Legislative Auditor’s Conclusion:

The preference has not been claimed and does not contribute to the public policy objectives, so the Legislative Auditor continues to recommend termination.

One Page Overview  |  Print Friendly & Accessible Version

July 2019

Preference applies to the sale of materials used to make prototypes of aircraft parts and equipment

The exemption applies to sales or use of:

  • Materials incorporated into a prototype for aircraft parts, auxiliary equipment, or modifications.
  • Materials that are incorporated into a prototype but later destroyed in the testing or development of the prototype.

The preference is limited to businesses whose gross income and value of products manufactured had a combined total value of $20 million or less in the previous year, minus any multiple activities tax credit claimsThe multiple activities tax credit is specified in RCW 82.04.440. A business may not claim more than $100,000 in tax savings from this preference in a calendar year. To claim the preference, a business must first pay the tax on a sale subject to the preference, and then apply to the Department of Revenue (DOR) for a refund. A 2014 JLARC review of the preference includes additional detail.

The preference does not have an expiration date.

Estimated Biennial Beneficiary Savings

None

Tax Type

Sales & Use Tax

RCWs 82.08.02566, 82.12.02566

Applicable Statutes

In 2014, the Legislative Auditor found no businesses were claiming the tax preference and recommended termination

The Legislature stated two public policy objectives when it enacted the tax preference in 1996. The preference was part of a larger bill that addressed machinery and equipment used in research, development, and testing. The objectives applied to all exemptions in the bill.

JLARC staff reviewed the preference in 2014. Because the review found no businesses were claiming the tax preference, the Legislative Auditor recommended that the Legislature terminate the preference as it had not contributed to the stated public policy objectives.

Objectives (Stated) 2014 JLARC Review Results
Encourage, develop, and expand opportunities for family wage employment in manufacturing industries. No businesses claim the tax preference.
Solidify and enhance the state’s competitive position.

With no legislative changes to the preference and no beneficiaries, the Legislative Auditor's 2014 conclusions and recommendations remain applicable

No substantive legislative changes. Since 2014, three bills have proposed broad changes to all tax preferences. While each bill would have affected this preference, none included provisions specific to it. None of the bills passed.

No businesses claim the preference. Beneficiaries must pay the sales or use tax and then apply for a refund from DOR. This process allows DOR to track the number of firms that claim the exemption. DOR reports that there have been no requests for refunds, and thus, no beneficiaries. Efforts to reach two Washington companies that supported the legislation to create the preference in 1996 were unsuccessful. In 2014 these same companies indicated they were not claiming the preference.

Recommendations

Legislative Auditor's Recommendation: Terminate

The Legislature should terminate the sales and use tax exemption for prototypes for aircraft parts, auxiliary equipment, and modifications because the tax preference is not being used and has not contributed to the stated public policy objectives.

The Legislature may wish to consider other strategies beyond this tax incentive to accomplish the public policy objectives.

More information is available on the Recommendations Tab.

Commissioners' Recommendation

Available October 2019.

Preliminary Report | Aircraft Part Prototypes

July 2019

ADDITIONAL Details

Applicable statutes

RCWs 82.08.02566, 82.12.02566

Sales Tax

RCW 82.08.02566

Exemptions - Sales of tangible personal property incorporated in prototype for parts, auxiliary equipment, and aircraft modification - limitation on yearly exemption.

(1) The tax levied by RCW 82.08.020 shall not apply to sales of tangible personal property incorporated into a prototype for aircraft parts, auxiliary equipment, or modifications; or to sales of tangible personal property that at one time is incorporated into the prototype but is later destroyed in the testing or development of the prototype.

(2) This exemption does not apply to sales to any person whose total taxable amount during the immediately preceding calendar year exceeds twenty million dollars. For purposes of this section, "total taxable amount" means gross income of the business and value of products manufactured, less any amounts for which a credit is allowed under RCW 82.04.440.

(3) State and local taxes for which an exemption is received under this section and RCW 82.12.02566 shall not exceed one hundred thousand dollars for any person during any calendar year.

(4) Sellers shall collect tax on sales subject to this exemption. The buyer shall apply for a refund directly from the department.

[ 2003 c 168 § 208; 1997 c 302 § 1; 1996 c 247 § 4.]

SELECTED NOTES:

Findings—Intent—1996 c 247: "The legislature finds that the health, safety, and welfare of the people of the state of Washington are heavily dependent upon the continued encouragement, development, and expansion of opportunities for family wage employment in the state's manufacturing industries.

The legislature also finds that sales and use tax exemptions for manufacturing machinery and equipment enacted by the 1995 legislature have improved Washington's ability to compete with other states for manufacturing investment, but that additional incentives for manufacturers need to be adopted to solidify and enhance the state's competitive position.

The legislature intends to accomplish this by extending the current manufacturing machinery and equipment exemptions to include machinery and equipment used for research and development with potential manufacturing applications." [ 1996 c 247 § 1.]

Use Tax

RCW 82.12.02566

Exemptions—Use of tangible personal property incorporated in prototype for aircraft parts, auxiliary equipment, and aircraft modification—Limitations on yearly exemption.

(1) The provisions of this chapter shall not apply with respect to the use of tangible personal property incorporated into a prototype for aircraft parts, auxiliary equipment, or modifications; or in respect to the use of tangible personal property that at one time is incorporated into the prototype but is later destroyed in the testing or development of the prototype.

(2) This exemption does not apply in respect to the use of tangible personal property by any person whose total taxable amount during the immediately preceding calendar year exceeds twenty million dollars. For purposes of this section, "total taxable amount" means gross income of the business and value of products manufactured, less any amounts for which a credit is allowed under RCW 82.04.440.

(3) State and local taxes for which an exemption is received under this section and RCW 82.08.02566 shall not exceed one hundred thousand dollars for any person during any calendar year.

(4) Sellers obligated to collect use tax shall collect tax on sales subject to this exemption. The buyer shall apply for a refund directly from the department.

[ 2003 c 168 § 209; 1997 c 302 § 2; 1996 c 247 § 5.]

SELECTED NOTES:

Findings—Intent—1996 c 247: See note following RCW 82.08.02566.

Preliminary Report | Aircraft Part Prototypes

July 2019

Recommendations & Responses

Legislative Auditor's Recommendation

Legislative Auditor's Recommendation: Terminate

The Legislature should terminate the sales and use tax exemption for prototypes for aircraft parts, auxiliary equipment, and modifications because the tax preference is not being used and has not contributed to the stated public policy objectives.

Legislation Required: Yes

Fiscal Impact: None

Preliminary Report | Aircraft Part Prototypes

July 2019

Recommendations & Responses

Letter from Commission Chair

Preliminary Report | Aircraft Part Prototypes

July 2019

Recommendations & Responses

Commissioners' Recommendation

Preliminary Report | Aircraft Part Prototypes

July 2019

Recommendations & Responses

Agency Response

If applicable, available December 2019.

Preliminary Report | Aerospace Tax Preferences

July 2019

More about this review

Study questions