Food Processors

JLARC staff reviewed B&O tax preferences for three food processing industries

This review covers tax preferences for the dairy, fruit & vegetable, and seafood processing industries. Each industry is currently exempt from B&O taxes. The Legislature passed the exemptions in 2005 (fruit & vegetable) and 2006 (dairy and seafood), and extended them in 2012, and again in 2015.

When the exemptions expire in 2025, the three industries will receive a preferential B&O tax rate of 0.138%. The preferential rate for dairy products expires January 1, 2036. The preferential rates for the other two industries do not expire.

The preferences apply to the following activities:

• Manufacturing products such as yogurt and cheese, frozen french fries, wine, and frozen fish fillets.
• Selling these products at wholesale to in-state buyers who transport the products out of state. Only sales by the manufacturer qualify. For seafood, qualifying wholesale sales are not limited to the manufacturer and retail sales also qualify.

In addition to these three preferences, the 2013 Legislature also enacted a targeted exemption for selling dairy products wholesale to buyers who use the products as ingredients or components to manufacture other dairy products (e.g., infant formula). This exemption expires June 30, 2023.

Exhibit 1.1: Food processors have received preferential B&O tax treatment for decades. This will continue in future years.

Note: Percentages noted in exhibit represent the applicable B&O tax rates.
Source: JLARC staff analysis of statutes and history for RCW 82.04.260(1)(b), (c), and (d) and RCWs 82.04.4266, 82.04.4268, and 82.04.4269.

Preferences provide tax relief to Washington's dairy, fruit & vegetable, and seafood processors

One of the Legislature's stated goals for the preferences is to provide tax relief. In calendar year 2020, beneficiaries in the three industries saved a combined $22.2 million in B&O taxes due to the preferences.

Exhibit 1.2: The dairy preference had the most beneficiaries in 2018

Source: JLARC staff analysis of DOR Incentive and Reporting Public Disclosure web page data for dairy products B&O tax deduction, along with DOR confidential tax return detail.

Exhibit 1.3: The fruit & vegetable preference had the most beneficiaries in 2018

Source: JLARC staff analysis of DOR Incentive and Reporting Public Disclosure web page data for fruit & vegetable businesses B&O tax deduction, along with DOR confidential tax return detail.

Exhibit 1.4: The seafood preference had the most beneficiaries in 2018

Source: JLARC staff analysis of DOR Incentive and Reporting Public Disclosure web page data for seafood product businesses B&O tax deduction, along with DOR confidential tax return detail.

Appendices provide detail on all the beneficiaries and their individual savings

JLARC staff used tax preference reporting data available on the Department of Revenue's web site to compile tables that list the businesses that claimed the tax exemptions, the total savings for each business, and the total savings for each industry. The detail is provided for calendar years 2015 through 2020, the last year of data available when this report was completed.

• Appendix A: Dairy beneficiaries
• Appendix B: Fruit & vegetable beneficiaries
• Appendix C: Seafood beneficiaries

❮ Previous    Next ❯   

Beneficiaries manufacture and sell dairy products, such as yogurt and cheese

Highlights Beneficiaries employ 94% of industry workers. Darigold is the largest preference user, claiming on average 83% of all savings from 2015 to 2020. Jobs grew by 27% from 2015 to 2020. Wages grew by 63% from 2015 to 2020. Full exemption expires July 1, 2025.

To qualify for the preference, a business must perform one of the following activities:

• Manufacture dairy products, such as milk, yogurt or cheese.
• Sell dairy products wholesale to in-state buyers who then transport the products outside the state. The sellers must be the manufacturers.
• Sell dairy products wholesale to buyers who use the products as ingredients or components to manufacture other dairy products. Examples include infant formula and powdered whey. The sellers must be the manufacturers.
  • This specific exemption expires on June 30, 2023, and the activities will then be taxed at the general 0.484% wholesaling and manufacturing B&O tax rates.
  • Legislative testimony indicates this was intended to encourage development of an infant formula production facility in Sunnyside in 2013. Industry representatives stated that the specific project fell through. However, the preference has been used by three to eight businesses each year since 2015.

Jobs for dairy beneficiaries grew from 2015 to 2019, but dropped in 2020

Dairy beneficiary employment grew 32% from Quarter 1, 2015, through Quarter 3, 2019. Then employment for dairy beneficiaries dropped, likely due to impacted operations at the start of the COVID-19 pandemic. Employment for dairy beneficiaries grew again in late 2020 as businesses adapted to operating during the pandemic.

Beneficiaries finished 2020 with a 27% increase in overall employment when compared to Quarter 1, 2015. This is higher than the statewide average employment growth and growth in the broader food manufacturing industry.

Exhibit 2.1: Job growth for dairy beneficiaries was more than double the growth in food manufacturing and three times the growth in statewide employment

Source: JLARC staff analysis of Employment Security Department Quarterly Census of Employment data for: Washington total employment, all covered employment; food manufacturing industry employment; and dairy beneficiary employment for Quarter 1, 2015, through Quarter 4, 2020.

Wages increased by 63% among dairy beneficiary employees from 2015 through 2020

Unlike employment numbers, which show a decrease since Quarter 3, 2019, dairy industry wage data shows an overall increase during the same time period. While there was a dip in both dairy beneficiary and food manufacturing wages in 2019, wages for both, as well as statewide wages, increased in 2020 past their previous highs.

Industry representatives told JLARC staff that wage increases are one of the tools they have used to hire and retain workers in the tight labor market that now exists. The average wage in 2020 for dairy beneficiaries was $61,857.

Exhibit 2.2: Since 2018, wages for dairy beneficiary employees have increased at a faster rate than statewide wages and wages in the food manufacturing industry

Source: JLARC staff analysis of Employment Security Department Quarterly Census of Employment wage data for: Washington total covered, total wages, all covered employees; food manufacturing industry wages, and dairy beneficiary wages for Quarter 1, 2015, through Quarter 4, 2020.

Darigold, Inc., is the largest preference user

Since 2015, Darigold, Inc., has claimed between 80% and 87% of all preference savings. The other dairy processors, ranging between 14 and 43 businesses, made up between 13% and 20% of preference users from 2015 through 2020. Appendix A provides a full listing of dairy beneficiaries and their savings.

Exhibit 2.3: Darigold claimed between 80% and 87% of total preference savings between 2015 and 2020

Source: JLARC staff analysis of Department of Revenue Incentive and Reporting Public Disclosure web page detail for dairy product deduction, 2015-2020.

Beneficiaries estimated to save $12.6 million in the 2021-23 biennium

JLARC staff used actual beneficiary data (2015-2020) to estimate the future savings for dairy beneficiaries.

The estimate is also based on the following considerations:

• The special B&O tax exemption for dairy products sold as an ingredient to produce other dairy products will expire on June 30, 2023. Since 2015, this exemption has averaged $62,000 in savings annually.
• JLARC staff estimated a compound average growth rateA method for expressing multi-year growth as a constant rate of return over the time period. of 6.44% based on use of the preference from 2015 through 2019. This rate was included in the estimate of future use of the B&O exemption through its scheduled expiration on June 30, 2025.

Exhibit 2.4: Beneficiaries estimated to save $10.5 million in the 18 months before the B&O exemption expires

Biennium	Calendar Year	Estimated Beneficiary Savings
2019-21 (July 1, 2019 - June 30, 2021)	2020	$5,437,000
	2021	$5,755,000
2021-23 (July 1, 2021 -- June 30, 2023)	2022	$6,121,000
	2023	$6,511,000
2023-25 (July 1, 2023 -- June 30, 2025)	2024	$6,865,000
	2025 (thru 6/30/2025)	$3,653,000
Full exemption expires June 30, 2025. Beneficiaries will pay a preferential B&O tax rate of 0.138% effective July 1, 2025.
Estimated 2023-25 Biennial Savings		$ 10,518,000

Source: JLARC staff analysis of Department of Revenue Incentive and Reporting Public Disclosure web page for dairy product B&O tax deduction and confidential tax return detail. Future growth calculated using 6.44% compound average growth rate determined by JLARC staff based on preference use from 2015 - 2019.

Beginning July 1, 2025, dairy beneficiaries will pay a preferential B&O tax rate of 0.138% on their qualifying manufacturing and wholesaling activities. The general B&O tax rate for these activities is 0.484%. The preferential rate is scheduled to expire January 1, 2036, for dairy products.

Exhibit 2.5: Beneficiaries estimated to save $12.2 million in the 2027-29 biennium using the preferential 0.138% B&O rate

Biennium	Calendar Year	Estimated Beneficiary Savings
2025-27 (July 1, 2025 -- June 30, 2026)	2025 (beginning 7/01/2025)	$2,612,000
	2026	$5,559,000
2027-29 (July 1, 2026-- June 30, 2028)	2027	$5,917,000
	2028	$6,298,000
Estimated 2027-29 Biennial Savings		$12,215,000

Source: JLARC staff estimate based on actual B&O tax exemption use per Department of Revenue Incentive and Reporting Public Disclosure web page and confidential tax return detail. Future growth calculated using 6.44% compound average growth rate determined by JLARC staff based on actual preference use from 2015-2019.

Savings from the preference represented 0.88% of beneficiaries' total taxable amount from 2016 to 2020

The Legislature directed JLARC staff to answer the following two questions about taxable income when it extended the B&O tax exemption in 2015:

1. What is the change in total taxable income for businesses claiming the exemption?

The total taxable amountTotal B&O tax gross receipts minus B&O tax deductions. reported on Department of Revenue tax returns for dairy beneficiaries increased from $516 million in 2016 to $599 million in 2019, a 16% increase. The total taxable amount dropped by $10.1 million from 2019 to 2020.

2. What percentage of total taxable income does the exemption represent for businesses claiming it?

The preference represented between 0.80% and 0.94% of the total taxable amount for dairy beneficiaries between 2016 and 2020. The average over these five years was 0.88%.

❮ Previous    Next ❯   

Beneficiaries manufacture and sell fruit & vegetable products, such as frozen french fries and wine

Highlights Beneficiaries employ 74% of fruit & vegetable industry workers. Wineries comprise 71% of the beneficiaries, but claim 19% of the tax savings. Jobs grew by 44% from 2015 to 2020. Wages grew by 69% from 2015 to 2020. Full exemption expires July 1, 2025.

To qualify for the preference, a business must perform one of the following activities:

• Manufacture fruit or vegetable products, such as canned pears, apple juice, frozen french fries, or wine.
• Sell fruit or vegetable products wholesale to in-state buyers who then transport the products outside the state. The sellers must be the manufacturers.

Wineries comprise 71% of the fruit & vegetable beneficiaries, but claim 19% of the tax savings

Between 2015 and 2020, wineries made up between 69% and 74% of all fruit & vegetable beneficiaries. However, wineries claim between 17% and 21% of the preference savings. Many of Washington's wineries are small businesses so their total exempt income is lower than larger fruit & vegetable manufacturers. For example, in 2020, the average winery claim was $15,800 and the average fruit & vegetable processor claim was $178,900.

Appendix B lists the fruit & vegetable beneficiaries, their savings, and identifies which businesses are wineries.

Exhibit 3.1: Wineries make up the majority of the beneficiaries but claim less of the savings

Source: JLARC staff analysis of Department of Revenue Incentive and Reporting Public Disclosure web page detail for fruit & vegetable deduction, 2015-2020.

Jobs for all fruit & vegetable beneficiaries grew 44% from 2015 to 2019, but dropped in 2020

Fruit & vegetable beneficiary employment, including wineries, grew 44% from Quarter 1, 2015, to Quarter 3, 2019.

Employment dropped in early 2020, likely due to impacted operations at the start of the COVID-19 pandemic. However, beneficiaries adapted to operating during the pandemic and experienced more job growth than the statewide average employment growth and growth in the broader food manufacturing industry through the end of 2020. Beneficiaries finished 2020 with a 23% increase in employment compared to the start of 2015.

Exhibit 3.2: Job growth for beneficiaries was more than double the growth in the food manufacturing industry and more than triple the growth in statewide employment from 2015-2020

Source: JLARC staff analysis of Employment Security Department Quarterly Census of Employment data for: Washington total employment, all covered employment; food manufacturing industry employment (NAICSNorth American Industry Classification System. 311); and fruit & vegetable, including wineries, beneficiary employment for Quarter 1, 2015, through Quarter 4, 2020.

When wineries are separated from other fruit & vegetable beneficiaries, their growth is more than double the growth of all other fruit & vegetable beneficiaries between 2015 and 2020. Job growth for both groups peaked in 2019 and fell in 2020.

Exhibit 3.3: Job growth at wineries and other fruit & vegetable beneficiaries peaked in 2019 at 71% and 38%, respectively

Source: JLARC staff analysis of Employment Security Department Quarterly Census of Employment data for: fruit & vegetable manufacturing (NAICS 3114) and winery (NAICS 312130) beneficiary employment for Quarter 1, 2015, through Quarter 4, 2020.

Wages grew by 69% for fruit & vegetable beneficiaries between 2015-2020

Wages paid by fruit & vegetable beneficiaries, including wineries, grew 69% from Quarter 1, 2015, through the end of 2020.

Beneficiary wages dropped during Quarter 2, 2020, in response to the impacts of the COVID-19 pandemic, but rose again at a faster rate than the rest of the food manufacturing industry. Fruit & vegetable industry representatives and beneficiaries report that wage increases are one of the main incentives they have used to hire and retain workers in the tight labor market that developed since 2019. The average wage in 2020 for fruit & vegetable beneficiaries was $49,853.

Exhibit 3.4: Beneficiary wages grew 69% between 2015-2020, surpassing growth in the broader food manufacturing industry and statewide averages

Source: JLARC staff analysis of Employment Security Department Quarterly Census of Employment wage data for: Washington total covered, total wages, all covered employees; food manufacturing industry wages; and combined fruit & vegetable processors and winery beneficiary wages for Quarter 1, 2015, through Quarter 4, 2020.

Wages for winery beneficiaries increased by 84% while wages for other fruit & vegetable beneficiaries rose by 66%. The average wage in 2020 for winery beneficiaries was $45,605, while the average wage for other fruit & vegetable beneficiaries was $51,019.

Exhibit 3.5: Wages for winery beneficiaries grew at a faster rate than other fruit & vegetable beneficiaries

Source: JLARC staff analysis of Employment Security Department Quarterly Census of Employment wage data for: fruit & vegetable manufacturer beneficiary wages and winery beneficiary wages for Quarter 1, 2015, through Quarter 4, 2020.

Beneficiaries estimated to save $29 million in the 2021-23 biennium

JLARC staff estimated the future savings for fruit & vegetable beneficiaries using actual beneficiary data from calendar years 2015 through 2020.

JLARC staff estimated a compound average growth rateA method for expressing multi-year growth as a constant rate of return over the time period. of 2.04% based on use of the preference from 2015 through 2019. This rate was included in the estimate of future use of the B&O exemption through its scheduled expiration on June 30, 2025.

Exhibit 3.6: Beneficiaries estimated to save $22.7 million in the 18 months before the B&O exemption expires

Biennium	Calendar Year	Estimated Beneficiary Savings
2019-21 (7/01/2019 - 6/30/2021)	2020	$13,856,000
	2021	$14,138,000
2021-23 (7/01/2021 - 6/30/2023)	2022	$14,427,000
	2023	$14,721,000
2023-25 (7/01/2023 - 6/30/2025)	2024	$15,021,000
	2025 (thru 6/30/2025)	$7,664,000
Full exemption expires June 30, 2025. Beneficiaries will pay a preferential B&O tax rate of 0.138% effective July 1, 2025.
2023-2025 Biennial Savings		$22,685,000

Source: JLARC staff analysis of Department of Revenue Incentive and Reporting Public Disclosure web page for fruit & vegetable B&O tax exemption and confidential tax return detail. Future growth calculated using 2.04% compound average growth rate calculated by JLARC staff based on preference use from 2015-2019.

Beginning July 1, 2025, fruit & vegetable beneficiaries, including wineries, will pay a preferential B&O tax rate of 0.138% on their qualifying manufacturing and wholesaling activities. The general B&O tax rate for these activities is currently 0.484%. Under current law, the preferential rate does not expire.

Exhibit 3.7: Beneficiaries estimated to save $23 million in the 2027-29 biennium using the preferential B&O tax rate of 0.138%

Biennium	Calendar Year	Estimated Beneficiary Savings
2025-27 (July 1, 2025 -- June 30, 2026)	2025 (beginning 7/01/2025)	$5,479,000
	2026	$11,181,000
2027-29 (July 1, 2026-- June 30, 2028)	2027	$11,409,000
	2028	$11,642,000
Estimated 2027-29 Biennial Savings		$23,051,000

Source: JLARC staff estimate based on actual B&O tax exemption use per Department of Revenue Incentive and Reporting Public Disclosure web page and confidential tax return detail. Future growth calculated using 2.04% compound average growth rate determined by JLARC staff based on actual preference use from 2015-2019.

Savings from the preference represented 1.06% of beneficiaries' total taxable amount

The Legislature directed JLARC staff to answer the following two questions about taxable income when it extended the B&O tax exemption in 2015:

1. What is the change in total taxable income for businesses claiming the exemption?

The total taxable amountTotal B&O tax gross receipts minus B&O tax deductions. reported on Department of Revenue tax returns for all beneficiaries, including wineries, increased from $1.53 billion in 2016 to $1.79 billion in 2019, a 17% increase. The total taxable amount dropped from 2019 to 2020 by 19.3%.

2. What percentage of total taxable income does the exemption represent for businesses claiming it?

The preference represented between 0.95% and 1.12% of the total taxable amount for all beneficiaries, including wineries, between 2016 and 2020. The average over these five years was 1.06%.

❮ Previous    Next ❯   

Beneficiaries manufacture and sell seafood products, such as frozen fish fillets and fish sticks

Highlights Seafood beneficiaries employ 51% or less of their industry's workers, a smaller share than dairy and fruit & vegetable beneficiaries. Jobs fell 10% from 2015 to 2020. Wages fell 4% from 2015 to 2020. Full exemption expires July 1, 2025.

To qualify for the preference, a business must perform one of the following activities:

• Manufacture certain seafood products, such as fish fillets or fish sticks.
• Sell seafood products wholesale or retail to in-state buyers who then transport the products outside the state. The seller does not need to be the manufacturer.

Beneficiaries employ between 35% and 51% of all seafood processing workers in Washington

Since 2015, seafood beneficiaries have employed between 35% and 51% of all workers in Washington's seafood products manufacturing industry (NAICSNorth American Industry Classification System. 3117). This is a lower share of the industry than dairy and fruit & vegetable beneficiaries employ (94% and 74%, respectively).

Based on discussions with regional economists and industry representatives and a review of state economic reports, there are several possible reasons for why beneficiaries employ a smaller portion of their industry's workers:

• Not all of Washington's seafood processing businesses are conducting qualifying activities in the state, and therefore cannot claim the preference. Seafood processing businesses may be headquartered in Washington, but conduct their processing activities out of state. For example, much of the fishing takes place in Alaska and businesses may process their seafood products on fishing vessels or in Alaska-based facilities.
• Seafood industry representatives indicated that they sometimes hire self-employed operators to fish and process their catch. The employment figures in this report are derived from unemployment insurance records. While the employees of the seafood firm are included in those records, these self-employed owners and operators are not.

Jobs for seafood beneficiaries dropped 10% between 2015-2020, which is less than the 27% loss in seafood processing jobs overall

JLARC staff found that the total number of Washington seafood processing jobs decreased between 2015 and 2020. These job losses impacted beneficiaries as well as businesses that did not claim the preference.

For seafood beneficiaries, employment peaked in Quarter 1, 2019, when overall employment increased by 9% over Quarter 1, 2015. By the end of 2020, beneficiary employment dropped 10% compared to January 2015.

The broader seafood processing industry experienced a larger decrease in jobs. Industry representatives stated that they find it increasingly difficult to hire and retain employees in Washington's processing facilities.

In contrast to job losses in the seafood industry, employment grew by 10% in the food manufacturing industry and by 7% statewide.

Exhibit 4.1: Seafood beneficiary jobs declined at a slower rate than the rest of the seafood processing industry. At the same time, jobs grew statewide and in the food manufacturing industry.

Source: JLARC staff analysis of Employment Security Department Quarterly Census of Employment data for: Washington total employment, all covered employment; food manufacturing industry employment, seafood product manufacturing industry employment, and seafood beneficiary employment for Quarter 1, 2015, through Quarter 4, 2020.

Wages decreased by 4% among beneficiaries from 2015 to 2020, while average wages increased statewide and in the food manufacturing industry

Seafood beneficiary wages decreased 4% from Quarter 1, 2015, through Quarter 4, 2020. It is unclear why beneficiary wages fell while wages for other businesses grew. The average wage for seafood beneficiaries in 2020 was $50,909.

Exhibit 4.2: Seafood beneficiary wages fell while wages increased 50% or more statewide and in the food manufacturing industry

Source: JLARC staff analysis of Employment Security Department Quarterly Census of Employment wage data for: Washington total covered, total wages, all covered employees; food manufacturing industry wages; and seafood beneficiary wages for Quarter 1, 2015 through Quarter 4, 2020.

Beneficiaries estimated to save $6.2 million in the 2021-23 biennium

JLARC staff estimated the future savings for seafood beneficiaries using actual beneficiary data for calendar years 2015 through 2020.

JLARC staff estimated a compound average growth rateA method for expressing multi-year growth as a constant rate of return over the time period. of 2.84% based on use of the preference from 2015 through 2019. This rate was included in the estimate of future use of the B&O exemption through its scheduled expiration on June 30, 2025.

Exhibit 4.3: Beneficiaries estimated to save $4.9 million in the 18 months before the full B&O exemption expires

Biennium	Calendar Year	Estimated Beneficiary Savings
2019-2021 (July 1, 2019 - June 30, 2021)	2020	$2,879,000
	2021	$2,961,000
2021-2023 (July 1, 2021 - June 30, 2023)	2022	$3,045,000
	2023	$3,132,000
2023-2025 (July 1, 2023 - June 30, 2025)	2024	$3,221,000
	2025 (thru 6/30/2025)	$1,656,000
Full exemption expires June 30, 2025. Beneficiaries will pay a preferential B&O tax rate of 0.138% effective July 1, 2025.
Estimated 2023-2025 Biennial Savings		$ 4,877,000

Source: JLARC staff analysis of Department of Revenue Incentive and Reporting Public Disclosure web page for seafood product B&O tax exemption and confidential tax return detail. Future growth calculated using 2.84% compound average growth rate determined by JLARC staff based on preference use from 2015-2019.

Beginning July 1, 2025, seafood beneficiaries will pay a preferential 0.138% B&O tax rate for their qualifying manufacturing activities and for certain sales. The general B&O rate for manufacturing and wholesaling activities is 0.484% and the retailing rate is 0.471% . Under current law, the preferential rate does not expire.

Exhibit 4.4: Seafood beneficiaries estimated to save $5.1 million in the 2027-29 biennium using the preferential 0.138% rate

Biennium	Calendar Year	Estimated Beneficiary Savings
2025-27 (July 1, 2025 - June 30, 2027)	2025 (beginning 7/01/25)	$1,184,000
	2026	$2,435,000
2027-29 (July 1, 2027 - June 30, 2029)	2027	$2,505,000
	2028	$2,576,000
Estimated 2027-2029 biennial savings		$5,081,000

Source: JLARC staff estimate based on actual B&O exemption use per Department of Revenue Incentive and Reporting Public Disclosure web page and confidential tax return detail. Future growth calculated using 2.84% compound average growth rate determined by JLARC staff based on actual preference use from 2015-2019.

Savings from the preference represented 0.68% of beneficiaries' total taxable amount

The Legislature directed JLARC staff to answer the following two questions about taxable income when it extended the B&O tax exemption in 2015:

1. What is the change in total taxable income for businesses claiming the exemption?

The total taxable amountTotal B&O tax gross receipts minus B&O tax deductions. reported on Department of Revenue tax returns for seafood beneficiaries decreased from $482 million in 2016 to $454 million in 2019, a 5.8% decrease. The total taxable amount increased from 2019 to 2020 by 5%.

2. What percentage of total taxable income does the exemption represent for businesses claiming it?

The preference represents between 0.60% and 0.84% of the total taxable amount for seafood beneficiaries between 2016 and 2020. The average over five years was 0.68%.

❮ Previous    Next ❯   

JLARC staff hired a tax accounting consultant (Ernst & Young) to conduct a comparative tax rate analysis for each of the three food processing industries in Washington and in the neighboring competitor states of Oregon, Idaho, and California. Industry representatives often cite these states as alternative locations for Washington-based food processors to relocate. Alaska was also included in the seafood processing industry analysis due to its significant national share of that industry.

Analysis looked at tax burdens on dairy, fruit & vegetable, and seafood processors before and after state-based incentives were applied

The analysis compares estimates of the tax burdens for small and large hypothetical food processing firms investing in new facilities in Washington and neighboring competitor states. The analysis compares the impact of Washington's statutory incentives with those provided by the other states.

The analysis calculated an effective tax rate for small and large hypothetical firms that locate in each state prior to state-based incentives and after the incentives were applied. An effective tax rate (ETR) is the percentage reduction in the hypothetical firm's rate of return due to taxes over a 30-year period. The ETR includes all state and local taxes a business might pay, including sales and use, property, and B&O or income tax, as applicable.

• Pre-incentive ETRs were calculated based on each state's particular tax structure.
• Post-incentive ETRs were calculated after various state incentives were applied, reducing the tax rate by some percentage.

For Washington, the pre-incentive rate for each industry was based on a scenario where the current preference was not in effect. This meant that businesses paid the general manufacturing B&O tax rate of 0.484%.

Conclusion: Preferences provide tax relief, but Washington continues to have a higher effective tax rate than neighboring states

The consultants' analysis found that Washington's total state and local ETRs are the highest among the neighboring competitor states for both small and large firms in all three industries. This is true before the incentives are applied and after.

In each scenario, Ernst & Young noted a factor that significantly influenced the results: Washington's relatively higher combined state and local sales tax, which unlike some states applies to services for facility construction and ongoing facility maintenance.

Dairy processors (NAICSNorth American Industry Classification System. 3115)

• In the small firm analysis, the preferences reduce the ETR from 36.7% to 31.8%. The next closest post-incentive ETR is Idaho's at 18.5%.
• In the large firm analysis, the preferences reduce the ETR from 27.2% to 22.8%. The next closest post-incentive ETR is California's at 11.4%.

The analysis found that Idaho's low post-incentive ETR for large firms is due to several incentives, including refundable income tax credits, property tax abatements, and sales and use tax exemptions and refunds.

Exhibit 5.1: Washington's post-incentive ETR for dairy processors is 31.8% for small firms and 22.8% for large firms

Source: JLARC staff analysis of Ernst & Young April 2022 report, page 6.

Seafood processors (NAICSNorth American Industry Classification System. 3117)

• In the small firm analysis, the preferences reduce the ETR from 27.8% to 21.2%. The next closest post-incentive ETR is Alaska's at 15.9%.
• In the large firm analysis, the preferences reduce the ETR from 53.0% to 39.9%. The report notes that despite favorable sales and property taxes, Alaska has the next highest post-incentive ETR at 30.8%. The report further notes across all five states, the large seafood firm ETRs are double that of the small firm ETRs, due to the relatively low profit margin for large seafood firms. The share of state and local taxes has a higher relative impact due to the low net income of these businesses.

Exhibit 5.3: Washington's post-incentive ETR for seafood processors is 21.2% for small firms and 39.9% for large firms

Source: JLARC staff analysis of Ernst & Young April 2022 report, page 7.

Other factors besides taxes influence location decisions

Interviews with beneficiary businesses in all three industries indicated that taxes - and the availability of tax incentives - are just one of many factors that influence location decisions. Other factors noted by beneficiaries include:

• Proximity to inputs, such as raw products and markets.
• Labor availability and costs.
• Transportation infrastructure.
• Energy availability and costs.

❮ Previous    Next ❯   

JLARC staff used an economic modeling tool that predicts future impacts of a change, such as removal of a tax preference. The estimated results highlight the potential opportunity costs of the B&O tax preferences. See Appendix D and Appendix E for more details on the model and analysis.

Dairy processors: Estimated gain of 15 jobs in dairy and other industries would be offset by expected loss of 49 jobs in state and local government

This scenario models the impacts of the current dairy processing B&O tax exemption and the future 0.138% preferential B&O tax rate and an equivalent government spending change. The results include direct, indirect, and induced employment changes. The model estimates the impact over an 11-year period, from 2020 through 2031.

Overall, the model estimates that Washington would lose 34 jobs. A decrease in government spending due to reduced tax revenues is estimated to result in a loss of 49 state and local government jobs, offsetting the gains in employment for dairy manufacturing and other industries.

Exhibit 6.1: Preferences likely resulted in net loss of 34 jobs

Industry	Jobs added or lost
Dairy product manufacturing (NAICSNorth American Industry Classification System. 3115)	+8
Other manufacturing	+4
Other private, nonfarm	+3
State and local government	-49
Total all industries	-34

Source: JLARC staff analysis of estimated future employment impacts using Regional Economic Modeling Inc. (REMI) economic modeling tool.

Fruit & vegetable processors: Estimated gain of 62 jobs in fruit & vegetable and other industries would be offset by expected loss of 141 jobs in government and other private sector industries

This scenario models the impacts of the current fruit & vegetable processing (NAICS 3114) B&O tax exemption and the future 0.138% preferential B&O tax rate and an equivalent government spending change. The results include direct, indirect, and induced employment changes. The model estimates the impact over an 11-year period, from 2020 through 2031.

JLARC staff did not model the impact of a change in taxation to wineries as an industry (NAICS 312130). This is because the level of detail necessary to conduct the analysis is not included in the economic modeling tool. The model includes four-digit NAICS codes, but does not provide detail for six-digit industry classifications.

Overall, the model estimates Washington would lose 79 jobs. A decrease in government spending due to decreased tax revenues is estimated to result in a loss of 111 state and local government jobs, and 30 additional private sector jobs. These losses offset the estimated gains in manufacturing.

Exhibit 6.2: Preferences likely resulted in net loss of 79 jobs

Industry	Jobs added or lost
Fruit & vegetable manufacturing (NAICS 3114)	+57
Other manufacturing	+5
Other private, nonfarm	-30
State and local government	-111
Total all industries	-79

Source: JLARC staff analysis of estimated future employment impacts using Regional Economic Modeling Inc. (REMI) economic modeling tool.

Seafood processors: Estimated gain of 15 jobs in seafood manufacturing and other private industry would be offset by expected loss of 23 government sector jobs

This scenario models the current seafood products processing (NAICS 3117) B&O tax exemption and the future preferential 0.138% B&O tax rate and an equivalent government spending change. The results include direct, indirect, and induced employment changes. The model estimates the impact over an 11-year period, from 2020 through 2031.

Overall, the model estimates Washington would lose eight jobs. A decrease in government spending due to decreased tax revenues is estimated to result in a loss of 23 state and local government jobs, offsetting the gains in other industries.

Exhibit 6.3: Preferences likely resulted in a net loss of 8 jobs

Industry	Jobs added or lost
Seafood product preparation and packaging (NAICS 3117)	+13
Other manufacturing	0
Other private, nonfarm	+2
State and local government	-23
Total all industries	-8

Source: JLARC staff analysis of estimated future employment impacts using Regional Economic Modeling Inc. (REMI) economic modeling tool. The other private, nonfarm job gain is rounded down from 2.5 for estimating purposes.

❮ Previous    Next ❯   

Tax on manufacturers and processors of various foods and by - products—Research and development organizations—Travel agents—Certain international activities— Stevedoring and associated activities—Low-level waste disposers—Insurance producers, surplus line brokers, and title insurance agents—Hospitals—Commercial airplane activities—Timber product activities—Canned salmon processors.

RCW 82.04.260(a), (b), and (c)

*** CHANGE IN 2022 *** (SEE 1210-S2.SL) ***

(1) Upon every person engaging within this state in the business of manufacturing:

(a) Wheat into flour, barley into pearl barley, soybeans into soybean oil, canola into canola oil, canola meal, or canola by-products, or sunflower seeds into sunflower oil; as to such persons the amount of tax with respect to such business is equal to the value of the flour, pearl barley, oil, canola meal, or canola by-product manufactured, multiplied by the rate of 0.138 percent;

(b) Beginning July 1, 2025, seafood products that remain in a raw, raw frozen, or raw salted state at the completion of the manufacturing by that person; or selling manufactured seafood products that remain in a raw, raw frozen, or raw salted state at the completion of the manufacturing, to purchasers who transport in the ordinary course of business the goods out of this state; as to such persons the amount of tax with respect to such business is equal to the value of the products manufactured or the gross proceeds derived from such sales, multiplied by the rate of 0.138 percent. Sellers must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state;

(c)(i) Except as provided otherwise in (c)(iii) of this subsection, from July 1, 2025, until January 1, 2036, dairy products; or selling dairy products that the person has manufactured to purchasers who either transport in the ordinary course of business the goods out of state or purchasers who use such dairy products as an ingredient or component in the manufacturing of a dairy product; as to such persons the tax imposed is equal to the value of the products manufactured or the gross proceeds derived from such sales multiplied by the rate of 0.138 percent. Sellers must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state or sold to a manufacturer for use as an ingredient or component in the manufacturing of a dairy product.

(ii) For the purposes of this subsection (1)(c), "dairy products" means:

(A) Products, not including any marijuana-infused product, that as of September 20, 2001, are identified in 21 C.F.R., chapter 1, parts 131, 133, and 135, including by-products from the manufacturing of the dairy products, such as whey and casein; and

(B) Products comprised of not less than seventy percent dairy products that qualify under (c)(ii)(A) of this subsection, measured by weight or volume.

(iii) The preferential tax rate provided to taxpayers under this subsection (1)(c) does not apply to sales of dairy products on or after July 1, 2023, where a dairy product is used by the purchaser as an ingredient or component in the manufacturing in Washington of a dairy product;

(d)(i) Beginning July 1, 2025, fruits or vegetables by canning, preserving, freezing, processing, or dehydrating fresh fruits or vegetables, or selling at wholesale fruits or vegetables manufactured by the seller by canning, preserving, freezing, processing, or dehydrating fresh fruits or vegetables and sold to purchasers who transport in the ordinary course of business the goods out of this state; as to such persons the amount of tax with respect to such business is equal to the value of the products manufactured or the gross proceeds derived from such sales multiplied by the rate of 0.138 percent. Sellers must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state.

(ii) For purposes of this subsection (1)(d), "fruits" and "vegetables" do not include marijuana, useable marijuana, or marijuana-infused products;

(JLARC note: The remainder of the statute is not shown, as it does not apply to the preferences currently under review.)

[ 2021 c 145 § 7; 2020 c 165 § 3. Prior: 2019 c 425 § 1; 2019 c 336 § 4; 2018 c 164 § 3; 2017 c 135 § 11; prior: 2015 3rd sp.s. c 6 § 602; 2015 3rd sp.s. c 6 § 205; prior: 2014 c 140 § 6; (2014 c 140 § 5 expired July 1, 2015); 2014 c 140 § 4; (2014 c 140 § 3 expired July 1, 2015); 2013 3rd sp.s. c 2 § 6; (2013 3rd sp.s. c 2 § 5 expired July 1, 2015); 2013 2nd sp.s. c 13 § 203; (2013 2nd sp.s. c 13 § 202 expired July 1, 2015); prior: (2012 2nd sp.s. c 6 § 602 expired July 1, 2015); 2012 2nd sp.s. c 6 § 204; 2011 c 2 § 203 (Initiative Measure No. 1107, approved November 2, 2010); 2010 1st sp.s. c 23 § 506; (2010 1st sp.s. c 23 § 505 expired June 10, 2010); 2010 c 114 § 107; prior: 2009 c 479 § 64; 2009 c 461 § 1; 2009 c 162 § 34; prior: 2008 c 296 § 1; 2008 c 217 § 100; 2008 c 81 § 4; prior: 2007 c 54 § 6; 2007 c 48 § 2; prior: 2006 c 354 § 4; 2006 c 300 § 1; prior: 2005 c 513 § 2; 2005 c 443 § 4; prior: 2003 2nd sp.s. c 1 § 4; 2003 2nd sp.s. c 1 § 3; 2003 c 339 § 11; 2003 c 261 § 11; 2001 2nd sp.s. c 25 § 2; prior: 1998 c 312 § 5; 1998 c 311 § 2; prior: 1998 c 170 § 4; 1996 c 148 § 2; 1996 c 115 § 1; prior: 1995 2nd sp.s. c 12 § 1; 1995 2nd sp.s. c 6 § 1; 1993 sp.s. c 25 § 104; 1993 c 492 § 304; 1991 c 272 § 15; 1990 c 21 § 2; 1987 c 139 § 1; prior: 1985 c 471 § 1; 1985 c 135 § 2; 1983 2nd ex.s. c 3 § 5; prior: 1983 1st ex.s. c 66 § 4; 1983 1st ex.s. c 55 § 4; 1982 2nd ex.s. c 13 § 1; 1982 c 10 § 16; prior: 1981 c 178 § 1; 1981 c 172 § 3; 1979 ex.s. c 196 § 2; 1975 1st ex.s. c 291 § 7; 1971 ex.s. c 281 § 5; 1971 ex.s. c 186 § 3; 1969 ex.s. c 262 § 36; 1967 ex.s. c 149 § 10; 1965 ex.s. c 173 § 6; 1961 c 15 § 82.04.260; prior: 1959 c 211 § 2; 1955 c 389 § 46; prior: 1953 c 91 § 4; 1951 2nd ex.s. c 28 § 4; 1950 ex.s. c 5 § 1, part; 1949 c 228 § 1, part; 1943 c 156 § 1, part; 1941 c 178 § 1, part; 1939 c 225 § 1, part; 1937 c 227 § 1, part; 1935 c 180 § 4, part; Rem. Supp. 1949 § 8370-4, part.]

NOTES:

Findings—Intent—Effective date—2020 c 165: See notes following RCW 82.04.2602.

Effective date—2019 c 425: "This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2019." [ 2019 c 425 § 2.]

Findings—Intent—2019 c 336: See notes following RCW 82.04.261.

Tax preference performance statement—Effective date—2018 c 164: See notes following RCW 82.08.900.

Effective date—2017 c 135: See note following RCW 82.32.534.

Expiration date—2015 3rd sp.s. c 6; 2012 2nd sp.s. c 6 § 602: "Section 602 of this act expires July 1, 2015." [ 2015 3rd sp.s. c 6 § 603; 2012 2nd sp.s. c 6 § 704.]

Findings—Intent—Tax preference performance statement—2015 3rd sp.s. c 6 § 602: "(1) The legislature finds that over the last fifteen years, technological transformation and other developments have radically changed the newspaper industry business model, which remains in transition. The legislature further finds that the economic hardship wrought by this digital transformation has been substantial. The legislature finds that a strong and vibrant newspaper industry in Washington is beneficial to the state's citizens and to the conduct of good government at every level. The legislature further finds that advertising revenue of all United States newspapers fell from 63.5 billion dollars in 2000 to about twenty-three billion dollars in 2013, and is still falling. The legislature further finds that traditional news organizations' ability to support high quality news gathering and reporting relied primarily on a model in which advertisers paid to reach mass audiences attracted by newspapers. The legislature further finds that advertisers found it advantageous to pay to reach a mass audience because other advertising mediums were limited and less effective. The digital era has greatly fractured traditional spending by advertisers and turned this model on its head such that newspapers continue to require time to adapt so they may continue their public service mission. The legislature also finds that the business and occupation tax rate for the newspaper industry was pegged to the general manufacturing and wholesaling rate from 1937 until 2009, when the legislature extended tax relief to the industry due to this shift. It is the legislature's intent to extend this tax relief to the industry until its revenues and business model have stabilized. It is the legislature's further intent to provide a uniform tax rate for the industry to minimize the burden of reporting state business and occupation taxes for different types of revenue, which oftentimes are impossible to account for separately by the taxpayer.

(2)(a) This subsection is the tax preference performance statement for the newspaper tax preferences in section 602 of this act. The 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.

(b) The legislature categorizes this tax preference as one intended to provide temporary tax relief as described in RCW 82.32.808(2)(e).

(c) It is the legislature's specific public policy objective to provide business and occupation tax relief to the newspaper industry as it continues to adjust to significant revenue shifts and technological changes. As a secondary public policy objective, it is the legislature's intent to provide a permanent uniform rate for the industry.

(d) To measure the effectiveness of the preference provided in this act in achieving the specific public policy objective described in (c) of this subsection, the joint legislative audit and review committee must evaluate year-to-year changes in gross revenue derived from all sources for newspaper firms claiming the preferential tax rate under RCW 82.04.260(14). If the average year-to-year change in gross revenue is positive, including the last three years included in the tax preference review by the joint legislative audit and review committee, it is the legislature's intent to allow the tax preference to expire and to reinstate the traditional rate of 0.484 percent.

(e)(i) The information provided in the annual tax preference accountability report submitted by taxpayers as required by the department of revenue and taxpayer data provided by the department of revenue is intended to provide the informational basis for the evaluation under (d) of this subsection.(ii) In addition to the data source described under (e)(i) of this subsection, the joint legislative audit and review committee may use any other data it deems necessary in performing the evaluation under (d) of this subsection." [ 2015 3rd sp.s. c 6 § 601.]

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 §§ 202-205: See note following RCW 82.04.4266.

Contingent effective date—2014 c 140 § 6: "Section 6 of this act takes effect July 1, 2015, subject to the contingency stated in section 2, chapter 2, Laws of 2013 3rd sp. sess." [ 2014 c 140 § 39.]

Contingent expiration date—2014 c 140 § 5: "Section 5 of this act expires July 1, 2015, subject to the contingency stated in section 2, chapter 2, Laws of 2013 3rd sp. sess." [ 2014 c 140 § 38.]

Effective date—2014 c 140 § 4: "Section 4 of this act takes effect July 1, 2015." [ 2014 c 140 § 37.]

Expiration date—2014 c 140 § 3: "Section 3 of this act expires July 1, 2015." [ 2014 c 140 § 36.]

Effective date—2013 3rd sp.s. c 2 § 6: "Subject to section 2 of this act, section 6 of this act takes effect July 1, 2015." [ 2013 3rd sp.s. c 2 § 16.]

Expiration date—2013 3rd sp.s. c 2 § 5: "Subject to section 2 of this act, section 5 of this act expires July 1, 2015." [ 2013 3rd sp.s. c 2 § 15.]

Contingent effective date—2013 3rd sp.s. c 2: See RCW 82.32.850.Findings—Intent—2013 3rd sp.s. c 2: See note following RCW 82.32.850.

Effective date—2013 2nd sp.s. c 13 § 203: "Section 203 of this act takes effect July 1, 2015." [ 2013 2nd sp.s. c 13 § 1902.]

Expiration date—2013 2nd sp.s. c 13 § 202: "Section 202 of this act expires July 1, 2015." [ 2013 2nd sp.s. c 13 § 1901.]

Intent—2013 2nd sp.s. c 13: "The intent of part II of this act is to incentivize the creation of additional jobs in Washington in the dairy industry and related industries that manufacture dairy-based products. More specifically, it is the intent of part II of this act to encourage infant formula producers to locate new facilities in Washington or expand existing facilities in Washington through an extension of a preferential business and occupation tax rate for dairy producers. It is the further intent of the legislature to provide this tax incentive in a fiscally responsible manner where the actual revenue impact of the legislation substantially conforms with the fiscal estimate provided in the legislation's fiscal note." [ 2013 2nd sp.s. c 13 § 201.]

Effective date—2013 2nd sp.s. c 13: See note following RCW 82.04.43393.

Existing rights, liabilities, or obligations—Effective dates—Contingent effective dates—2012 2nd sp.s. c 6: See notes following RCW 82.04.29005.

Findings—Construction—2011 c 2 (Initiative Measure No. 1107): See notes following RCW 82.08.0293.

Expiration date—2010 1st sp.s. c 23 §§ 503, 505, and 514: See note following RCW 82.04.4266.

Effective date—2010 1st sp.s. c 23 §§ 504, 506, and 515: See note following RCW 82.04.4266.

Findings—Intent—2010 1st sp.s. c 23: See notes following RCW 82.04.220.

Effective date—2010 1st sp.s. c 23: See note following RCW 82.04.4292.

Application—Finding—Intent—2010 c 114: See notes following RCW 82.32.534.

Effective date—2009 c 479: See note following RCW 2.56.030.

Effective date—Contingent effective date—2009 c 461: See note following RCW 82.04.280.

Effective date—2009 c 162: See note following RCW 48.03.020.

Retroactive application—2008 c 296: "Section 1 of this act applies retroactively to July 1, 2007, as well as prospectively." [ 2008 c 296 § 2.]

Severability—Effective date—2008 c 217: See notes following RCW 48.03.020.

Findings—Savings—Effective date—2008 c 81: See notes following RCW 82.08.975.

Severability—2007 c 54: See note following RCW 82.04.050.

Effective date—2007 c 48: "This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2007." [ 2007 c 48 § 9.]

Effective dates—2006 c 354: See note following RCW 82.04.4268.

Effective dates—Contingent effective date—2006 c 300: See note following RCW 82.04.261.

Effective dates—2005 c 513: See note following RCW 82.04.4266.

Finding—Intent—Effective date—2005 c 443: See notes following RCW 82.08.0255.

Finding—2003 2nd sp.s. c 1: See note following RCW 82.04.4461.

Effective dates—2003 c 339: See note following RCW 84.36.640.

Effective dates—2003 c 261: See note following RCW 84.36.635.

Purpose—Intent—2001 2nd sp.s. c 25: "The purpose of sections 2 and 3 of this act is to provide a tax rate for persons who manufacture dairy products that is commensurate to the rate imposed on certain other processors of agricultural commodities. This tax rate applies to persons who manufacture dairy products from raw materials such as fluid milk, dehydrated milk, or by-products of milk such as cream, buttermilk, whey, butter, or casein. It is not the intent of the legislature to provide this tax rate to persons who use dairy products as an ingredient or component of their manufactured product, such as milk-based soups or pizza. It is the intent that persons who manufacture products such as milk, cheese, yogurt, ice cream, whey, or whey products be subject to this rate." [ 2001 2nd sp.s. c 25 § 1.]

Part headings not law—2001 2nd sp.s. c 25: "Part headings used in this act are not any part of the law." [ 2001 2nd sp.s. c 25 § 7.]

Effective date—Savings—1998 c 312: See notes following RCW 82.04.332.

Effective date—1998 c 170: See note following RCW 82.04.331.

Severability—Effective date—1996 c 148: See notes following RCW 82.04.050.

Effective date—1996 c 115: "This act shall take effect July 1, 1996." [ 1996 c 115 § 2.]

Effective date—1995 2nd sp.s. c 12: "This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect July 1, 1995." [ 1995 2nd sp.s. c 12 § 2.]

Effective date—1995 2nd sp.s. c 6: "This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect July 1, 1995." [ 1995 2nd sp.s. c 6 § 2.]

Severability—Effective dates—Part headings, captions not law—1993 sp.s. c 25: See notes following RCW 82.04.230.

Findings—Intent—1993 c 492: See notes following RCW 43.20.050.

Short title—Savings—Reservation of legislative power—Effective dates—1993 c 492: See RCW 43.72.910 through 43.72.915.

Effective dates—1991 c 272: See RCW 81.108.901.

Severability—1985 c 471: "If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected." [ 1985 c 471 § 17.]

Effective date—1985 c 471: "This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect July 1, 1985." [ 1985 c 471 § 18.]

Construction—Severability—Effective dates—1983 2nd ex.s. c 3: See notes following RCW 82.04.255.

Effective dates—1983 1st ex.s. c 55: See note following RCW 82.08.010.

Severability—1982 2nd ex.s. c 13: "If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected." [ 1982 2nd ex.s. c 13 § 2.]

Effective date—1982 2nd ex.s. c 13: "This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect August 1, 1982." [ 1982 2nd ex.s. c 13 § 3.]

Severability—1982 c 10: See note following RCW 6.13.080.

Effective dates—1981 c 172: See note following RCW 82.04.240.

Effective date—1979 ex.s. c 196: See note following RCW 82.04.240.

Effective dates—Severability—1975 1st ex.s. c 291: See notes following RCW 82.04.050.

Effective date—1971 ex.s. c 186: See note following RCW 82.04.110.

Exemptions—Fruit & vegetable businesses. (Expires July 1, 2025.)

RCW 82.04.4266

*** CHANGE IN 2022 *** (SEE 1210-S2.SL) ***

(1) This chapter does not apply to the value of products or the gross proceeds of sales derived from:

(a) Manufacturing fruits or vegetables by canning, preserving, freezing, processing, or dehydrating fresh fruits or vegetables; or

(b) Selling at wholesale fruits or vegetables manufactured by the seller by canning, preserving, freezing, processing, or dehydrating fresh fruits or vegetables and sold to purchasers who transport in the ordinary course of business the goods out of this state. A person taking an exemption under this subsection (1)(b) must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state.

(2) For purposes of this section, "fruits" and "vegetables" do not include marijuana, useable marijuana, or marijuana-infused products.

(3) A person claiming the exemption provided in this section must file a complete annual tax performance report with the department under RCW 82.32.534.

(4) This section expires July 1, 2025.

[ 2020 c 139 § 5; 2015 3rd sp.s. c 6 § 202; 2014 c 140 § 9; 2012 2nd sp.s. c 6 § 201; 2011 c 2 § 202 (Initiative Measure No. 1107, approved November 2, 2010); 2010 1st sp.s. c 23 § 504; (2010 1st sp.s. c 23 § 503 expired June 10, 2010); 2010 c 114 § 111; 2006 c 354 § 3; 2005 c 513 § 1.]

NOTES:

Effective dates—2020 c 272; 2017 c 323; 2015 3rd sp.s. c 6: "(1) Except as provided otherwise in this part, this act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2015.

(2) Parts IV, VI, VIII, and XIX of this act are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and take effect September 1, 2015.

(3) Part X of this act takes effect October 1, 2016.

(4) Section 1105 of this act takes effect January 1, 2016.

(5) Except for section 2004 of this act, Part XX of this act takes effect January 1, 2019." [ 2020 c 272 § 5; 2017 c 323 § 301; 2015 3rd sp.s. c 6 § 2301.]

Tax preference performance statement—2015 3rd sp.s. c 6 §§ 202-205: "This section is the tax preference performance statement for the agricultural processor tax exemptions in sections 202 through 205 of this act. The 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 this tax preference as one intended to accomplish the general purposes indicated in RCW 82.32.808(2) (c) and (e).

(2) It is the legislature's specific public policy objective to create and retain jobs and continue providing tax relief to the food processing industry.

(3) To measure the effectiveness of the exemptions in sections 202 through 205 of this act in achieving the public policy objectives described in subsection (2) of this section, the joint legislative audit and review committee must evaluate the following:(a) The number of businesses that claim the exemptions in sections 202 through 205 of this act;(b) The change in total taxable income for taxpayers claiming the exemptions under sections 202 through 205 of this act;(c) The change in total employment for taxpayers claiming the exemptions under sections 202 through 205 of this act; and(d) For each calendar year, the total amount of exemptions claimed under sections 202 through 205 of this act as a percentage of total taxable income for taxpayers within taxable income categories.

(4) The information provided in the annual survey submitted by the taxpayers under *RCW 82.32.585, tax data collected by the department of revenue, and data collected by the employment security department is intended to provide the informational basis for the evaluation under subsection (3) of this section.

(5) In addition to the data sources described under subsection (4) of this section, the joint legislative audit and review committee may use any other data it deems necessary in performing the evaluation under subsection (3) of this section." [ 2015 3rd sp.s. c 6 § 201.]

*Reviser's note: RCW 82.32.585 was repealed by 2017 c 135 § 2, effective January 1, 2018.

Existing rights, liabilities, or obligations—Effective dates—Contingent effective dates—2012 2nd sp.s. c 6: See notes following RCW 82.04.29005.

Findings—Construction—2011 c 2 (Initiative Measure No. 1107): See notes following RCW 82.08.0293.

Expiration date—2010 1st sp.s. c 23 §§ 503, 505, and 514: "Sections 503, 505, and 514 of this act expire June 10, 2010." [ 2010 1st sp.s. c 23 § 1711.]

Effective date—2010 1st sp.s. c 23 §§ 504, 506, and 515: "Sections 504, 506, and 515 of this act are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and take effect June 10, 2010." [ 2010 1st sp.s. c 23 § 1712.]

Findings—Intent—2010 1st sp.s. c 23: See notes following RCW 82.04.220.

Effective date—2010 1st sp.s. c 23: See note following RCW 82.04.4292.

Application—Finding—Intent—2010 c 114: See notes following RCW 82.32.534.

Effective dates—2006 c 354: See note following RCW 82.04.4268.

Effective dates—2005 c 513: "This act takes effect July 1, 2007, except for sections 1 through 3 of this act which are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and take effect July 1, 2005, and section 5, chapter 513, Laws of 2005, which takes effect April 30, 2007." [ 2007 c 243 § 1; 2005 c 513 § 14.]

Exemptions—Dairy product businesses. (Expires July 1, 2025.)

RCW 82.04.4268

(1) In computing tax there may be deducted from the measure of tax, the value of products or the gross proceeds of sales derived from:

(a) Manufacturing dairy products; or

(b) Selling dairy products manufactured by the seller to purchasers who either transport in the ordinary course of business the goods out of this state or purchasers who use such dairy products as an ingredient or component in the manufacturing of a dairy product. A person taking an exemption under this subsection (1)(b) must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state or sold to a manufacturer for use as an ingredient or component in the manufacturing of a dairy product.

(2) "Dairy products" has the same meaning as provided in RCW 82.04.260.

(3) A person claiming the exemption provided in this section must file a complete annual tax performance report with the department under RCW 82.32.534.

(4) This section expires July 1, 2025.

[ 2020 c 139 § 6; 2015 3rd sp.s. c 6 § 203; 2013 2nd sp.s. c 13 § 204; 2012 2nd sp.s. c 6 § 202; 2010 c 114 § 112; 2006 c 354 § 1.]

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 §§ 202-205: See note following RCW 82.04.4266.

Intent—2013 2nd sp.s. c 13: See note following RCW 82.04.260.

Effective date—2013 2nd sp.s. c 13: See note following RCW 82.04.43393.

Exemptions—Seafood product businesses. (Expires July 1, 2025.)

RCW 82.04.4269

(1) This chapter does not apply to the value of products or the gross proceeds of sales derived from:

(a) Manufacturing seafood products that remain in a raw, raw frozen, or raw salted state at the completion of the manufacturing by that person; or

(b) Selling manufactured seafood products that remain in a raw, raw frozen, or raw salted state to purchasers who transport in the ordinary course of business the goods out of this state. A person taking an exemption under this subsection (1)(b) must keep and preserve records for the period required by RCW 82.32.070 establishing that the goods were transported by the purchaser in the ordinary course of business out of this state.

(2) A person claiming the exemption provided in this section must file a complete annual tax performance report with the department under RCW 82.32.534.

(3) This section expires July 1, 2025.

[ 2020 c 139 § 7; 2015 3rd sp.s. c 6 § 204; 2012 2nd sp.s. c 6 § 203; 2010 c 114 § 113; 2006 c 354 § 2.]

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 §§ 202-205: See note following RCW 82.04.4266.

Existing rights, liabilities, or obligations—Effective dates—Contingent effective dates—2012 2nd sp.s. c 6: See notes following RCW 82.04.29005.

Application—Finding—Intent—2010 c 114: See notes following RCW 82.32.534.

Effective dates—2006 c 354: See note following RCW 82.04.4268.

Annual report requirement for tax preferences.

RCW 82.32.534

*** CHANGE IN 2022 *** (SEE 5800.SL) ***

(1)(a)(i) Beginning in calendar year 2018, every person claiming a tax preference that requires an annual tax performance report under this section must file a complete annual report with the department. The report is due by May 31st of the year following any calendar year in which a person becomes eligible to claim the tax preference that requires a report under this section.

(ii) If the tax preference is a deferral of tax, the first annual tax performance report must be filed by May 31st of the calendar year following the calendar year in which the investment project is certified by the department as operationally complete, and an annual tax performance report must be filed by May 31st of each of the seven succeeding calendar years.

(iii) The department may extend the due date for timely filing of annual reports under this section as provided in RCW 82.32.590.

(b) The report must include information detailing employment and wages for employment positions in Washington for the year that the tax preference was claimed. However, persons engaged in manufacturing commercial airplanes or components of such airplanes may report employment and wage information per job at the manufacturing site for the year that the tax preference was claimed. The report must not include names of employees. The report must also detail employment by the total number of full-time, part-time, and temporary positions for the year that the tax preference was claimed. In lieu of reporting employment and wage data required under this subsection, taxpayers may instead opt to allow the employment security department to release the same employment and wage information from unemployment insurance records to the department and the joint legislative audit and review committee. This option is intended to reduce the reporting burden for taxpayers, and each taxpayer electing to use this option must affirm that election in accordance with procedures approved by the employment security department.

(c) Persons receiving the benefit of the tax preference provided by RCW 82.16.0421 or claiming any of the tax preferences provided by RCW 82.04.2909, 82.04.4481, 82.08.805, 82.12.805, or 82.12.022(5) must indicate on the annual report the quantity of product produced in this state during the time period covered by the report.

(d) If a person filing a report under this section did not file a report with the department in the previous calendar year, the report filed under this section must also include employment and wage information for the calendar year immediately preceding the calendar year for which a tax preference was claimed.

(2)(a) As part of the annual report, the department and the joint legislative audit and review committee may request additional information necessary to measure the results of, or determine eligibility for, the tax preference.

(b) The report must include the amount of the tax preference claimed for the calendar year covered by the report. For a person that claimed an exemption provided in RCW 82.08.025651 or 82.12.025651, the report must include the amount of tax exempted under those sections in the prior calendar year for each general area or category of research and development for which exempt machinery and equipment and labor and services were acquired in the prior calendar year.

(3) Other than information requested under subsection (2)(a) of this section, the information contained in an annual report filed under this section is not subject to the confidentiality provisions of RCW 82.32.330 and may be disclosed to the public upon request.

(4)(a) Except as otherwise provided by law, if a person claims a tax preference that requires an annual report under this section but fails to submit a complete report by the due date or any extension under RCW 82.32.590, the department must declare:

(i) Thirty-five percent of the amount of the tax preference claimed for the previous calendar year to be immediately due and payable;

(ii) An additional fifteen percent of the amount of the tax preference claimed for the previous calendar year to be immediately due and payable if the person has previously been assessed under this subsection (4) for failure to submit a report under this section for the same tax preference; and

(iii) If the tax preference is a deferral of tax, the amount immediately due under this subsection is twelve and one-half percent of the deferred tax. If the economic benefits of the deferral are passed to a lessee, the lessee is responsible for payment to the extent the lessee has received the economic benefit.

(b) The department may not assess interest or penalties on amounts due under this subsection.

(5) The department must use the information from this section to prepare summary descriptive statistics by category. No fewer than three taxpayers may be included in any category. The department must report these statistics to the legislature each year by December 31st.

(6) For the purposes of this section:(a) "Person" has the meaning provided in RCW 82.04.030 and also includes the state and its departments and institutions.

(b) "Tax preference" has the meaning provided in RCW 43.136.021 and includes only the tax preferences requiring a report under this section.

[ 2021 c 145 § 19; 2017 c 135 § 1; 2016 c 175 § 1; 2014 c 97 § 102; 2010 c 114 § 103.]

NOTES:

Effective date—2017 c 135: "This act takes effect January 1, 2018." [ 2017 c 135 § 48.]

Effective date—2016 c 175: "This act takes effect July 1, 2016." [ 2016 c 175 § 4.]

Application—Prospective and retroactive—2016 c 175: "(1) In addition to applying prospectively, sections 1(4) and 2(6) of this act apply retroactively for a taxpayer who has filed an appeal regarding taxes, penalties, and interest owed under RCW 82.32.534 or * 82.32.585 before January 1, 2016, and the appeal is pending before the department of revenue or the board of tax appeals as of July 1, 2016.(2) Except for taxpayers described in subsection (1) of this section, sections 1(4) and 2(6) of this act apply to amounts due and payable under sections 1(4) and 2(6) of this act on or after July 1, 2017." [ 2016 c 175 § 3.]

*Reviser's note: RCW 82.32.585 was repealed by 2017 c 135 § 2, effective January 1, 2018.

Annual surveys and reports—Recommendations to update and improve—2013 2nd sp.s. c 13: "By December 1, 2013, the department of revenue, in consultation with the joint legislative audit and review committee, must make recommendations to the appropriate fiscal committees of the legislature on ways to update and improve the annual report and annual survey. The recommendations must include suggested revisions to the report and survey that would make the data more relevant and reduce the administrative burden on the taxpayer." [ 2013 2nd sp.s. c 13 § 1801.]

Application—2010 c 114: "Those provisions of sections 101 through 103, 105 through 109, 111 through 116, 118 through 122, 124, 126 through 128, 130, 132 through 149, and 151 through 153 of this act that relate to annual surveys and annual reports apply beginning with annual surveys and annual reports due in 2011 and thereafter." [ 2010 c 114 § 203.]

Finding—Intent—2010 c 114: "(1) The legislature finds that accountability and effectiveness are important aspects of setting tax policy. In order to make policy choices regarding the best use of limited state resources, the legislature needs information on how a tax preference is used. In recent years, the legislature has enacted or extended numerous tax preferences that require the reporting of information to the department of revenue. Although there are many similarities in the requirements, and only two distinct accountability documents, there is a lack of uniformity in the information reported, penalties for failure to file, due dates, filing extensions, and filing requirements. Greater uniformity in the data reported is necessary to adequately compare tax preference programs. The legislature intends to create two sets of uniform reporting requirements that apply to the existing tax preferences and can be used in future legislation granting additional tax preferences.

(2) The legislative fiscal committees or the department of revenue are required to study many of the existing tax preferences and report to the legislature at least once. Because chapter 43.136 RCW now requires the joint legislative audit and review committee, with support from the department of revenue, to comprehensively review most tax preferences every ten years and provide a report to the legislature, a number of redundant studies by the legislative fiscal committees and the department of revenue have been eliminated. However, the department of revenue will continue to prepare summary descriptive statistics by category and report the statistics to the legislature each year." [ 2010 c 114 § 101.]

❮ Previous    Next ❯