SENATE BILL REPORT

SB 6545

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, March 10, 2014

Title: An act relating to extending specific aerospace tax preferences to include other types of commercial aircraft to encourage the migration of good wage jobs in the state.

Brief Description: Extending specific aerospace tax preferences to include other types of commercial aircraft to encourage the migration of good wage jobs in the state.

Sponsors: Senators Braun, Rivers, Brown and Benton.

Brief History:

Committee Activity: Ways & Means: 3/10/14 [DPS, DNP, w/oRec].

SENATE COMMITTEE ON WAYS & MEANS

Majority Report: That Substitute Senate Bill No. 6545 be substituted therefor, and the substitute bill do pass.

Signed by Senators Hill, Chair; Baumgartner, Vice Chair; Honeyford, Capital Budget Chair; Keiser, Assistant Ranking Member on the Capital Budget; Ranker, Assistant Ranking Member on the Operating Budget; Bailey, Becker, Billig, Braun, Conway, Dammeier, Hatfield, Hewitt, Kohl-Welles, Padden, Parlette and Schoesler.

Minority Report: Do not pass.

Signed by Senator Hasegawa.

Minority Report: That it be referred without recommendation.

Signed by Senators Hargrove, Ranking Member; Frockt.

Staff: Dean Carlson (786-7305)

Background: Business and Occupation (B&O) Tax. Washington's major business tax is the B&O tax. The B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the costs of doing business. Businesses must pay B&O tax even though they may not have any profits or may be operating at a loss. A business may have more than one B&O tax rate, depending on the types of activities conducted. Major tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 percent for services and activities not classified elsewhere. Several lower rates also apply to specific business activities.

Sales and Use Tax. Retail sales taxes are imposed on retail sales of most articles of tangible personal property, digital products, and some services. A retail sale is a sale to the final consumer or end user of the property, digital product, or service. If retail sales taxes were not collected when the user acquired the property, digital products, or services, then use taxes apply to the value of property, digital products, or service when used in this state. The state, most cities, and all counties levy retail sales and use taxes. The state sales and use tax rate is 6.5 percent; local sales and use tax rates vary from 0.5 percent to 3.1 percent, depending on the location.

Property Tax. Property taxes are imposed by state and local governments. All real and personal property in this state is subject to the property tax based on its value, unless a specific exemption is provided by law. Property owned by federal, state, or local governments is exempt from the property tax. However, private lessees of government property are subject to the leasehold excise tax. The purpose of the leasehold excise tax is to impose a tax burden on persons using publicly owned, tax-exempt property similar to the property tax that they would pay if they owned the property. The tax is collected by public entities that lease property to private parties.

Aerospace Tax Preferences. In recent years, the Legislature has adopted, modified, and extended specific tax preferences for the aerospace industry. Tax preferences are currently available to the engineering, manufacturing, and repairing of commercial airplanes as well as research and design pertaining to commercial airplanes. Commercial airplane has its ordinary meaning, which is an airplane certified by the Federal Aviation Administration (FAA) for transporting persons or property, and any military derivative of such an airplane.

Among other preferences, examples of those available to the aerospace industry include the following:

Businesses that exercise any of these preferences must file an annual report with the Department of Revenue (DOR). The report includes employment, wage, and employer-provided health and retirement benefit information for full-time, part-time, and temporary positions.

Many aerospace tax preferences were scheduled to expire in 2024. However, the Legislature extended the preferences to 2040 by passing ESSB 5952 in the 2013 third special session. The Legislature also expanded the sales and use tax exemption for the construction of facilities used in the manufacturing of superefficient airplanes to include commercial airplanes in general. The effect of ESSB 5952 is contingent upon the final decision to locate a significant commercial airplane manufacturing program in the state of Washington. If a decision to locate a significant commercial airplane manufacturing program is not made by June 30, 2017, ESSB 5952 is null and void. Furthermore, the ongoing availability of the preferential B&O tax rate for the production of a new or remodeled commercial airplane is contingent upon maintaining all final assembly and wing assembly of the airplane within the state.

Summary of Bill (Recommended Substitute): Commercial aircraft is defined as a commercial airplane or commercial rotorcraft. Commercial rotorcraft is defined as an aircraft supported in flight by one or more rotors to provide lift, which may also include rotorcrafts with additional thrust engines or propellers, certified by the FAA for transporting persons or property, and any military derivative of such an aircraft.

The act expands certain aerospace tax preferences to include the engineering, manufacturing, and repairing of commercial rotorcrafts as well as the research and design pertaining to commercial rotorcrafts. The following tax preferences are expanded to commercial rotorcrafts:

Businesses that exercise any of these preferences must file an annual report with DOR.

The effective dates in ESSB 5952 for the extension of certain preferences from 2024 to 2040 are mirrored in the act.

The act's tax preference performance statement specifies that the public policy objective is to create and retain jobs. The tax preference performance statement requires the Joint Legislative Audit and Review Committee (JLARC) to assess employment changes and tax revenue changes in the commercial aircraft industry in comparison to employment and tax revenues prior to the extension of tax preferences to commercial rotorcrafts. To the extent practicable, JLARC must use data provided by state agencies responsible for administering unemployment insurance and collecting tax revenue as well data statistics provided by the Bureau of Labor Statistics.

EFFECT OF CHANGES MADE BY WAYS & MEANS COMMITTEE (Recommended Substitute): The sales and use tax of construction facilities applies to facilities leased by persons who do maintenance on commercial aircraft from a municipal corporation.

Appropriation: None.

Fiscal Note: Available.

Committee/Commission/Task Force Created: No.

Effective Date: The bill takes effect July 1, 2014, except for section 4, which takes effect on July 1, 2015; section 6, which takes effect on July 1, 2015, if the siting of a significant commercial airplane manufacturing program in the state of Washington occurs by June 30, 2017; and sections 5, 8, 10, and 12 through 14, which take effect on the date of the siting of a significant commercial airplane manufacturing program in the state of Washington if it occurs by June 30, 2017.

Staff Summary of Public Testimony: None.

Persons Testifying: No one.