Primary Beneficiaries: Manufacturers of boats and boat trailers.

Conflict With Other Programs: None evident.

Tax Savings ($000): FY 2000 FY 2001 FY 2002 FY 2003
State taxes 96 99 103 107
Local taxes 25 26 27 28

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