BP BHEAD INT S

AN ACT Relating to the impact of taxes on manufacturing; and creating new sections.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. (1) The legislature finds that:

(a) Washington's tax structure as it applies to manufacturers is often cited as a deterrent to economic development;

(b) The retail sales tax applies to labor and materials used to construct new manufacturing facilities and to renovate existing facilities. The tax also applies to new and replacement manufacturing equipment and machinery. Because of the broad tax base and because of the high tax rate, the retail sales tax may inhibit the development of new manufacturing businesses and expansion of existing businesses, especially those in capital intensive industries; and

(c) The business and occupation tax applies to gross receipts from engaging in business regardless of whether the business is profitable. The tax may be more beneficial to established manufacturers, since it tends to favor high-profit businesses. However, the tax may impose a heavy burden on new manufacturers that may not have reached their maximum level of operating efficiency, have yet to fully develop their markets, and as a result are unprofitable.

(2) The intent of this act is to require a study to:

(a) Analyze how the current tax structure affects manufacturers;

(b) Consider alternative methods of taxing manufacturing investment;

(d) Recommend to the legislature sales and use tax changes that might result in more equitable taxation of manufacturers while preserving a stable source of revenue for funding public services in the future.

NEW SECTION. Sec. 2. (1) The department of revenue shall conduct a study of the current state tax structure as it applies to manufacturers. The study shall address but is not limited to the following:

(a) What taxes currently apply to manufacturers? What tax incentives are available to manufacturers?

(b) How do taxes affect a manufacturer over the various stages of its business cycle? How does the tax treat new manufacturers as compared with established manufacturers?

(c) How much does the retail sales tax on construction and acquisition of machinery and equipment add to the cost of capital?

(d) How are manufacturers taxed in other states? What tax incentives are available to the manufacturing industry in other states? Does Washington's tax structure place manufacturers at a competitive disadvantage compared with manufacturers in other states?

(e) Do tax incentives for manufacturers stimulate economic development? Do tax incentives help overcome disparate treatment between new and established manufacturers? Do tax incentives have an effect in eliminating a competitive disadvantage suffered by in-state as opposed to out-of-state manufacturers?

(2) To perform this study, the department shall form an advisory study committee with balanced representation from different segments of government and the manufacturing industries. The advisory committee shall include, but need not be limited to, two members from the house of representatives, two members from the senate, and representatives of both small and large manufacturing businesses. The advisory committee may also include representatives of local government, and tax policy experts from the academic, legal, and business communities.

(3) The department of revenue shall provide staff for the purpose of the study.

(4) The department of revenue shall present a final report of the findings of the study to the committees of the legislature that deal with revenue matters no later than December 31, 1994.