Washington's commitment to Aerospace

Over the past decade, the state of Washington has produced a consistent track record of support
for aerospace — one of its most valued home-grown industries. Major reforms were approved
by the Legislature in 2003, 2006 and 2008 helping the industry grow and flourish.

2008: Senate Bill 6828 expanded or enacted similar tax incentives for the aerospace industry to ones originally adopted in 2003. At the time of enactment, it was estimated that these additional incentives would result in an estimated revenue loss to the state general fund of $2,166,000 in the 2007-2009 biennium and $5,553,000 in the 2009-2011 biennium.

Components included:

• Modified the existing 2003 B&O tax rate reduction.
• Modified existing B&O tax rate reduction (from 0.484% to 0.2904%) for firms that manufacturing, retailing, or wholesaling commercial airplanes or components – expanded to tooling and qualified repair services. Also, expanded definition of “repair” stations.
• Modified existing sales/use tax exemption for computer equipment and software (manufacturing and R&D) – expanded to firms primarily providing aerospace products and services – and exemption broadened to include installation.
• Modified the existing B&O credit for property and leasehold taxes paid – expanded to include firms engaged in aerospace product development, tooling, and repair stations.
• Modified B&O tax credit for research and design (for manufacturing) – expanded to include preproduction activities.
• New B&O tax rate reduction - Reduced B&O rate from 1.5% to 0.9% for services performed in aerospace product development.

2006: New incentives were targeted to non-manufacturing firms engaged in the development, design, and engineering of commercial airplanes or their components.

House Bill 2466 expanded or enacted similar tax incentives for the aerospace industry to ones originally adopted in 2003. At the time of enactment, the legislation was estimated to reduce state general fund revenues by an estimated $2.9 million for the remainder of the 2005-2007 biennium. The impact rises to $7.5 million for the 2007-2009 Biennium.

Components include:

• B&O tax credit for research and design -- broadened to allow non-manufacturing R&D:
• Sales/use tax exemption for computer equipment and software – expanded to include non-manufacturing activities
• B&O credit for property taxes paid – expanded to allow a B&O credit for leasehold
  excise tax paid.
• Also, extended to reduced aircraft repair B&O rate reduction from ESSB 5071 (2003) to
  2011.

2003: Tax incentives adopted that targeted manufacturers of commercial airplanes and their components.

House Bill 2294 provided a variety of tax incentives intended to encourage development and production of a “super-efficient” (787) airplane within the state. At the time of enactment, the tax incentives were expected to reduce state revenues by about $25.3 million for the 2003-05 biennium. The estimated revenue impact rises to $103.5 million for the following biennium and to $254.7 million for 2007-09.

Components of the legislation included:

• Business & Occupation tax rate reduction for firms that manufacture commercial airplanes or components of such airplanes. The lower tax rate also applies to retailing and wholesaling of commercial airplanes. The rate was reduced from 0.484 percent to 0.4235 percent and then is reduced further after 2007 to 0.2904 % until 2024.
• B&O tax credit for research and design allowed a credit against the B&O for costs equal to 1.5% of the eligible expenditures (primarily manufacturing – not pre-production).
• B&O tax credit for computer equipment and software for
  manufacturing.
• Sales/use tax exemption for computer equipment and software.
• Sales/use tax exemption for facility construction costs.
• Leasehold and property tax exemptions.B&O credit for property taxes paid

Senate Bill 5071 reduced the B&O rate for aerospace repair facilities from 0.484% to 0.275% and exempted these repairs from sales tax. The reduction in state revenues was estimated at $1.3 million for the 2003-05 biennium.

2002: Investment income: B&O tax exemption for the investment income of nonfinancial firms, and also broadened the exemption on distributions from parents to subsidiaries, as well as some interest between parents and subs, for related entities. Financial Impact: $386 million.

2000: Retraining: Reduced unemployment insurance tax rates and invested millions in expanding unemployed workers retraining and unemployment benefits.

1997: Intangibles: Property tax exemption for intangibles broadened to explicitly include business intangibles (trademarks, trade names, patents, copyrights, good name, etc. Financial impact: approximately $12 billion in savings to taxpayers.

1996: Manufacturing: Sales/use tax exemption for aircraft prototypes if produced by a firm with taxable revenue of less than $20 m/year; exemption is limited to $100,000/firm; total impact is $593,000/state tax; $184,000/local tax.

1995: Manufacturing: Sales/use tax exemption for machinery & equipment used directly in manufacturing. Also includes testing materials. Total impact of exemption for all taxpayers: $220 mil/year state tax; $69 m/year local taxes.

1994: R&D: B&O tax credit for expenditures on certain research & development activities. Eligible categories include advanced materials and electronic device technology,both of which Boeing can qualify for. This credit is limited to $2 mil/year/firm.

1991: Software: Property tax accelerated depreciation for canned software. Impact: $3,215,000 state levy; $12,945 in local property tax losses. Software: Custom software exempt from property tax: Impact: $1.4 mil state; $5.4 mil local