Bipartisan manufacturing tax relief vetoed last session is again under consideration in Olympia.

The Association of Washington Business reports on progress in restoring the bipartisan manufacturing tax relief passed last session. You’ll remember the Business and Occupation (B&O) tax relief overwhelmingly adopted by lawmakers as part of the budget agreement was subsequently vetoed by the governor. For AWB, Bobbi Cussins writes, 

Manufacturing is the backbone of Washington state’s economy. But, it could use some support.

A pair of lawmakers have introduced bills early in the 2018 session that would do exactly that.

This week, Sen. Michael Baumgartner, R-Spokane, along with Democratic Sens. Steve Hobbs of Lake Stevens and Mark Mullet of Issaquah, introduced Senate Bill 6542. The bipartisan measure would reduce the business and occupation (B&O) tax rate for manufactures from 0.4840 percent to 0.2904 percent over four years. The change would bring all manufacturing businesses down to the same rate as aerospace manufacturers….

This proposal comes on the heels of a bill Rep. Brandon Vick, R-Felida, introduced last week to reduce the B&O tax burden for Washington manufacturers.

Both bills aim to restore the tax relief that a bipartisan majority of legislators agreed to last year as part of the overall two-year state budget. Shortly after passage, the governor vetoed the tax relief provision.

Last week, we shared two videos AWB produced in support of the tax relief. 

In a special report released last fall, the Washington Research Council examined the tax legislation and the governor’s veto. The WRC wrote,

The provision vetoed by the governor would have been most beneficial for manufacturers that sell to out-of-state customers. Currently, a B&O tax liability accrues when a good is manufactured in the state and again when it is sold (either wholesale or retail) by the manufacturer within the state. (The basic B&O rate on wholesaling is 0.484 percent; the basic B&O rate on retailing is 0.471 percent.)

To prevent double taxation, the state then allows the manufacturer to take a “multiple activities” credit against the lesser amount of either the manufactur- ing tax or the wholesaling or retailing tax due for the manufactured goods sold within the state (RCW 82.04.440). Thus, manufacturers selling at wholesale to in- state customers would have seen no ben- efit from the reduction in the manufac- turing rate from 0.484 percent to 0.2904 percent as they would have continued to pay the 0.484 percent wholesale rate. Manufacturers selling at retail to in-state customers would have seen a small ben- efit as their tax rate would have fallen from 0.484 percent to 0.471 percent.

But because Washington manufacturers selling out of state are not subject to B&O wholesaling or retailing taxes, the tax cut in SSB 5977 would have been sig- nificant and their competitiveness in out- of-state markets would have increased. The B&O tax reduction in SSB 5977 could have helped to level the playing field with the many states that collect corpo- rate income taxes and countries that use the value-added tax system, which have built advantages for their exporting firms into their tax structures. The tax cut would also have brought companies who had not negotiated a tax preference, in- cluding many small businesses, to parity with other manufacturers in the state. Most importantly, by making it easier for a seller’s market to expand, the tax re- duction could have led to the creation of additional jobs.

The WRC found reasons for optimism regarding reconsideration this year.

Media accounts report Gov. Inslee’s willingness to look at a similar proposal in the future… We agree with the governor that a deliberative, transparent process is best for changes in tax policy. This potential boost for manufacturing is well worth a thoughtful reconsideration.

We agree.