Report - 2022 02 01 A29729 D240599 Bill Report 5901 Sbr Bfst Ta 22
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- 2022-02-01
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- 2022 02 01 A29729 D240599 Bill Report 5901 Sbr Bfst Ta 22
Summary
A Senate Bill Report on SB 5901, as of January 27, 2022, prepared by nonpartisan staff of the Senate Committee on Business, Financial Services & Trade on a bill concerning economic development tax incentives for targeted counties, sponsored by Senators Randall, Billig, Holy, Mullet, Nguyen and Saldaña. It describes a new sales and use tax deferral program for manufacturing and research and development projects in counties with a population of less than 650,000, limited to $400,000 per project, with a repayment schedule over eight years. The bill would expand the warehouse exemption to warehouses over 100,000 square feet in such counties, cap exemptions at $400,000, and expire the exemption on July 1, 2032. The report summarizes supportive public testimony and gives an effective date of July 1, 2022.
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“Report - 2022 02 01 A29729 D240599 Bill Report 5901 Sbr Bfst Ta 22.”
Original at app.leg.wa.gov, dated 2022-02-01. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2022-02-01-2022-02-01-a29729-d240599-bill-report-5901-sbr-bfst-ta-22/
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SENATE BILL REPORT
SB 5901
As of January 27, 2022
Title: An act relating to economic development tax incentives for targeted counties.
Brief Description: Concerning economic development tax incentives for targeted counties.
Sponsors: Senators Randall, Billig, Holy, Mullet, Nguyen and Saldaña.
Brief History:
Committee Activity: Business, Financial Services & Trade: 1/27/22.
Brief Summary of Bill
• Creates a manufacturing and research and development sales and use tax
incentive program for targeted counties.
• Expands the warehouse sales and use tax exemption to include
warehouses over 100,000 square feet in targeted counties.
• Caps the maximum amount of sales and use tax that may be exempted
for the construction or expansion of any warehouse or grain elevator at
$400,000.
• Expires the warehouse sales and use tax exemption on July 1, 2032.
• Requires the Joint Legislative Audit and Review Committee to evaluate
the effectiveness of the changes in the warehouse sales and use tax
exemption in diversifying the tax base and increasing employment
within targeted counties.
SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE
Staff: Jeffrey Mitchell (786-7438)
Background: Retail Sales and Use Tax. Retail sales taxes are imposed on retail sales of
This analysis was prepared by non-partisan legislative staff for the use of legislative
members in their deliberations. This analysis is not part of the legislation nor does it
constitute a statement of legislative intent.
Senate Bill Report -1- SB 5901
most articles of tangible personal property, digital products, and some services. A retail
sale is a sale to the final consumer or end user of the property, digital product, or service. If
retail sales taxes were not collected when the user acquired the property, digital products, or
services, then use tax applies to the value of property, digital product, or service when used
in this state. The state, all counties, and all cities levy retail sales and use taxes. The state
sales and use tax rate is 6.5 percent; local sales and use tax rates vary from 0.5 percent to
3.9 percent, depending on the location.
In general, construction activities constitute retail services subject to sales tax. Construction
activities include, but are not limited to installing, repairing, cleaning, improving,
constructing and decorating real property; constructing and improving new or existing
buildings and structures; and cleaning, fumigating, razing or moving structures. Businesses
performing construction activities must also collect and remit retail sales tax on their total
charges for the project unless a specific exemption applies. This taxable amount includes
charges for permits and other fees, labor, profit, materials and charges for subcontractors.
Sales tax rates vary around the state. Contractors performing retail services must collect
sales tax based on the tax rate of the jurisdiction in which they perform their services.
Sales and Use Tax Deferral Programs. Deferral programs authorize businesses the ability to
postpone payment of sales and use taxes based on meeting specific requirements and
performance criteria. Once an application for a deferral program is filed and approved,
businesses are granted a tax deferral certificate which must be provided to vendors and
contractors to defer sales or use tax. Over the years, the Legislature has authorized various
sales and use tax deferral programs, some of which allow for a complete waiver of sales and
use taxes if certain specific requirements and performance criteria are met over a specified
period of time.
Warehouse Sale and Use Tax Remittance. Current law provides a warehouse tax remittance
incentive that allows for up to a 100 percent exemption from the state’s portion—6.5
percent—of the retail sales or use tax paid on the eligible construction costs for qualified
warehouses, grain elevators, and distribution centers. The incentive also allows for a 50
percent exemption from the state’s portion of the retail sales or use tax paid on purchases
and installation of material-handling and racking equipment. Eligible businesses receive the
exemption in the form of a remittance from the Department of Revenue (DOR). The
application is filed once retail sales tax or use tax has been paid for a calendar quarter.
The following businesses are eligible for the incentive: wholesalers or third party
warehousers who own or operate warehouses or grain elevators; and retailers who own or
operate distribution centers.
The incentive applies to sales and use tax paid on materials and labor on the construction or
expansion of the following:
• a warehouse or distribution center of at least 200,000 square feet qualifies for a 100
percent exemption;
Senate Bill Report -2- SB 5901
• a grain elevator of at least 1 million, but less than 2 million, bushel storage capacity
qualifies for a 50 percent exemption; and
• a grain elevator of 2 million or more bushel storage capacity qualifies for a 100
percent exemption.
Sales or use tax paid on material-handling and racking equipment for a qualifying facility is
eligible for a 50 percent exemption. This includes labor and services for installing,
repairing, cleaning, altering or improving the equipment.
Summary of Bill: Sales and Use Tax Deferral Program for Designated Counties. A new
sales and use tax deferral program is established for investment projects in qualifying
counties. A qualifying county is a county with a population of less than 650,000 at the time
an application for deferral is submitted. An investment project means construction of new
structures, or expansion or renovation of existing structures, for increasing floor space or
production capacity used for manufacturing or research and development activities. An
investment project also includes the investment in all new industrial and research fixtures,
equipment, and support facilities that are an integral and necessary part of a manufacturing
or research and development operation.
Application for deferral of taxes must be made before initiation of the construction of the
investment project or acquisition of machinery or equipment. The application must contain
information regarding the location of the investment project, the applicant's average
employment in the state for the prior year, estimated or actual new employment related to
the project, estimated or actual wages of employees related to the project, estimated or
actual costs, time schedules for completion and operation, and other information required by
DOR. DOR must rule on the application within 60 days. DOR may not accept applications
for the deferral after June 30, 2032.
If approved, DOR must issue a sales and use tax deferral certificate for state and local sales
and use taxes on each eligible investment project. The amount of state and local sales and
use taxes eligible for deferral is limited to $400,000 per eligible investment project per
person.
The recipient of a deferral certificate must begin meaningful construction on an eligible
investment project within two years of receiving a deferral certificate, unless construction
was delayed due to circumstances beyond the recipient's control. The investment project
must be operationally complete within five calendar years from the issuance of the tax
deferral certificate.
If an investment project is used for purposes other than a qualified manufacturing or
research and development operation at any time during the calendar year in which the
investment project is certified by DOR as having been operationally completed, or at any
time during any of the seven succeeding calendar years, a portion of deferred taxes is
immediately due according to the following schedule:
Senate Bill Report -3- SB 5901
Percent of
Year in Which
Deferred Taxes
Use Occurs
Due
1 100%
2 87.5%
3 75%
4 62.5%
5 50%
6 37.5%
7 25%
8 12.5%
After the 8-year period, deferred sales and use taxes would not have to be repaid.
Each recipient of a deferral certificate must file a complete annual tax performance report
with DOR during the period covered by the schedule above providing wage, employment,
and tax savings information.
The Joint Legislative Audit and Review Committee (JLARC), as part of its tax preference
review process, must use the information reported on the annual tax performance report to
study the tax deferral program. JLARC must report to the Legislature by December 1,
2030. The report must measure the effect of the program on job creation, the number of
jobs created for residents of eligible areas, company growth, and such other factors as
JLARC selects.
Warehouse Sale and Use Tax Remittance. The warehouse sales and use tax exemption is
expanded to include warehouses over 100,000 square feet located in a qualifying county. A
warehouse would be eligible for a 100 percent exemption on the construction or expansion
of the facility and a 50 percent exemption on the purchase of material-handling and racking
equipment. A qualifying county is a county with a population of less than 650,000.
The maximum amount of sales and use tax that may be exempted for the construction or
expansion of any warehouse or grain elevator is limited to $400,000.
The warehouse sales and use tax exemption expires July 1, 2032.
A tax preference performance statement is provided that states a specific public policy
Senate Bill Report -4- SB 5901
objective to induce the construction of new or expanded warehouses and distribution centers
in certain targeted counties by reducing the square footage requirement in order to diversify
the tax base and increase employment within the targeted counties.
Prior to the expiration of the warehouse sales and use tax exemption, JLARC must evaluate
the changes in the number of employment positions in the warehousing and distribution
industry sector in the targeted counties and changes to the tax base as a result of increased
warehousing and distribution activity.
Appropriation: None.
Fiscal Note: Available.
Creates Committee/Commission/Task Force that includes Legislative members: No.
Effective Date: The bill takes effect on July 1, 2022.
Staff Summary of Public Testimony: PRO: Our state is on fairly strong financial footing
compared with the rest of the nation because we have chosen to invest in economic
development across the state. However, the recovery looks different in different areas of
the state. We need additional tools to invest in our most important sectors such as
manufacturing. This bill increases the number of businesses that would qualify for these tax
incentives. The bill allows smaller warehouses to qualify. It will provide a tool for those
regions of the state that have not shared in the same level of economic activity. Last year,
we committed to doubling the state’s manufacturing employment base, doubling the number
of small businesses, and doubling the number of women and minority owned manufacturing
businesses over the next ten years and this bill will help serve those goals. This bill will
also promote family wage jobs in counties across the state. This bill would be a boost and
help reverse the forecasted decline in growth in the manufacturing sector. The incentives in
Idaho have attracted a lot of businesses and we’ve lost a lot of opportunities. Economic
development and job creation are priorities in Spokane. As a border county, we are
constantly competing with our neighbors and anything we can do to enhance our chances of
landing manufacturing operations is something we support. The jobs associated with these
employers are good paying, family wage jobs that contribute to positive growth in our
community.
Persons Testifying: PRO: Senator Emily Randall, Prime Sponsor; Josh Kerns, Spokane
County Board of Commissioners; Mark Norton, NWAC and Acrcafab; Tommy Gantz,
Association of Washington Business .
Persons Signed In To Testify But Not Testifying: No one.
Senate Bill Report -5- SB 5901
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