SENATE BILL REPORT

SB 5701

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:

Trade & Economic Development, February 18, 2015

Title: An act relating to creating a business and occupation tax credit for advanced composite manufacturing and wholesaling.

Brief Description: Creating a business and occupation tax credit for advanced composite manufacturing and wholesaling.

Majority Report: Do pass and be referred to Committee on Ways & Means.

Signed by Senators Brown, Chair; Braun, Vice Chair; Angel and Ericksen.

Minority Report: Do not pass.

Signed by Senators Chase, Ranking Minority Member; Frockt and McCoy.

Background: Washington's major business tax is the business and occupation (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. However, there are many exemptions for specific types of business activities and certain deductions and credits permitted under the B&O tax statutes.

Summary of Bill: Manufacturers and wholesalers of carbon fiber and carbon fiber composites are eligible for a B&O tax credit equal to 40 percent of their B&O taxes due. The credit is limited to $500,000 annually per person, with a statewide cap on the total amount of credits of $4 million annually. The credit may only be claimed on returns filed electronically with the Department of Revenue, and are available on a first-in-time basis. A tax preference performance statement specifies the credit is intended to improve industry competitiveness and to create and retain jobs, and the credit expires July 1, 2020.

Staff Summary of Public Testimony: PRO: Washington is home to a growing supply chain for carbon fiber, which is currently being used in aerospace and automobile parts manufacturing. Carbon fiber is stronger and lighter than steel and may be used in a wide range of products. There is great competition to attract this industry, with average annual wages in the composite industry of $60,000–$80,000 and Washington wants to encourage manufacturers and suppliers to locate here.