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Home / Washington Business - March/April 2004 / AWB Leads Effort to Continue R&D Sales Tax Exemption |
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AWB Leads Effort to Continue R&D Sales Tax Exemption |
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Written On: March/April 2004 |
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Written By: By Paul Schlienz |
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Will Washington remain a vibrant center of high technology? Or will our state’s cutting edge industries migrate to other states and abroad?
From 1995 to 2001, Washington’s tech industry increased employment by over 70 percent. This spectacular growth rate far outpaced the national average of 40 percent.
“If you look at the makeup of Washington’s economy now, technology, software and wireless are not only emerging, but are the dominant sectors in our state now,” said Lew McMurran of the Washington Software Alliance. “The technology sector now outpaces aerospace in employment.”
Washington’s tech expansion was spurred by research and development tax incentives enacted by the Legislature in 1994. Unfortunately, these incentives are now at risk.
“In 1994 there was a concerted effort to incubate high-tech industries in Washington,” said Tom Dooley, AWB’s tax and budget specialist. “The Legislature passed two bills: a B & O tax credit for high-tech research and development, and a sales tax exemption for equipment used in research and development. Both incentives were written to expire in 2004.”
“There was a huge effort last year by AWB and the biotechnology, high-tech and electronics industries to extend the high-tech exemptions beyond 2004. In this year’s legislative session, we’re continuing our fight to preserve these incentives.”
Unfortunately, the state’s Office of the Forecast Council has already made the assumption that the incentives is no longer in effect for the second half of the 2003-2004 biennium. As a result, the state is now taxing revenues from what were formerly exempt activities.
“The biggest hurdle, given where we were at last year with the budget being $4 million in the hole, was that it was very unlikely for the Legislature to grant any revenue decreases because they were considering increases to cover this budget gap,” Dooley said. “The high-tech exemptions passed out of the Senate, but died in the House.”
Extending the exemptions beyond 2004 is critical for Washington’s high-tech industry.
“The incentives have been very valuable tools that help high-tech entrepreneurs preserve capital and grow their businesses,” McMurran said. “One of the absolutely critical aspects of a technology economy is research and development. It’s the only way for new products to be developed and for technology to get commercialized whether it comes from research at a university or at the corporate level by Intel or Microsoft.”
“In order for Washington to stay competitive with other states as well as globally competitive, companies have to remain on the cutting edge of new product development. R&D is the only way to make that happen.”
While R&D tax incentives helped companies expand by developing new products, the exemptions have also helped high-tech businesses survive Washington’s punishing economic downturn.
“We’ve had the ability to use those tax incentives to help sustain employment and blunt negative effects of the downturn for a good number of our companies,” said Nancy Atwood of the American Electronics Association.
The companies that have been helped by the tax exemptions range from global corporations to small high-tech startups. Philips, a large Dutch firm, used the credit to build a substantial research and development building on its Bothell campus.
“Philips used the incentive as part of their decision-making process,” Atwood said. “The tax credit helped them decide to choose the Bothell site versus somewhere else either in the United States or in another country.”
AWB has fought hard, in 2004, to preserve Washington’s high-tech advantage by lobbying for the tax credits. Fortunately, legislators in both houses have shown a real understanding of the importance of these tax breaks in building our state’s economy.
HB 2546, sponsored by Rep. Jim McIntire (D-Seattle), which extends the high-tech tax credits, passed the House, 86-12, and passed the Senate, 40-9. Governor Locke signed the bill on February 19. This legislation’s enactment is good news for Washington state.
Our state cannot afford to lose its R&D edge. In the coming years, AWB will continue its campaign to help Washington stay competitive.
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