Fiscal Note - Tax incentives, Bill 5849 SB (Final 1/24/2022)
Summary
Multiple agency fiscal note summary for Bill Number 5849 SB, titled Tax incentives, published Final 1/24/2022. Under estimated cash receipts, the Department of Revenue shows (1,600,000) for 2021-23, (4,600,000) for 2023-25 and (5,110,000) for 2025-27, and Local Gov. Other shows (445,500), (1,296,900) and (1,435,500) with a note of additional indeterminate costs and/or savings. Estimated operating expenditures for 2021-23 are 18,900 for the Joint Legislative Audit and Review Committee and 133,900 for the Department of Revenue. The local government fiscal note states a distribution of 35.96 percent to counties, 29.75 percent to cities, and 34.29 percent to special districts.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“Fiscal Note - Tax incentives, Bill 5849 SB (Final 1/24/2022).”
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Multiple Agency Fiscal Note Summary
Bill Number: 5849 SB Title: Tax incentives
Estimated Cash Receipts
Agency Name 2021-23 2023-25 2025-27
GF-State NGF-Outlook Total GF-State NGF-Outlook Total GF-State NGF-Outlook Total
Department of (1,600,000) (1,600,000) (1,600,000) (4,600,000) (4,600,000) (4,600,000) (5,110,000) (5,110,000) (5,110,000)
Revenue
Total $ (1,600,000) (1,600,000) (1,600,000) (4,600,000) (4,600,000) (4,600,000) (5,110,000) (5,110,000) (5,110,000)
Agency Name 2021-23 2023-25 2025-27
GF- State Total GF- State Total GF- State Total
Local Gov. Courts
Loc School dist-SPI
Local Gov. Other (445,500) (1,296,900) (1,435,500)
Local Gov. Other In addition to the estimate above, there are additional indeterminate costs and/or savings . Please
see individual fiscal note.
Local Gov. Total (445,500) (1,296,900) (1,435,500)
Estimated Operating Expenditures
Agency Name 2021-23 2023-25 2025-27
FTEs GF-State NGF-Outlook Total FTEs GF-State NGF-Outlook Total FTEs GF-State NGF-Outlook Total
Joint Legislative .1 18,900 18,900 18,900 .0 8,400 8,400 8,400 .0 8,400 8,400 8,400
Audit and Review
Committee
Department of .3 133,900 133,900 133,900 .2 29,000 29,000 29,000 .2 29,000 29,000 29,000
Revenue
Total $ 0.4 152,800 152,800 152,800 0.2 37,400 37,400 37,400 0.2 37,400 37,400 37,400
Estimated Capital Budget Expenditures
Agency Name 2021-23 2023-25 2025-27
FTEs Bonds Total FTEs Bonds Total FTEs Bonds Total
Joint Legislative Audit .0 0 0 .0 0 0 .0 0 0
and Review Committee
Department of Revenue .0 0 0 .0 0 0 .0 0 0
Total $ 0.0 0 0 0.0 0 0 0.0 0 0
Estimated Capital Budget Breakout
NONE
FNPID 63907
:
FNS029 Multi Agency rollup
Prepared by: Cheri Keller, OFM Phone: Date Published:
(360) 584-2207 Final 1/24/2022
FNPID 63907
:
FNS029 Multi Agency rollup
Individual State Agency Fiscal Note
Bill Number: 5849 SB Title: Tax incentives Agency: 014-Joint Legislative Audit
and Review Committee
Part I: Estimates
No Fiscal Impact
Estimated Cash Receipts to:
NONE
Estimated Operating Expenditures from:
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 0.1 0.0 0.1 0.0 0.0
Account
General Fund-State 001-1 12,600 6,300 18,900 8,400 8,400
Total $ 12,600 6,300 18,900 8,400 8,400
Estimated Capital Budget Impact:
NONE
The cash receipts and expenditure estimates on this page represent the most likely fiscal impact . Factors impacting the precision of these estimates ,
and alternate ranges (if appropriate ), are explained in Part II.
Check applicable boxes and follow corresponding instructions:
If fiscal impact is greater than $50 ,000 per fiscal year in the current biennium or in subsequent biennia , complete entire fiscal note
form Parts I-V.
X If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia , complete this page only (Part I).
Capital budget impact, complete Part IV.
Requires new rule making, complete Part V.
Legislative Contact: Alia Kennedy Phone: 360-786-7405 Date: 01/19/2022
Agency Preparation: Dana Lynn Phone: 360-786-5177 Date: 01/20/2022
Agency Approval: Keenan Konopaski Phone: 360-786-5187 Date: 01/20/2022
OFM Review: Gaius Horton Phone: (360) 819-3112 Date: 01/20/2022
Form FN (Rev 1/00) 172,780.00 Request # 18-1
FNS063 Individual State Agency Fiscal Note 1 Bill # 5849 SB
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
Briefly describe by section number , the significant provisions of the bill , and any related workload or policy assumptions , that have revenue or
expenditure impact on the responding agency .
This bill amends two existing incentive programs: A property tax exemption for targeted urban area construction under
chapter 84.25 RCW and a preferential B&O tax rate for certain solar energy system manufacturers and wholesalers. The
bill also re-opens applications for a sales and use tax deferral for manufacturers in high unemployment rural counties under
chapter 82.60 RCW.
BILL DETAILS
Section 1 amends RCW 84.25.030 to remove the requirement that “lands zoned for industrial and manufacturing uses” must
have been zoned as such as of December 31, 2014.
Sections 2 and 4 correct statutory references in RCWs 82.60.049 and 82.60.020.
Section 3 extends the 0.275% preferential B&O rate provided under RCW 82.04.294 for certain solar silicon system
businesses from July 1, 2027, to July 1, 2032.
Section 5 changes the timeframe for when the Department of Revenue (DOR) must establish a list of qualifying high
unemployment counties to every 24 months as long as applications are accepted for the tax incentive program.
Section 6 creates a new section in chapter 82.60, reestablishing a sales and use tax deferral for certain manufacturers,
which expired July 1, 2020.
Businesses must apply to DOR for the deferral prior to the start of construction or purchase of qualifying machinery or
equipment. The application must contain information detailed in the bill. The Department must issue a deferral certificate on
each eligible project and keep a running total of all deferrals granted. Applications close for new participants July 1, 2032.
TAX PERFORMANCE STATEMENT DETAILS
Section 7 provides a tax preference performance statement that categorizes the preference provided in section 3 as
intended to improve industry competitiveness and create and retain jobs, as indicated under RCW 82.32.808 (2)(b) and (c).
The specific public policy objective is stated to maintain and grow jobs in the solar silicon industry.
If a review finds that the number of people employed by the solar silicon industry in Washington is the same or more than in
2019, and that at least 60% of the employees earn $60,000 or more a year, then the Legislature intends to extend the
expiration date of the preference. JLARC is to refer to the Department of Revenue’s annual report data to perform its
review.
The bill takes effect July 1, 2022, and the preferential B&O tax rate and sales and use tax deferral expire July 1, 2032.
II. B - Cash receipts Impact
Briefly describe and quantify the cash receipts impact of the legislation on the responding agency , identifying the cash receipts provisions by section number
and when appropriate the detail of the revenue sources . Briefly describe the factual basis of the assumptions and the method by which the cash receipts
impact is derived. Explain how workload assumptions translate into estimates . Distinguish between one time and ongoing functions .
II. C - Expenditures
Tax incentives 014-Joint Legislative Audit and Review Committee
Form FN (Rev 1/00) 172,780.00 Request # 18-1
FNS063 Individual State Agency Fiscal Note 2 Bill # 5849 SB
Briefly describe the agency expenditures necessary to implement this legislation (or savings resulting from this legislation ), identifying by section number the
provisions of the legislation that result in the expenditures (or savings ). Briefly describe the factual basis of the assumptions and the method by which the
expenditure impact is derived . Explain how workload assumptions translate into cost estimates . Distinguish between one time and ongoing functions .
After the 2022 legislative session ends, JLARC staff would contact the DOR to ensure that that all necessary needed for
our future study of the programs impacted by this bill are collected on either tax returns or via the annual tax performance
survey filed by beneficiaries of the deferral program. JLARC would also consult with the Employment Security Department
and identify and consult with other state agencies or other entities that track or monitor Washington’s solar silicon industry.
Staff would work to establish study contacts and ensure data collection needs are identified and established.
The expenditure detail noted reflects work conducted to prepare for the future review of the high unemployment rural
county deferral and reduced B&O tax rate. These studies are assumed to be completed in 2030. JLARC staff has already
planned for a review of the targeted urban construction property tax exemption in 2028 - no additional costs for that
preference will be incurred due to changes made in this bill.
This tax preference review may require additional resources. The audit will be conducted and presented to JLARC
consistent with the processes used for other tax preference reviews. Based on all tax preference legislation that is passed,
JLARC may subsequently determine that it can absorb the costs for this proposed bill in its base budget, if the workload of
other enacted tax preference legislation does not exceed current staffing. JLARC will assess all of the tax preference
reviews mandated in the 2022 legislative session.
This audit will require an estimated 2 audit months.
JLARC Audit Months: JLARC calculates its staff resources in "Audit Months" to estimate the time and effort to undertake
and complete its studies. An "Audit Month" reflects a JLARC analyst’s time for a month, together with related
administrative, support, and goods/services costs. JLARC’s anticipated 2021-23 costs are calculated at approximately
$21,000 per audit month.
Part III: Expenditure Detail
III. A - Operating Budget Expenditures
Account Account Title Type FY 2022 FY 2023 2021-23 2023-25 2025-27
001-1 General Fund State 12,600 6,300 18,900 8,400 8,400
Total $ 12,600 6,300 18,900 8,400 8,400
III. B - Expenditures by Object Or Purpose
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 0.1 0.1
A-Salaries and Wages 8,000 4,000 12,000 5,400 5,400
B-Employee Benefits 2,500 1,300 3,800 1,600 1,600
C-Professional Service Contracts
E-Goods and Other Services 1,900 900 2,800 1,200 1,200
G-Travel 200 100 300 200 200
J-Capital Outlays
M-Inter Agency/Fund Transfers
N-Grants, Benefits & Client Services
P-Debt Service
S-Interagency Reimbursements
T-Intra-Agency Reimbursements
9-
Total $ 12,600 6,300 18,900 8,400 8,400
Tax incentives 014-Joint Legislative Audit and Review Committee
Form FN (Rev 1/00) 172,780.00 Request # 18-1
FNS063 Individual State Agency Fiscal Note 3 Bill # 5849 SB
III. C - Operating FTE Detail: List FTEs by classification and corresponding annual compensation . Totals need to agree with total FTEs in
Part I and Part IIIA
Job Classification Salary FY 2022 FY 2023 2021-23 2023-25 2025-27
Research Analyst 119,519 0.1 0.1
Support staff 81,590
Total FTEs 0.1 0.1 0.0
III. D - Expenditures By Program (optional)
NONE
Part IV: Capital Budget Impact
IV. A - Capital Budget Expenditures
NONE
IV. B - Expenditures by Object Or Purpose
NONE
IV. C - Capital Budget Breakout
Identify acquisition and construction costs not reflected elsewhere on the fiscal note and describe potential financing methods
NONE
IV. D - Capital FTE Detail: List FTEs by classification and corresponding annual compensation . Totals need to agree with total FTEs in
Part IVB
NONE
Part V: New Rule Making Required
Tax incentives 014-Joint Legislative Audit and Review Committee
Form FN (Rev 1/00) 172,780.00 Request # 18-1
FNS063 Individual State Agency Fiscal Note 4 Bill # 5849 SB
Department of Revenue Fiscal Note
Bill Number: 5849 SB Title: Tax incentives Agency: 140-Department of
Revenue
Part I: Estimates
No Fiscal Impact
Estimated Cash Receipts to:
Account FY 2022 FY 2023 2021-23 2023-25 2025-27
GF-STATE-State (1,600,000) (1,600,000) (4,600,000) (5,110,000)
01 - Taxes 01 - Retail Sales Tax
Total $ (1,600,000) (1,600,000) (4,600,000) (5,110,000)
Estimated Expenditures from:
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 0.2 0.3 0.3 0.2 0.2
Account
GF-STATE-State 001-1 103,800 30,100 133,900 29,000 29,000
Total $ 103,800 30,100 133,900 29,000 29,000
Estimated Capital Budget Impact:
NONE
The cash receipts and expenditure estimates on this page represent the most likely fiscal impact . Factors impacting the precision of these estimates ,
and alternate ranges (if appropriate ), are explained in Part II.
Check applicable boxes and follow corresponding instructions:
If fiscal impact is greater than $50 ,000 per fiscal year in the current biennium or in subsequent biennia , complete entire fiscal note
X
form Parts I-V.
If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia , complete this page only (Part I).
X Capital budget impact, complete Part IV.
X Requires new rule making, complete Part V.
Legislative Contact: Alia Kennedy Phone: 360-786-7405 Date: 01/19/2022
Agency Preparation: Marianne McIntosh Phone: 360-534-1505 Date: 01/24/2022
Agency Approval: Don Gutmann Phone: 360-534-1510 Date: 01/24/2022
OFM Review: Cheri Keller Phone: (360) 584-2207 Date: 01/24/2022
Request # 5849-1-1
Form FN (Rev 1/00) 173,130.00 1 Bill # 5849 SB
FNS062 Department of Revenue Fiscal Note
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
Briefly describe, by section number, the significant provisions of the bill , and any related workload or policy assumptions , that have revenue or
expenditure impact on the responding agency .
Note: This fiscal note reflects language in SB 5849, 2022 Legislative Session.
CURRENT LAW:
Current law provided a sales and use tax deferral for qualified investment projects located in high unemployment counties or
community empowerment zones through July 1, 2020 (Chapter 82.60). Deferral applications approved prior to July 1, 2020, are
valid as long as certain requirements are met (stated in Chapter 82.60).
To qualify a firm must be involved in manufacturing, activities of research and development (R&D) or commercial testing
laboratories, or conditioning of vegetable seeds. The investment project includes qualified buildings or machinery and equipment,
including labor and services rendered in the planning, installation, and construction of the project.
Applications for the deferral and the Department of Revenue’s (Department) authority to issue deferral certificates expired July
1, 2020.
High unemployment counties mean a county with an unemployment rate, as determined by the Department of Employment
Security, of at least 20% above the state average for the three calendar years immediately preceding the year in which the list of
qualifying counties is established or updated. The qualifying county list is effective for a 24-month period and must be updated by
July 1st, two years following the last update.
For investment projects located in a community empowerment zone, applicants must hire at least one qualified employment
position for each $750,000 of investment. The position must be filled by persons who, at the time of hire, are residents of the
community empowerment zone or the county in which the zone is located. The qualified position must be filled by the end of the
calendar year in which the project is operationally complete. If the position is not filled by the end of the second calendar year
following the year in with the project is operationally complete, then all deferred taxes are immediately due.
The deferral becomes a waiver of the tax if the business maintains qualified business activities for eight years. If the investment
project is no longer utilized for qualifying business activities prior to fulfilling the eight-year requirement, the deferred taxes
become immediately due based on the following schedule :
Year qualifying activities cease Percent tax due
1 100%
2 100%
3 100%
4 100%
5 90%
6 75%
7 55%
8 30%
Persons receiving the benefit of the deferral are required to file an annual tax performance report beginning the year following
the year in which the project is operationally complete and continue filing for the next seven years.
The law provides a preferential business and occupation (B&O) tax rate of .275% for manufacturers, manufacturers selling
their product at wholesale, and processors for hire of solar energy systems using photovoltaic modules or stirling converters and
Request # 5849-1-1
Form FN (Rev 1/00) 173,130.00 2 Bill # 5849 SB
FNS062 Department of Revenue Fiscal Note
specified components of such systems. The preferential rate expires July 1, 2027.
PROPOSAL:
The bill reinstates the sales and use tax deferral for qualified investment projects located in high unemployment counties or
community empowerment zones. The bill allows the Department to issue sales and use tax deferral certificates for eligible
projects in qualifying counties until July 1, 2032. The Department must keep a running total of deferrals granted during each
fiscal biennium.
The bill extends the expiration date for the solar energy systems manufacturing preferential B&O rate to July 1, 2032.
EFFECTIVE DATE:
This bill takes effect on July 1, 2022.
II. B - Cash receipts Impact
Briefly describe and quantify the cash receipts impact of the legislation on the responding agency , identifying the cash receipts provisions by section
number and when appropriate the detail of the revenue sources . Briefly describe the factual basis of the assumptions and the method by which the
cash receipts impact is derived . Explain how workload assumptions translate into estimates . Distinguish between one time and ongoing functions .
ASSUMPTIONS:
- The Department begins accepting applications on July 1, 2022 and has 60 days to review. This results in 9 months of
impacted collections in Fiscal Year 2023.
- Projects are operationally complete within in one year of when the Department received the application.
- This estimate uses national level investment in fixed assets data that has been adjusted to reflect Washington investment
levels.
- To estimate the local government impacts, this estimate uses the statewide average rural local tax rate for Fiscal Year
2021 of 1.8463%.
- The growth for qualifying project costs mirrors the annual growth for non-residential investment in R&D and private
investment in industrial facilities for the United States as reflected in the November 2021 IHS Markit forecast.
- Based on Employment Security Department's 2020 "Distressed areas list" as of April 28, 2021, 17 of the 39 counties
qualify for the high unemployment deferral.
- The qualifying counties are as follows :
Clallam Grays Harbor Pacific Wahkiakum
Cowlitz Jefferson Pend Oreille Yakima
Ferry Lewis Skagit
Franklin Mason Skamania
Grant Okanogan Stevens
- These qualifying counties remain high unemployment counties until the deferral expires and no large counties become high
unemployment counties.
- The Department may not accept deferral applications after July 1, 2032.
- The impact from extending the preferential B&O rate for manufacturing solar energy systems occurs after Fiscal Year
2027 and is therefore not reflected.
POTENTIAL LITIGATION:
Legislation creating new exemptions and deferrals for construction projects presents a risk that the federal government or
federal contractors will seek to re-litigate Washington v. United States. This risk increases with each additional exemption
or deferral that the state enacts.
The Department’s legal counsel at the Attorney General’s Office has opined that the federal contractor risk applies to all
exemptions and deferrals of construction activity, not just construction projects of the type that the federal government is
likely to engage in. It also applies even if the exemption or deferral applies to federal construction projects as well as
Request # 5849-1-1
Form FN (Rev 1/00) 173,130.00 3 Bill # 5849 SB
FNS062 Department of Revenue Fiscal Note
non-federal construction projects.
Sales/use tax exemptions pose the greatest legal risk because they plainly treat the beneficiaries of the exemption more
favorably than federal contractors are treated. Sales /use tax deferrals also pose a significant legal risk. Each such
exemption or deferral increases the likelihood that the federal government or federal contractors will seek to re-litigate
Washington v. United States in which they would claim that Washington now discriminates against federal contractors.
If a legal challenge to a deferral or exemption were successful, in addition to lost future revenues, refunds potentially would
be owed under the statutory period (current year plus four previous years). Each year approximately $90 million is collected
on federal government contracting. If refunds were included as part of a potential court decision, the revenue impact could
reach nearly $500 million.
DATA SOURCES:
- Employment Security Department, 2020 list of distressed areas
- Department of Revenue, deferral data
- IHS Market, Non-residential investment in R&D and private investment in industrial facilities forecast, November 2021
- Bureau of Labor Statistics, employment data
- Bureau of Economic Analysis, fixed asset data
REVENUE ESTIMATES:
This bill decreases state revenues by an estimated $1.6 million in the nine months of impacted collections in Fiscal Year
2023, and by $2.3 million in Fiscal Year 2024, the first full year of impacted collections. This bill also decreases local
revenues by an estimated $450,000 in the nine months of impacted collections in Fiscal Year 2023, and by $640,000 in Fiscal
Year 2024, the first full year of impacted collections.
TOTAL REVENUE IMPACT:
State Government (cash basis, $000):
FY 2022 - $ 0
FY 2023 - ($ 1,600 )
FY 2024 - ($ 2,250 )
FY 2025 - ($ 2,350 )
FY 2026 - ($ 2,470 )
FY 2027 - ($ 2,640 )
Local Government, if applicable (cash basis, $000):
FY 2022 - $ 0
FY 2023 - ($ 450)
FY 2024 - ($ 640)
FY 2025 - ($ 670)
FY 2026 - ($ 700)
FY 2027 - ($ 750)
II. C - Expenditures
Briefly describe the agency expenditures necessary to implement this legislation (or savings resulting from this legislation ), identifying by section
number the provisions of the legislation that result in the expenditures (or savings ). Briefly describe the factual basis of the assumptions and the method
by which the expenditure impact is derived . Explain how workload assumptions translate into cost estimates . Distinguish between one time and ongoing
ASSUMPTIONS:
- This legislation will affect 20 taxpayers with new deferral applications each year.
Request # 5849-1-1
Form FN (Rev 1/00) 173,130.00 4 Bill # 5849 SB
FNS062 Department of Revenue Fiscal Note
- A taxpayer claiming this new tax preference must file an annual tax performance report. Expenditures include the costs to
implement the new tax preference.
FIRST YEAR COSTS:
The Department will incur total costs of $103,800 in Fiscal Year 2022. These costs include :
Labor Costs - Time and effort equates to 0.2 FTE.
- Test and verify computer systems to create a new deferral type including online application, approval letter and
certificate.
Object Costs - $70,400.
- Contract computer system programming
SECOND YEAR COSTS:
The Department will incur total costs of $30,100 in Fiscal Year 2023. These costs include :
Labor Costs - Time and effort equates to 0.32 FTE.
- Create a Special Notice and identify publications and information that need to be created or updated on the
Department’s website.
- Respond to tax ruling requests, email inquiries, and more difficult call backs from the telephone information center.
- Audits of additional non-qualifying deferrals.
THIRD YEAR COSTS:
The Department will incur total costs of $14,500 in Fiscal Year 2024. These costs include :
Labor Costs - Time and effort equates to 0.15 FTE.
- Audits of additional non-qualifying deferrals.
ONGOING COSTS:
Ongoing costs for Fiscal Year 2025 equal $14,500 and include similar activities described in the third year costs. Time and
effort equates to 0.15 FTE.
Part III: Expenditure Detail
III. A - Expenditures by Object Or Purpose
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 0.2 0.3 0.3 0.2 0.2
A-Salaries and Wages 16,100 17,700 33,800 18,000 18,000
B-Employee Benefits 5,800 6,300 12,100 6,400 6,400
C-Professional Service Contracts 77,400 77,400
E-Goods and Other Services 2,500 3,400 5,900 3,200 3,200
G-Travel 400 500 900 1,000 1,000
J-Capital Outlays 1,600 2,200 3,800 400 400
Total $ $103,800 $30,100 $133,900 $29,000 $29,000
Request # 5849-1-1
Form FN (Rev 1/00) 173,130.00 5 Bill # 5849 SB
FNS062 Department of Revenue Fiscal Note
III. B - Detail: List FTEs by classification and corresponding annual compensation . Totals need to agree with total FTEs in Part I
and Part IIIA
Job Classification Salary FY 2022 FY 2023 2021-23 2023-25 2025-27
EMS BAND 4 122,633 0.0 0.0
IT SYS ADM-JOURNEY 89,916 0.1 0.1
MGMT ANALYST4 70,956 0.1 0.0 0.1
REVENUE AUDITOR 2 59,688 0.2 0.1 0.2 0.2
TAX INFO SPEC 4 64,332 0.1 0.1
TAX POLICY SP 2 72,756 0.0 0.0
TAX POLICY SP 3 82,344 0.0 0.0
TAX POLICY SP 4 88,644 0.0 0.0
WMS BAND 3 104,295 0.0 0.0
Total FTEs 0.2 0.3 0.3 0.2 0.2
III. C - Expenditures By Program (optional)
NONE
Part IV: Capital Budget Impact
IV. A - Capital Budget Expenditures
NONE
IV. B - Expenditures by Object Or Purpose
NONE
IV. C - Capital Budget Breakout
Identify acquisition and construction costs not reflected elsewhere on the fiscal note and dexcribe potential financing methods
NONE
None.
Part V: New Rule Making Required
Identify provisions of the measure that require the agency to adopt new administrative rules or repeal/revise existing rules .
Should this legislation become law, the Department will use the expedited rule-making process to amend WAC 458-20-24001,
titled: “Sales and use tax deferral - Manufacturing and research /development activities in high unemployment counties -
Applications filed after June 30, 2010”. Persons affected by this rule-making would include taxpayers who may be eligible for
the tax preference.
Request # 5849-1-1
Form FN (Rev 1/00) 173,130.00 6 Bill # 5849 SB
FNS062 Department of Revenue Fiscal Note
LOCAL GOVERNMENT FISCAL NOTE
Department of Commerce
Bill Number: 5849 SB Title: Tax incentives
Part I: Jurisdiction-Location, type or status of political subdivision defines range of fiscal impacts.
Legislation Impacts:
X Cities: Loss of sales tax revenue
X Counties: Loss of sales tax revenue
X Special Districts: Loss of sales tax revenue
Specific jurisdictions only:
Variance occurs due to:
Part II: Estimates
No fiscal impacts.
Expenditures represent one-time costs:
Legislation provides local option:
X Key variables cannot be estimated with certainty at this time: How many projects would receive a sales and use tax deferral or for
what amount
Estimated revenue impacts to:
Jurisdiction FY 2022 FY 2023 2021-23 2023-25 2025-27
City (132,546) (132,546) (385,856) (427,092)
County (160,184) (160,184) (466,313) (516,148)
Special District (152,770) (152,770) (444,731) (492,260)
TOTAL $ (445,500) (445,500) (1,296,900) (1,435,500)
GRAND TOTAL $ (3,177,900)
In addition to the estimates above, there are additional indeterminate costs and/or savings . Please see discussion.
Estimated expenditure impacts to:
None
Part III: Preparation and Approval
Fiscal Note Analyst: Tammi Alexander Phone: 360-725-5038 Date: 01/24/2022
Leg. Committee Contact: Alia Kennedy Phone: 360-786-7405 Date: 01/19/2022
Agency Approval: Allan Johnson Phone: 360-725-5033 Date: 01/24/2022
OFM Review: Cheri Keller Phone: (360) 584-2207 Date: 01/24/2022
Page 1 of 4 Bill Number: 5849 SB
FNS060 Local Government Fiscal Note
Part IV: Analysis
A. SUMMARY OF BILL
Provide a clear, succinct description of the bill with an emphasis on how it impacts local government .
This bill would:
- remove the requirement that eligible lands must be zoned as of December 31 , 2014
- extend the expiration date for the reduced business and occupation tax rate for manufacturers of certain kinds of solar energy systems and
their components from July 1, 2027 to July 1, 2032
- reestablish the sales and use tax deferral for qualifying businesses that invest in facilities , machinery, or equipment in certain distressed
areas
B. SUMMARY OF EXPENDITURE IMPACTS
Briefly describe and quantify the expenditure impacts of the legislation on local governments , identifying the expenditure provisions by
section number, and when appropriate, the detail of expenditures. Delineate between city, county and special district impacts.
This bill would not impact local government expenditures because no action is required.
C. SUMMARY OF REVENUE IMPACTS
Briefly describe and quantify the revenue impacts of the legislation on local governments , identifying the revenue provisions by section
number, and when appropriate, the detail of revenue sources. Delineate between city, county and special district impacts.
The sales and use tax deferral established by this bill would have an indeterminate impact on local government tax revenue . Revenue loss
cannot be calculated because it is unknown how many projects would be eligible , apply for, and receive a sales tax deferral or for what
amount.
According to the Department of Revenue (DOR):
This bill would decrease local revenues by an estimated $450 ,000 in the nine months of impacted collections in Fiscal Year 2023 , and by
$640,000 in Fiscal Year 2024, the first full year of impacted collections .
DOR ASSUMPTIONS:
- The Department begins accepting applications on July 1 , 2022 and has 60 days to review. This results in 9 months of impacted collections
in Fiscal Year 2023.
- Projects are operationally complete within in one year of when the Department received the application .
- This estimate uses national level investment in fixed assets data that has been adjusted to reflect Washington investment levels .
- To estimate the local government impacts , this estimate uses the statewide average rural local tax rate for Fiscal Year 2021 of 1 .8463%.
- The growth for qualifying project costs mirrors the annual growth for non-residential investment in R&D and private investment in
industrial facilities for the United States as reflected in the November 2021 IHS Markit forecast .
- Based on Employment Security Department's 2020 "Distressed areas list" as of April 28 , 2021, 17 of the 39 counties qualify for the high
unemployment deferral.
- The qualifying counties are as follows:
Clallam Grays Harbor Pacific Wahkiakum
Cowlitz Jefferson Pend Oreille Yakima
Ferry Lewis Skagit
Franklin Mason Skamania
Grant Okanogan Stevens
- These qualifying counties remain high unemployment counties until the deferral expires and no large counties become high
unemployment counties.
- The Department may not accept deferral applications after July 1 , 2032.
- The impact from extending the preferential B&O rate for manufacturing solar energy systems occurs after Fiscal Year 2027 and is therefore
not reflected.
POTENTIAL LITIGATION:
Legislation creating new exemptions and deferrals for construction projects presents a risk that the federal government or federal
contractors will seek to re-litigate Washington v . United States. This risk increases with each additional exemption or deferral that the state
enacts.
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FNS060 Local Government Fiscal Note
The Department’s legal counsel at the Attorney General’s Office has opined that the federal contractor risk applies to all exemptions and
deferrals of construction activity, not just construction projects of the type that the federal government is likely to engage in . It also
applies even if the exemption or deferral applies to federal construction projects as well as non-federal construction projects .
Sales/use tax exemptions pose the greatest legal risk because they plainly treat the beneficiaries of the exemption more favorably than
federal contractors are treated. Sales/use tax deferrals also pose a significant legal risk . Each such exemption or deferral increases the
likelihood that the federal government or federal contractors will seek to re-litigate Washington v . United States in which they would claim
that Washington now discriminates against federal contractors .
If a legal challenge to a deferral or exemption were successful , in addition to lost future revenues, refunds potentially would be owed under
the statutory period (current year plus four previous years). Each year approximately $90 million is collected on federal government
contracting. If refunds were included as part of a potential court decision , the revenue impact could reach nearly $500 million .
DOR DATA SOURCES:
- Employment Security Department, 2020 list of distressed areas
- Department of Revenue, deferral data
- IHS Market, Non-residential investment in R&D and private investment in industrial facilities forecast , November 2021
- Bureau of Labor Statistics, employment data
- Bureau of Economic Analysis, fixed asset data
Local Government, if applicable (cash basis, $000):
FY 2022 - $ 0
FY 2023 - ($ 450)
FY 2024 - ($ 640)
FY 2025 - ($ 670)
FY 2026 - ($ 700)
FY 2027 - ($ 750)
LOCAL GOVERNMENT TAX REVENUE BREAKDOWN
Counties:
FY 2022 $0
FY 2023 -$160,184
FY 2024 -$227,817
FY 2025 -$238,496
FY 2026 -$249,175
FY 2027 -$266,973
Cities:
FY 2022 $0
FY 2023 -$132,546
FY 2024 -$188,510
FY 2025 -$197,346
FY 2026 -$206,182
FY 2027 -$220,910
Special Districts:
FY 2022 $0
FY 2023 -$152,770
FY 2024 -$217,273
FY 2025 -$227,458
FY 2026 -$237,643
FY 2027 -$254,617
METHODOLOGY:
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FNS060 Local Government Fiscal Note
The distributions in this note for cities , counties, and special districts are based on DOR data for local sales and use tax distributions from
Calendar Year 2020. Mitigation payments and distributions to hospital benefit zones are not factored into this distribution . This results in a
distribution of 35.96 percent to counties, 29.75 percent to cities, and 34.29 percent to special districts. The one percent DOR administrative
fee has also been deducted from these local government figures .
SOURCES:
Department of Revenue fiscal note SB 5849 (2022)
Department of Revenue Local Tax Distributions (2020)
Joint Legislative Audit and Review Committee fiscal note , SB 5849 (2022)
Local Government Fiscal Note program, Local Sales Tax model 2022
Local Government Fiscal Note program, Sales and Use Tax Distribution model 2022
Senate Bill Report, SB 5849, Business, Financial Services and Trade Committee (January 24, 2022)
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FNS060 Local Government Fiscal Note
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