Business and Occupation Tax for Food Processors. The state business and occupation (B&O) tax is Washington's primary business tax. It is a gross receipts tax measured on the value of products, gross proceeds of sale, or gross income of the business. There are no deductions from the B&O tax for labor, materials, taxes, or other costs of doing business. The B&O tax rate varies by classification—activity. The major rates are: 0.471 percent for retailing activities, 0.484 percent for manufacturing and wholesaling activities, and for service and other activities, either 1.5 percent or 1.75 percent, depending upon the amount of annual gross income of the business. The state B&O tax includes a number of preferential tax rates, credits, exemptions, and deductions as well as several increased rates or surcharges.
Dairy, fruit & vegetable, and seafood processing industries (food processors) are currently exempt from B&O taxes. The Legislature passed the exemptions in 2005 for fruits and vegetables, and 2006 for dairy and seafood, and extended them in 2012 and again in 2015. When the exemptions expire in 2025, the three industries will receive a preferential B&O tax rate of 0.138 percent. The preferential rate for dairy products expires January 1, 2036. The preferential rates for the other two industries do not expire.
The preferences apply to the manufacturing of these products and selling the products at wholesale to in-state buyers who transport the products out of state. Only sales by the manufacturer qualify, except for seafood manufacturers, where qualifying wholesale sales are not limited to the manufacturer and retail sales also qualify. In addition to these three preferences, the 2013 Legislature also enacted a targeted exemption for selling dairy products wholesale to buyers who use the products as ingredients or components to manufacture other dairy products, for example, infant formula. This exemption expires June 30, 2023.
Tax Preference Review Requirements. State law provides a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer. Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits. Legislation that establishes or expands a tax preference must include a Tax Preference Performance Statement (TPPS) that identifies the public policy objective of the preference, as well as specific metrics the Joint Legislative Audit and Review Committee (JLARC) can use to review the effectiveness of the preference in achieving its stated public policy objectives. Tax preferences must be reviewed by JLARC at least once every ten years, unless state statute requires otherwise. All new tax preferences automatically expire after ten years unless an alternative expiration date is provided or the tax preference is exempted from expiration. To assist the Legislature in its evaluation of economic development-related tax preferences, taxpayer beneficiaries are required to file annual tax preference performance reports detailing wages and employment of the taxpayer as well as tax savings from the tax preference.
The B&O tax exemptions for food processors are extended from July 1, 2025, to July 1, 2035. However, the tax exemption for dairy products sold as an ingredient or component to manufacture other dairy products expires on July 1, 2025.
A tax preference performance statement is included. The stated public policy objectives of the bill are to create and retain jobs in the food processing industry and to provide tax relief.
No public hearing was held.