SB 5573

SENATE BILL REPORT
SB 5573

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Reported By Senate Committee On:
Ways & Means, February 12, 2007

Title: An act relating to modifying the rural county tax credit provided in chapter 82.62 RCW.

Sponsors: Senators Hatfield, Schoesler, Zarelli and Kastama; by request of Department of Revenue.

Majority Report: That Substitute Senate Bill No. 5573 be substituted therefor, and the substitute bill do pass.Signed by Senators Prentice, Chair; Fraser, Vice Chair, Capital Budget Chair; Pridemore, Vice Chair, Operating Budget; Zarelli, Ranking Minority Member; Brandland, Carrell, Fairley, Hatfield, Hobbs, Honeyford, Keiser, Kohl-Welles, Oemig, Parlette, Rasmussen, Regala, Roach, Rockefeller, Schoesler and Tom.

Background: The business & occupation (B&O) tax is levied for the privilege of doing business in Washington. The tax is levied on the gross receipts of all business activities conducted within the state with no deductions for the costs of doing business.

A credit against B&O tax is available for manufacturing, research and development, or computer service firms that create new jobs in rural counties or community empowerment zones (CEZ). Rural counties are defined as those with an average population density of less than 100 persons per square mile. There are currently CEZ areas in Bremerton, Seattle/King County, Spokane, Tacoma, and Yakima.

The amount of the B&O tax credit is based on wages and benefits paid for new employment positions. For new positions with annual benefits and wages less than or equal to $40,000, the B&O credit is $2,000. For new positions with annual wages and benefits of more than $40,000, the credit is $4,000. Employment positions must be full-time to qualify.

The B&O tax credit for job creation is based on job growth. To qualify for the credit, the firm must increase its total employment in an eligible area by at least 15 percent. The growth in jobs is measured by the percentage increase in jobs over the base year, which is the previous calendar year. Businesses that create jobs in the early part of the calendar year are more likely to qualify for credits than businesses creating jobs late in the year. An application for the B&O credit must be made prior to hiring employees for new positions.

The Department of Revenue keeps a running total of B&O tax credits for job creation allowed each fiscal year. The department must disallow any credit that would cause the total impact to exceed $7.5 million for any fiscal year. Businesses may carry disallowed credits over to the next fiscal year if the total B&O credits do not exceed the $7.5 million for the next fiscal year at the time the credit is claimed. Credits may not be used against taxes that have not yet been paid.

Summary of Bill: The base year is changed from a calendar year to the previous four calendar quarters. The definition of a "qualified employment position" is expanded to include positions that are temporarily vacant or seasonal. Employment positions are allowed to continue to qualify for credit purposes if they are vacant for no more than 120 days in the four-quarter period, as long as the business is training or actively recruiting new employees during the vacancy. A business is permitted to apply for the tax credits within 90 days after creating and filling the new employment positions.

EFFECT OF CHANGES MADE BY RECOMMENDED SUBSTITUTE AS PASSED COMMITTEE (Ways & Means): The recommended substitute further clarifies the timing of hiring, tracking of the base year, and calculating the wages and benefits of seasonal employees.

Staff Summary of Public Testimony: PRO: This bill removes the technical impediments in current law and allows people who could have qualified to benefit from the tax credit.

Persons Testifying: PRO: Senator Hatfield, prime sponsor; Gil Brewer, Department of Revenue.