Report - 2024 01 30 A31844 D267815 Bill Report 6243 Sbr Bfgt Ta 24

Summary

A Senate Bill Report on SB 6243, providing a state business and occupation tax exemption to encourage clean technology manufacturing in Washington, as of January 25, 2024, prepared by staff of the Senate Committee on Business, Financial Services, Gaming & Trade. The bill is sponsored by Senators Mullet, Billig, Lovick, Nguyen and Shewmake. The report states that beginning January 1, 2025, manufacturers engaged in clean technology manufacturing are exempt from the B&O tax, with the exemption expiring January 1, 2035, and lists the product categories that qualify. It describes a tax preference performance statement requiring the Joint Legislative Audit Review Committee to report findings by December 31, 2033. The report closes with a staff summary of public testimony in support and from the Department of Revenue and Commerce.

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                            SENATE BILL REPORT
                                  SB 6243

                                      As of January 25, 2024

Title: An act relating to providing a state business and occupation tax exemption to encourage
     clean technology manufacturing in Washington.

Brief Description: Providing a state business and occupation tax exemption to encourage clean
     technology manufacturing in Washington.

Sponsors: Senators Mullet, Billig, Lovick, Nguyen and Shewmake.

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


                                     Brief Summary of Bill
           • Establishes a business and occupation tax exemption for manufacturers
             engaged in clean technology manufacturing beginning January 1, 2025.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES, GAMING & TRADE

     Staff: Kellee Gunn (786-7429)

     Background: Business and Occupation Tax. Washington State's business and occupation
     (B&O) tax is a gross receipts tax; measured on the value of products, gross proceeds of sale,
     or gross income of the business. The rate of the tax varies by the classification of the
     business.

     Designation as a Hydrogen Hub. In October 2023, the Pacific Northwest, consisting of the
     state of Washington, Oregon, and Montana, was chosen by the Department of Energy as
     one of seven Regional Clean Energy Hydrogen Hubs. This designation may provide up to
     $1 billion in matching federal funding to accelerate commercial-scale deployment of low-
     cost, clean hydrogen.




     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 6243
     Summary of Bill: Business and Occupation Tax Exemption. Beginning January 1, 2025,
     manufacturers engaged in clean technology manufacturing are exempt from the B&O tax.
     This exemption expires January 1, 2035. Beneficiaries of the exemption are not required to
     report the amount of the tax preference claimed to the Department of Revenue, but must
     submit an annual tax performance report.

     Clean Technology Manufacturing. Clean technology manufacturing is defined to mean
     manufacturing tangible personal property exclusively or primarily used in the following:
        • vehicles, vessels, and other modes of transportation that emit no exhaust gas from the
          onboard source of power, other than water vapor;
        • charging and fueling infrastructure for electric, hydrogen, or other types of vehicles
          that emit no exhaust gas from the onboard source of power, other than water vapor;
        • generation of renewable or green electrolytic hydrogen;
        • production of energy from alternative energy resources;
        • retrofitting of megawatt-class diesel vehicles, vessels, and other modes of
          transportation to hybrid diesel-electric;
        • production of clean fuels; and
        • storage facilities.

     Tax Performance Statement. A tax preference performance statement is included. The tax
     preference is intended to induce certain designated behavior by taxpayers, improve industry
     competitiveness, and create jobs.

     It is the Legislature's specific public policy objective to provide state-level support to the
     clean technology sector and supplement federal incentives, including potential federal
     funding through the Pacific Northwest's designation as a hydrogen hub.

     To measure effectiveness, the Joint Legislative Audit Review Committee must evaluate
     eight years of available data, reporting its findings by December 31, 2033. The review must
     include an evaluation of:
         • the average construction wages for eligible projects;
         • the number of jobs created in the clean technology sector;
         • the use of apprenticeship programs, and women, minority, or veteran-owned
           businesses by eligible projects;
         • the degree to which the preference encourages manufacturing and component
           production for technologies that reduce greenhouse gas emissions;
         • whether facilities benefiting from the tax preference would have been developed
           without the tax preference; and
         • any other relevant metric.

     Appropriation: None.

     Fiscal Note: Available.



Senate Bill Report                             -2-                                         SB 6243
     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: Ninety days after adjournment of session in which bill is passed.

     Staff Summary of Public Testimony: PRO: This will help clean tech manufacturing in
     this state, by getting some funding out the door for this industry and supplement funding
     from grant programs. This bill fixes two big goals of AWB—to double the manufacturing
     base of OMWBE businesses and expand the clean energy industry. Though the fiscal
     impact seems high, this will bring more revenue into our state. Washington has a made a
     commitment to change to a clean economy. We need to buy equipment to get to where
     Washington wants to be. The federal government has made the U.S. a great place for
     manufacturing.

     This will make Washington look like a place to come. This bill will attract businesses and
     retain jobs in this sector. This will show how committed Washington is in investing in the
     clean technology energy industry. A Norwegian battery manufacturer is making a site
     selection now between Washington State and Montana. This would give Washington the
     edge and make us a more attractive place to select. If we don't have this incentive, we will
     not get these developments and manufacturers. The Climate Commitment Act's (CCA)
     investment is exciting. This proposal is strong for use of CCA funds, but the bill needs to be
     further tied CCA. The speed in which this could be effective to the market is motivating to
     the marketplace.

     OTHER: The DOR is neutral on this bill but has some technical changes that have been sent
     to the sponsor and staff. First, our agency does not have clean energy experts on staff and
     would prefer another entity to make that distinction when determining whether an entity
     qualifies for an exemption as a clean technology manufacturer. There could be confusion
     caused with how the return is turned in by the taxpayer. In cases of retail sales, the
     exempted taxpayers under this bill will still need to report retail sales tax, which will require
     reporting retailing B&O on the excise tax return, even if the retailing B&O is intended to be
     negated.

     Commerce is OTHER, as it has some ideas regarding the definitions used in the bill. The
     clean investment economy is massive and significant and is driven by both private and
     public dollars. This is very nascent industry and getting these projects off the ground is
     important. There is a lot of competition out there.

     Persons Testifying: PRO: Senator Mark Mullet, Prime Sponsor; Emily Shay, Association
     of Washington Buisness; Adam Day, First Mode; Michelle Detwiler, Renewable Hydrogen
     Alliance; KARL DYE, TRIDEC; Isaac Kastama, Clean & Prosperous Washington.

     OTHER: Steve Ewing, Dept. of Revenue; Chris Green, Commerce.

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


Senate Bill Report                              -3-                                           SB 6243


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