Hiring Unemployed Veterans

This review covers two tax preferences available to businesses that hire unemployed veterans in Washington: a business and occupation (B&O) tax credit and a public utility tax (PUT) credit.

Businesses must hire unemployed veterans for permanent, full-time positions

Businesses can take a credit against their B&O tax or PUT when they hire unemployed veterans for permanent, full-time positions. Qualifying veterans must be unemployed for at least 30 days immediately before they are hired by the business claiming the tax credit.

Up to $1,500 credit for each qualifying veteran hired

A business can claim a credit against their B&O tax or PUT equal to 20% of the veteran's wages and benefits, up to a total of $1,500 per veteran employed. The following conditions apply:

• The veteran must be employed full-time for at least two consecutive full quarters of a calendar year before a business can take a credit.
• A business cannot use both a B&O and a PUT credit for the same employee.

The preferences are available on a first-in-time basis. There is no limit on the number of veterans a business can hire or the total amount of credits any one business can receive. However, the combined total amount of B&O and PUT credits available statewide is capped at $500,000 per fiscal year.

Businesses must file annual accountability reports

Businesses using the credits must file an Annual Tax Performance Report with the Department of Revenue. The report identifies the employer and the amount of the credit used each calendar year.

Preferences scheduled to expire on July 1, 2023

The B&O and public utility tax credits were passed during the 2015 legislative session and apply to veterans hired on or after October 1, 2016. Credits can be earned by businesses through June 30, 2022, and must be used by June 30, 2023. The preferences are scheduled to expire July 1, 2023.

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The Legislature stated the preferences were intended to help employ veterans and reduce the number of unemployed veterans in Washington by 30%. Businesses using the credits hired a total of 132 unemployed veterans. However, the number of unemployed veterans statewide has increased since the preferences passed.

2015 tax credits were intended to encourage businesses to hire veterans and reduce number of unemployed veterans by 30%

When the preferences passed in 2015, the Legislature stated that the B&O and public utility tax credits were intended to encourage businesses to hire and create jobs for unemployed veterans by reducing the business's tax burden.

Information provided to legislators in a 2015 committee hearing noted that a federal tax incentive established in 2007 for businesses hiring veterans had expired in 2013. While the incentive had lapsed, Congress later reauthorized the program retroactively.

The Legislature directed the Legislative Auditor to recommend continuing the preferences if the number of unemployed veterans in Washington decreased by 30%.

After a 62% decrease in unemployed veterans from 2013-2015, the estimated number of unemployed veterans is now 20% higher than when the credits were enacted

The number of unemployed veterans in Washington decreased 62% in the two years before the preferences passed, but the number has stabilized since then. This decline in veteran unemployment reflects a national trend. JLARC staff found the estimated number of unemployed veterans dropped by a minimum of 30% from 2015 to 2018 in at least 30 states.

The estimated number of unemployed veterans in 2019 has increased by 20% since 2015 (the year the preferences passed). During that time, businesses that used the credits reported hiring a total of 132 veterans. Without the credits, the number of unemployed veterans might have increased by an additional 1%.

Exhibit 2.1: Following a drop in veteran unemployment, there has been a 20% increase since the credits passed

Source: JLARC staff analysis of Bureau of Labor and Statistics data, veteran unemployment, 2013-2019.

Unemployment rates for Washington's veterans and nonveterans are now similar

Data available when the credits passed indicated higher unemployment rates for veterans than for nonveterans. Since then, unemployment rates have declined for both populations. Veteran unemployment rates have dropped to the same or below those for nonveterans.

Exhibit 2.2: Washington's veteran and nonveteran unemployment rates were similar the past two years

Source: JLARC staff analysis of Bureau of Labor and Statistics data, veteran vs. nonveteran unemployment, 2013-2019.

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The Department of Revenue reports that 132 veterans have been hired by businesses using the credits through the end of 2019.

Exhibit 3.1: 132 veterans hired over three years by businesses using the preferences

Calendar Year	Number of Veterans Hired by Businesses Using Preferences
2017	20
2018	59
2019	53
Total	132

Source: JLARC staff analysis of data provided by Department of Revenue.

The most generous estimate of the preferences' impact is a 1% reduction in the number of unemployed veterans

There were an estimated 12,000 unemployed veterans in Washington in 2019. If all 132 veterans hired by businesses using the tax credits were hired because of the tax credits, the preferences would have resulted in a 1% reduction in the number of unemployed Washington veterans.

Several potential reasons preferences are not more widely used

It is unclear why the B&O and pubic utility tax (PUT) credits for hiring unemployed veterans are not used by more Washington businesses. One or more of the following issues may have impacted use of the credits:

• No agency or organization is charged with actively publicizing or promoting the preferences.

  Statute does not charge any state or local agency with actively publicizing or promoting the preferences. JLARC staff spoke with the two agencies most involved with efforts to employ veterans: the Employment Security Department (ESD) and the Department of Veterans Affairs. Both agencies have limited information on their websites about the tax credits. ESD reports that it mentions the credits to businesses and veterans when they receive other services from the agency. Additionally, the Department of Revenue provides information on the credits on its website, similar to any other tax preference.

• Businesses report mixed views on how much the credits impact their hiring decisions.

  JLARC staff surveyed all businesses that have used the credits between 2016-2019. When asked how important the credit was to their decision to hire a veteran, the average response was 2.8 out of 5 on a scale ranging from 1 (not important at all) to 5 (the most important factor).

  Additionally, 60% of survey responders stated they would use the credits again if they hired another veteran. One-third of those responding noted they hired veterans prior to the credits being enacted.

• Washington businesses used a federal tax credit to hire 4,632 veterans in 2019.

  A federal income tax credit is also available to employers that hire veterans or other individuals who may have employment challenges.

  The Work Opportunity Tax Credit (WOTC) provides a one-time federal income tax credit to businesses that hire veterans. The WOTC amount ranges between $2,400 - $9,600, depending on whether the veteran fits within certain classification categories. The Washington Employment Security Department (ESD) receives and processes applications for the credit.

  In 2019, ESD certified 4,632 WOTC applications, each representing a veteran hired by a Washington business. The potential federal tax savings for these businesses totaled $18.9 million. Businesses are permitted to use both the federal WOTC and the state tax credits at the same time.

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The direct beneficiary savings for businesses that hired veterans and used the B&O tax credit was $91,000 in fiscal year 2019. The direct savings for businesses that used the public utility tax credit was $8,200 for fiscal year 2019.

JLARC staff estimate the beneficiary savings for the 2021-23 biennium is $137,600 for the B&O tax credit and $15,200 for the public utility tax credit.

Both preferences are scheduled to expire on July 1, 2023.

Exhibit 4.1: Estimated beneficiary savings for B&O and public utility tax credits

Biennium	Fiscal Year	Estimated Beneficiary Savings (B&O)	Estimated Beneficiary Savings (PUT)	Total Beneficiary Savings
2015-17 7/1/15-6/30/17	2016	Not in effect	Not in effect	Not in effect
	2017	Not disclosable (less than 3 taxpayers)	0	Not disclosable (less than 3 taxpayers)
2017-19 7/1/17-6/30/19	2018	$68,100	$2,700	$70,800
	2019	$91,000	$8,200	$99,200
2019-2021 7/1/19 - 6/30/21	2020	$47,300	$11,900	$59,200
	2021	$68,800	$7,600	$76,400
2021-23 7/1/21-6/30/23	2022	$68,800	$7,600	$76,400
	2023	$68,800	$7,600	$76,400
	2021-23 Biennium	$137,600	$15,200	$152,800

Source: JLARC staff analysis of Department of Revenue tax return credit detail, fiscal years 2017-2019. 2020 value based on ½ fiscal year (July - December 2019) credit detail. FY 2021-2023 estimated based on average use of credit from 2018-2020. Amounts rounded to nearest $100.

A total of 45 businesses used credits in 2017 and 2018

Based on annual reports filed with the Department of Revenue, 45 businesses that hired unemployed veterans used the B&O or public utility tax credit in 2017 and 2018. Data was not available for calendar year 2019 at the time this report was prepared. The qualifying businesses conduct a variety of activities. Two businesses used both a B&O and public utility tax credit for separate hires.

Exhibit 4.2: 45 businesses used the B&O or public utility tax credit in 2017 and 2018

Beneficiary Business	Business Activity	CY 2017	CY 2018
AAA Septic, LLC	Commercial, Industrial Machinery and Equipment	$1,500
ADD Security Incorporated	Investigation and Security Services	$841	$3,536
After the Fire, LLC	Construction	$1,258	$242
Agency Security Group, LLC	Investigation and Security Services	$3,750	$4,500
Agropack, LLC	Chemical Manufacturing	$398	$612
AK Financial & Insurance Services, LLC	Insurance Services		$968
Allstaff Technical Solutions, Inc.	Employment Services	$1,500	$2,774
Blacklotus Landscaping, LLC	Services to Buildings		$1,500
Bleau Appraisals, LLC	Real Estate		$1,500
Boulevard Homes NW, LLC	Construction		$1,500
Chae Law Firm, P.S.	Legal Services		$1,500
Chuckanut Brewery, LLC	Drinking Places	$500
DBAZA2, LLC	Auto Repair and Maintenance	ND
Fairway Independent Mortgage Corporation	Finance and Insurance	$1,514	$1,500
Form 100 Consulting, LLC	Professional, Scientific, Technical Services		$751
Gesang Incorporated	Construction	ND
Growing Veterans	Food and Beverage Stores	$71
Handyworks, Inc.	Construction	ND
Iembrace, LLC	Social Assistance	ND	$700
Jensen's Old Fashioned Smokehouse, Inc.	Food and Beverage Stores		$3,000
Jim and Delphine Enterprises, LLC	Repair and Maintenance Services		$1,424
Jorge I. Peralta, DDS, PS	Health Care		$1,500
Kaiser's Garage, Inc.	Auto Repair and Maintenance		$989
Keep the Peace Security, LLC	Investigation and Security Services		$3,918
Kittitas Valley Urgent Care, PLLC	Health Care		$1,500
M & L Machine, Inc.	Transportation Equipment Manufacturing	ND	$633
Mountain Strong Concrete, Inc.	Building, Gardening Supply Dealer		$1,500
Navazon, Inc.	Electronic, Appliance Store		$795
Northwest Caulking, Inc.	Specialty Contractor	$494
Ohop Mutual Light Company	Electric Power Utility	$1,500
Onpoint Logistics, Inc.	Truck Transportation		$3,000
Onpoint Logistics - 49N, Inc.	Messengers and Delivery		$3,914
Patrick Ginn Real Estate, LLC	Real Estate		$1,500
Patriot Plumbing, Heating, and Cooling, Inc.	Specialty Contractor		$1,088
Paws, Claws, and Hooves Veterinary Service, PLLC	Professional, Scientific, and Technical Consulting		$1,500
PYR Preservation Services	Repair and Maintenance Services		$1,500
Ravenwood Solutions, Inc.	Educational Services		$11,107
Repaul Textiles, LLC	Industrial Launderer	ND
Sierra Pacific Industries	Wood Product Manufacturing		$28,334
Silicon Forest Electronics, Inc.	Computer and Electronic Manufacturing	$1,500
Springstar, Inc.	Chemical Manufacturing		$3,000
Stately, Inc.	Real Estate	ND
The Consolidated Rehab Group	Social Assistance		$3,577
The Oxford Partners, LLC	Management, Scientific, and Technical Consulting		$1,073

Note: "ND" in 2017 indicates the value of the credit was less than $10,000 and the business elected to not disclose the value. This option was eliminated beginning in 2018.

Source: JLARC staff analysis of Department of Revenue incentive reporting public disclosure detail, calendar years 2017 and 2018.

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The top five states with the largest working-age veteran populations do not provide state tax incentives similar to Washington's.

These states are California, Florida, North Carolina, Texas, and Virginia. In addition, neither Oregon nor Idaho, Washington's neighboring states, offer a state tax incentive for businesses that hire veterans.

JLARC staff identified the following states that provide income tax credits to businesses that hire veterans. The state programs vary in eligibility criteria and award amounts.

• Alabama
• Alaska
• Delaware
• Maryland
• Massachusetts
• New York
• Utah
• West Virginia

Also, Mississippi offers a higher reimbursement rate under its motion picture incentive program for businesses that hire veterans.

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Credit - Businesses that hire veterans. (Expires July 1, 2023.)

RCW 82.04.4498

 (1) A person is allowed a credit against the tax due under this chapter as provided in this section. The credit equals twenty percent of wages and benefits paid to or on behalf of a qualified employee up to a maximum of one thousand five hundred dollars for each qualified employee hired on or after October 1, 2016.

(2) No credit may be claimed under this section until a qualified employee has been employed for at least two consecutive full calendar quarters.

(3) Credits are available on a first-in-time basis. The department must keep a running total of all credits allowed under this section and RCW 82.16.0499 during each fiscal year. The department may not allow any credits that would cause the total credits allowed under this section and RCW 82.16.0499 to exceed five hundred thousand dollars in any fiscal year. If all or part of a claim for credit is disallowed under this subsection, the disallowed portion is carried over to the next fiscal year. However, the carryover into the next fiscal year is only permitted to the extent that the cap for the next fiscal year is not exceeded. Priority must be given to credits carried over from a previous fiscal year. The department must provide written notice to any person who has claimed tax credits in excess of the limitation in this subsection. The notice must indicate the amount of tax due and provide that the tax be paid within thirty days from the date of the notice. The department may not assess penalties and interest as provided in chapter 82.32 RCW on the amount due in the initial notice if the amount due is paid by the due date specified in the notice, or any extension thereof.

(4) The credit may be used against any tax due under this chapter, and may be carried over until used, except as provided in subsection (9) of this section. No refunds may be granted for credits under this section.

 (5) If an employer discharges a qualified employee for whom the employer has claimed a credit under this section, the employer may not claim a new credit under this section for a period of one year from the date the qualified employee was discharged. However, this subsection (5) does not apply if the qualified employee was discharged for misconduct, as defined in RCW 50.04.294, connected with his or her work or discharged due to a felony or gross misdemeanor conviction, and the employer contemporaneously documents the reason for discharge.

(6) Credits earned under this section may be claimed only on returns filed electronically with the department using the department's online tax filing service or other method of electronic reporting as the department may authorize. No application is required to claim the credit, but the taxpayer must keep records necessary for the department to determine eligibility under this section including records establishing the person's status as a veteran and status as unemployed when hired by the taxpayer.

(7) No person may claim a credit against taxes due under both this chapter and chapter 82.16 RCW for the same qualified employee.

(8) The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.

     (a)(i) "Qualified employee" means an unemployed veteran who is employed in a permanent full-time position for at least two consecutive full calendar quarters. For seasonal employers, "qualified employee" also includes the equivalent of a full-time employee in work hours for two consecutive full calendar quarters.

     (ii) For purposes of this subsection (8)(a), "full time" means a normal workweek of at least thirty-five hours.

     (b) "Unemployed" means that the veteran was unemployed as defined in RCW 50.04.310 for at least thirty days immediately preceding the date that the veteran was hired by the person claiming credit under this section for hiring the veteran.

     (c) "Veteran" means every person who has received an honorable discharge or received a general discharge under honorable conditions or is currently serving honorably, and who has served as a member in any branch of the armed forces of the United States, including the national guard and armed forces reserves.

(9) Credits allowed under this section can be earned for tax reporting periods through June 30, 2022. No credits can be claimed after June 30, 2023.

(10) This section expires July 1, 2023.

[2015 3rd sp.s. c 6 § 1002.]

NOTES:

Tax preference performance statement—2015 3rd sp.s. c 6 §§ 1002 and 1003: "This section is the tax preference performance statement for the tax preference contained in RCW 82.04.4498 and 82.16.0499. This performance statement is only intended to be used for subsequent evaluation of the tax preference. It is not intended to create a private right of action by any party or be used to determine eligibility for preferential tax treatment.

(1) The legislature categorizes the tax preferences as those intended to induce certain designated behavior by taxpayers and create or retain jobs, as indicated in RCW 82.32.808(2) (a) and (c).

(2) It is the legislature's specific public policy objective to provide employment for unemployed veterans. It is the legislature's intent to provide employers a credit against the business and occupation tax or public utility tax for hiring unemployed veterans which would reduce an employer's tax burden thereby inducing employers to hire and create jobs for unemployed veterans. Pursuant to chapter 43.136 RCW, the joint legislative audit and review committee must review the business and occupation tax and public utility tax credit established under RCW 82.04.4498 and 82.16.0499 by December 31, 2022.

(3) If a review finds that the number of unemployed veterans decreased by thirty percent, then the legislature intends for the legislative auditor to recommend extending the expiration date of the tax preference.

(4) In order to obtain the data necessary to perform the review in subsection (3) of this section, the joint legislative audit and review committee should refer to the veteran unemployment rates available from the employment security department and the bureau of labor statistics." [2015 3rd sp.s. c 6 § 1001.]

Effective dates—2015 3rd sp.s. c 6: See note following RCW 82.04.4266.

Credit - Businesses that hire veterans. (Expires July 1, 2023.)

RCW 82.16.0499

(1) A person is allowed a credit against the tax due under this chapter as provided in this section. The credit equals twenty percent of wages and benefits paid to or on behalf of a qualified employee up to a maximum of one thousand five hundred dollars for each qualified employee hired on or after October 1, 2016.

(2) No credit may be claimed under this section until a qualified employee has been employed for at least two consecutive full calendar quarters.

(3) Credits are available on a first-in-time basis. The department must keep a running total of all credits allowed under this section and RCW 82.04.4498 during each fiscal year. The department may not allow any credits that would cause the total credits allowed under this section and RCW 82.04.4498 to exceed five hundred thousand dollars in any fiscal year. If all or part of a claim for credit is disallowed under this subsection, the disallowed portion is carried over to the next fiscal year. However, the carryover into the next fiscal year is only permitted to the extent that the cap for the next fiscal year is not exceeded. Priority must be given to credits carried over from a previous fiscal year. The department must provide written notice to any person who has claimed tax credits in excess of the limitation in this subsection. The notice must indicate the amount of tax due and provide that the tax be paid within thirty days from the date of the notice. The department may not assess penalties and interest as provided in chapter 82.32 RCW on the amount due in the initial notice if the amount due is paid by the due date specified in the notice, or any extension thereof.

(4) The credit may be used against any tax due under this chapter, and may be carried over until used, except as provided in subsection (9) of this section. No refunds may be granted for credits under this section.

(5) If an employer discharges a qualified employee for whom the employer has claimed a credit under this section, the employer may not claim a new credit under this section for a period of one year from the date the qualified employee was discharged. However, this subsection (5) does not apply if the qualified employee was discharged for misconduct, as defined in RCW 50.04.294, connected with his or her work or discharged due to a felony or gross misdemeanor conviction, and the employer contemporaneously documents the reason for discharge.

(6) Credits earned under this section may be claimed only on returns filed electronically with the department using the department's online tax filing service or other method of electronic reporting as the department may authorize. No application is required to claim the credit, but the taxpayer must keep records necessary for the department to determine eligibility under this section including records establishing the person's status as a veteran and status as unemployed when hired by the taxpayer.

(7) No person may claim a credit against taxes due under both chapter 82.04 RCW and this chapter for the same qualified employee.

(8) The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.

(a)(i) "Qualified employee" means an unemployed veteran who is employed in a permanent full-time position for at least two consecutive full calendar quarters. For seasonal employers, "qualified employee" also includes the equivalent of a full-time employee in work hours for two consecutive full calendar quarters.

(ii) For purposes of this subsection (8)(a), "full time" means a normal workweek of at least thirty-five hours.

(b) "Unemployed" means that the veteran was unemployed as defined in RCW 50.04.310 for at least thirty days immediately preceding the date that the veteran was hired by the person claiming credit under this section for hiring the veteran.

(c) "Veteran" means every person who has received an honorable discharge or received a general discharge under honorable conditions or is currently serving honorably, and who has served as a member in any branch of the armed forces of the United States, including the national guard and armed forces reserves.

(9) Credits allowed under this section can be earned for tax reporting periods through June 30, 2022. No credits can be claimed after June 30, 2023.

(10) This section expires July 1, 2023.

[2015 3rd sp.s. c 6 § 1003.]

NOTES:

Effective dates—2015 3rd sp.s. c 6: See note following RCW 82.04.4266.

Tax preference performance statement—2015 3rd sp.s. c 6 §§ 1002 and 1003: See note following RCW 82.04.4498.

 

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