Report - 2024 01 30 A31844 D267417 Bill Report 6137 Sbr Bfgt Ta 24

Summary

A Senate Bill Report on SB 6137, an act relating to reinstating semiconductor tax incentives, prepared by staff of the Washington Senate Committee on Business, Financial Services, Gaming & Trade as of January 25, 2024. The background describes retail sales and use taxes, the business and occupation (B&O) tax, and eight semiconductor tax preferences, six of which were contingent on a $1 billion investment and expired on January 1, 2024. The summary of the bill states that those six preferences are reinstated contingent on new investments and that the two preferences still in effect are extended to January 1, 2034. The report notes an emergency clause with immediate effect and includes a staff summary of public testimony.

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                            SENATE BILL REPORT
                                  SB 6137

                                      As of January 25, 2024

Title: An act relating to reinstating semiconductor tax incentives.

Brief Description: Reinstating semiconductor tax incentives.

Sponsors: Senators Cleveland, Wilson, L. and Holy.

Brief History:
     Committee Activity: Business, Financial Services, Gaming & Trade: 1/25/24.


                                     Brief Summary of Bill
           • Reinstates six expired tax incentives for semiconductor manufacturing
             through 2034, conditional on new investments.
           • Extends the expiration for two existing tax incentives for semiconductor
             manufacturing through 2034.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES, GAMING & TRADE

     Staff: Tianyi Lan (786-7432)

     Background: Retail Sales and Use Tax and Business and Occupation Tax. Retail sales
     taxes are imposed on retail sales of 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. Both the state and local
     governments impose 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.
     Unless specifically exempt, all transactions or uses of property or services in the tax base
     are subject to retail sales and use taxes.




     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.

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     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. A business may have more than one B&O tax rate,
     depending on the types of activities conducted. For example, the rate for most persons that
     conduct manufacturing or processing for hire activities is 0.484 percent. The state B&O tax
     includes a number of preferential tax rates, credits, exemptions, and deductions as well as
     several increased rates or surcharges.

     Tax Preferences. State law provides for 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. Washington has over
     700 tax preferences, including a variety of sales and use tax exemptions. Legislation that
     establishes or expands a tax preference must include a tax preference performance statement
     that identifies the public policy objective of the preference, as well as specific metrics the
     Joint Legislative Audit and Review Committee can use to evaluate the effectiveness of the
     preference. All new tax preferences automatically expire after ten years unless an
     alternative expiration date is provided.

     Tax Incentives for Semiconductor Industry. Semiconductor manufacturing is the process of
     creating integrated circuits or microchips. Semiconductor materials are essential for the
     construction of electronic devices and the semiconductor industry.

     There are eight tax preferences related to the semiconductor materials manufacturing
     industry. Those tax preferences are provided for manufacturers of semiconductor materials
     and businesses that perform manufacturing services on semiconductor materials owned by
     others, known as processors for hire.

     Six tax preferences were contingent on a manufacturer making at least a $1 billion
     investment in new buildings, machinery and equipment to site and operate a semiconductor
     microchip fabrication facility. Those preferences expired on January 1, 2024, because the
     contingent investment never occurred. The six preferences were:
         • a sales and use tax exemption for labor, services, and sales of tangible personal
           property related to the construction of new buildings used for manufacturing
           semiconductor materials;
         • a property tax exemption for machinery and equipment used in manufacturing
           semiconductor materials at a building exempt from sales and use tax;
         • a $3,000 B&O tax job credit for each manufacturing production position that takes
           place in a new building exempt from sales and use tax;
         • a preferential B&O tax rate of 0.275 percent for businesses of manufacturing
           semiconductor materials;
         • a sales and use tax exemption for the sale of gases and chemicals used by a
           manufacturer in the manufacturing of semiconductor materials; and


Senate Bill Report                             -2-                                         SB 6137
         • a B&O tax exemption for manufacturers of semiconductor microchips.

     There are two tax preferences related to the semiconductor industry currently in effect:
        • a preferential B&O rate of 0.275 percent for manufacturing semiconductor materials;
           and
        • a sales and use tax exemption for purchases of gases and chemicals used in specific
           phases of the semiconductor production process.

     These two tax preferences require beneficiaries to maintain the number of persons
     employed at least 90 percent of the employment average for the previous three years, or to
     reimburse 50 percent of the benefits. Both preferences expire on December 1, 2028.

     For the reduced B&O tax rates, semiconductor materials are defined in statute as silicon
     crystals, silicon ingots, raw polished semiconductor wafers, and compound semiconductor
     wafers. For the sales and use tax exemptions currently in effect, the definition is expanded
     to include materials that are used in solar energy systems, including solar grade silicon,
     silicon solar wafers, compound semiconductor solar wafers, silicon solar cells, and thin film
     solar devices.

     Summary of Bill: The six tax preferences that expired on January 1, 2024, are reinstated,
     contingent on new investments in the semiconductor manufacturing industry.

     The expiration date is extended to January 1, 2034, for the two other preferences currently
     in effect for semiconductor manufacturing.

     The bill exempts the tax preference performance statement requirements for the six tax
     preferences contingent on new investments.

     The bill includes an emergency clause and takes effect immediately.

     Appropriation: None.

     Fiscal Note: Requested on January 15, 2024.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: The bill contains an emergency clause and takes effect immediately.

     Staff Summary of Public Testimony: PRO: Semiconductors are the main brains and
     primary components of all modern electronics. Nationally the semiconductor industry
     directly employs over 277,000 people. In Washington, the semiconductor industry directly
     employs over 5,600 individuals with an estimated 2.5 billion in total wage impact. For
     every job within the semiconductor industry, an additional 5.7 jobs are supported in the
     wider economy. Given that our state is the number one exporter of technology products and


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     services, this bill continues to encourage and support the industry to grow.

     The semiconductor industry has seen a shortage of skilled workers. This bill promotes the
     industry facing a crisis of unskilled workers shortage, reduces the regulatory and tax
     burden, and supports trade and export.

     Most semiconductor jobs are in Clark County and the industry is important for the
     communities. The semiconductor industry is the eighth-ranked export, around $898 million
     a year. This opportunity allows Washington State to be able to leverage federal tax dollars.
     Oregon and New York state are investing heavily in attracting individuals and businesses
     from this industry.

     OTHER: The bill comes with a fiscal impact. From an economic development standpoint,
     this bill is critical to maintain competitiveness. These kinds of businesses and investments
     are important to the state.

     Persons Testifying: PRO: Senator Annette Cleveland, Prime Sponsor; Emily Shay,
     Association of Washington Buisness; Jennifer Baker, Columbia River Economic
     Development Council.

     OTHER: Brian Young, Dept of Commerce.

     Persons Signed In To Testify But Not Testifying: No one.




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